Coverage: Coke earnings drop, but investors happy

Coca-Cola, the most ubiquitous brand on the planet, reported a 55 percent drop in earnings. But investors sent the stock up since the drop was better than expected. It’s a strange world.

Bruce Horovitz led his story for USA Today with the stock’s rise for the day:

The dent in the Coke can appears to be shrinking.

Coca-Cola shares closed up 2.84% or $1.17 at $42.20 on Tuesday after the company’s fourth-quarter profit beat analysts’ estimates due, in part, to cost cutting.

Excluding some items, profit was 44 cents a share in the period, Atlanta-based Coca-Cola said. Analysts had estimated 42 cents on average. Global volume grew 1% last quarter.

Coke reported fourth-quarter net income of $770 million. Revenue was $10.87 billion, which exceeded the $10.77 billion analysts had forecast.

The positive news comes as the soft drink industry faces a world of challenges. Health-conscious consumers are consuming fewer carbonated soft drinks both in the USA and abroad. Coca-Cola has responded on two fronts — trying to slash $3 billion in annual costs even as it brings to market slightly pricier beverages.

But writing for The New York Times, Stephanie Strom pointed out that Coke CEO Muhtar Kent is diversifying as sales drop:

Sales of carbonated soft drinks, both with sugar and low calorie, were down in 2014, extending a decade-long string of declines, according to Beverage Digest.

Alexander M. Douglas Jr., known as Sandy, the senior vice president and global chief customer officer of the company, also told reporters that Coke was working to improve its marketing of no-calorie drinks, which some consumers have shied away from because of concerns over the sweetener aspartame.

He said the company was trying to reassure consumers in ZIP codes where Diet Coke is popular, and working with scientific authorities to underscore that government regulators have found no problems with the ingredients.

And over the last year, Coke has worked to diversify its beverage portfolio. It became the largest shareholder in Keurig Green Mountain, a leader in single-serve coffee devices and coffee pods. And it paid more than $2 billion for a stake in the energy drink maker Monster.

The Forbes story by Maggie McGrath said the year would be one of transitions for the beverage giant:

In a statement Tuesday morning, Coke chairman and CEO Muhtar Kent referenced the growth plan he announced in October, saying that the company is making “solid progress” and remains “resolutely focused on accelerating growth.” However, he added, “we continue to see 2015 as a transition year as the benefits from the announced initiatives will take time to materialize amidst an uncertain and volatile macroeconomic environment. We remain confident that we have the right strategies in place, and our associates and bottling partners are embracing these initiatives and are enthusiastic about the opportunity ahead.”

Looking ahead to 2015, Coke is projecting “slight positive” revenue growth for its 2015 sales and mid-single-digit growth in its 2015 currency-neutral earnings per share. The beverage maker said that it expects to continue to see a negative impact from foreign exchange rates, noting that “based on current spot rates, our existing hedge positions, and the cycling of our prior year rates, we estimate that currency will be an approximate 5 point headwind on net revenues and a 7 to 8 point headwind on profit before tax for the full year.” For the first quarter of 2015, Coke is expecting a currency-related 6-point headwind on revenue and an 8-point headwind on profit before tax.

The Wall Street Journal story by Mike Esterl highlighted the issues the company is having in overseas markets, much like other consumer companies:

Coke is one of several consumer-products companies to be hit by slowing growth and foreign-exchange losses in overseas markets. It said fourth-quarter volumes slipped 1% in Europe and in Mexico, which consumes more Coke products per capita than any other country. Volumes rose just 1% in Asia, including declines of 1% in Japan and 3% in China.

“In China we are seeing probably the weakest food-and-beverage market in 10 years,’’ Ahmet Bozer, president of Coca-Cola International, told reporters Tuesday.

Foreign-exchange headwinds had a negative impact of seven percentage points on operating income in the fourth quarter as the dollar strengthened against other currencies. Coke reports results in dollars but generates most of its profit overseas.

The company also booked $1.4 billion in special charges in the fourth quarter. About $1.2 billion of that was split evenly among foreign-exchange adjustments in Venezuela, North American bottling refranchising charges and the $3 billion productivity program, Chief Financial Officer Kathy Waller said in a telephone interview.

One time or not, it’s obvious that consumers across the globe are moving away from carbonated sodas. Coke has many alternative products, but at some point the company is cannibalizing its namesake product. While foreign exchange was a drag, it isn’t likely to be a long-term issue. But changing consumer tastes could be a bigger factor, particularly if they move away from no-calorie drinks as well.