Dive Brief:
- Coca-Cola reported a 4% drop in net operating revenue to $10.28 billion, the company's fourth straight quarter of sales declines. Currency headwinds dragged down revenue, in addition to weakening demand for carbonated drinks in Europe.
- Carbonated beverage sales were flat worldwide, while non-carbonated beverages rose 7%. Global beverage volume saw a 2% jump for the quarter.
- Net income attributable to company shareholders dipped 4.5% to $0.34 per share, but profit excluding items came in at $0.45 per share, which beat analysts' estimates.
Dive Insight:
If this quarter's results are signs of what's to come, Coca-Cola may be in for a reconsideration of its chief growth potential. The company is holding onto a revival of its soda business, and the previous quarter's 2% growth in global soda volumes was promising.
But global soda volume sales were flat this quarter, and overall, U.S. volume sales for soda fell 1.5% last year, including a 2.6% volume decline for the Coke brand, according to a recent report. Mini cans and bottles, which are more profitable and may appeal to health-conscious consumers, have helped drive growth, but it may not be enough.
On the other hand, Coca-Cola's still beverages portfolio is thriving. This quarter's 7% jump in sales improved upon the prior quarter's 6% growth. Bottled water in particular is a promising category for soda producers like Coca-Cola and PepsiCo, as U.S. bottled water consumption increased 7.6% last year. Bottled water is now poised to overtake soda as the No. 1 U.S. beverage category.
This category and others within still beverages, such as RTD tea and juices, are critical for Coca-Cola because, unlike PepsiCo, it doesn't have a strong food and snacks segment to fall back on if soda sales continue to go south. Earlier this week, PepsiCo also reported dips in overall revenue and profit in its most recent quarter, but Frito-Lay North America posted 3% revenue growth for that time period as the snacking trend continues to take hold.
Coca-Cola remains unfazed and has continued making moves to solidify its soda portfolio. That included a massive one brand overhaul for its trademark products announced earlier this year. Announced this week, the next step in that transformation is a massive global packaging overhaul for these products. Trademark Coke products will now all bear the signature Red Disc while still retaining their individual brand colors (black for Coke Zero, green for Coca-Cola Life, etc.).
The company is also pushing forward with an acceleration of its restructuring program to focus primarily on producing concentrate, which is more profitable. The changes include shedding manufacturing and distribution operations, including all U.S. bottlers. This will drastically impact company finances, including a decrease in revenue from $44.3 billion in 2015 to $28.5 billion but also an increase in operating margin from 23% to 34%.