Coca-Cola income surges amid strong demand for soda
- Coca-Cola's net revenues during the third quarter declined 9% to $8.2 billion, following the refranchising of company-owned bottling operations. Despite the drop, revenues topped analyst expectations of $8.17 billion. Revenue in North America rose to $3.127 billion from $2.781 billion in the third quarter of 2017. Net income increased to $1.88 billion from $1.45 billion in the same period a year earlier.
- The beverage giant posted organic growth of 6% as it benefited from price increases and strong sales in soda, including Coca-Cola Zero Sugar, Fuze Tea and Smartwater. Sparkling soft drinks overall rose 2%, driven by increased consumption of its trademark Coca-Cola along with strong growth in the low- and no-calorie offerings like Sprite and Fanta. Coca-Cola also benefited from double-digit growth in sales volume of its diet soda, Coca-Cola Zero Sugar. Product volume during the period rose 2%.
- Water, enhanced water and sports drinks grew 5%, primarily due to strong growth of water in single-serve packaging in China and Mexico along with the premium offerings in North America. Tea and coffee declined 2%, as an increase in Fuze Tea and Gold Peak demand was offset by the company's local tea brand in Turkey.
Coca-Cola has focused much of its efforts in recent years on bulking-up its presence in better-for-you drinks like tea, water and coffee without losing focus on its still popular core soda business. The third quarter provided the latest evidence that its bid to evolve into a total beverage company is paying off.
Coca-Cola posted strong results in Diet Coke, Coke Zero Sugar and sparkling water, and in teas like Fuze and Gold Peak. Soda sales increased 2%. The Atlanta company continues to post strong results by overhauling brands that have fallen out of favor, like Diet Coke. The company relaunched the brand in January with a taller, slimmer can and four new flavors, and consumer interest in the new product suite appears to be holding strong.
"Overall, KO reported another strong quarter, with robust organic sales growth of +6%," Bonnie Herzog, an analyst for Wells Fargo Securities, said in a note to clients. "We are impressed with KO’s ability to deliver a strong and balanced topline, suggesting that its refranchising and portfolio transformation are paying off."
While many consumers are moving away from sugar-laden drinks, there continues to be a desire to indulge. Coca-Cola's broad portfolio has placed it in a position to benefit, as reflected by its third-quarter results. The stock edged up $0.25 to $46.71 in early-morning trading.
"We continue to be encouraged by our performance year-to-date as we accelerate our evolution as an even more consumer-centric, total beverage company," James Quincey, Coca-Cola's CEO, said in a statement. "The recent leadership appointments are intended to help accelerate the transformation of our company."
The company has been active in recent months to position it for future growth, both within its product mix and in the executive ranks. Quincey, who took over the top post last year, promoted a Coca-Cola veteran to the COO post earlier this month and named a new CFO to replace the company's current one who is retiring.
On the product side, it announced in August, it would purchase Costa Coffee from U.K. drinks and hotels group Whitbread for $5.1 billion to expand into the fast-growing coffee space. Two weeks earlier, Coca-Cola acquired a minority stake in BodyArmor for an undisclosed amount with an opportunity to fully acquire the sports drink brand in the future.
"For Coca-Cola, should you expect to see this many deal announcements in one quarter again? Or will our strategy change?" Quincey asked in a post on Coca-Cola's website talking about M&A. "Probably not. You should expect that bolt-on M&A will continue to be an important tool — although far from the only one — for Coca-Cola to continue to accelerate its total beverage company strategy."
However, Quincey confirmed in Tuesday morning's earnings call that there are places the soda giant is not going in its quest to become a total beverage company. The company has no plans to go into the cannabis sector at this time, he told investors. Last month, rumors that Coca-Cola was in talks with Aurora Cannabis set stocks jumping.
Soda still makes up about 70% of Coca-Cola's sales, a figure the company no doubt is aware of as it launches new flavors and refreshes core brands like Diet Coke. But it is going to great lengths to keep itself relevant globally well into the future by adding to its diverse portfolio — a practice the company will no doubt continue to keep at the forefront of its business strategy going forward.
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