Coca-Cola soda sales slide in Q4 as 2019 outlook disappoints
- Coca-Cola said net revenues declined 6% to $7.1 billion during the fourth quarter as the beverage giant was impacted by currency and the refranchising of company-owned bottling operations, according to the company's most recent earnings report. Profit during the period was $870 million.
- Sparkling soft drinks declined 1% in the quarter, despite growth in Coca-Cola Zero Sugar and strong performance in Sprite. Volume in juice, dairy and plant-based beverages declined 2% in part because of product downsizing in its North American juice portfolio. Water, enhanced water and sports drinks grew 1% as the segment was helped by premium offerings in North America. Tea and coffee sales volume rose 3%, benefiting from new product launches.
- The company outpaced analysts' expectations during the quarter, but warned of slower growth in 2019. Coca-Cola is forecasting that its earnings per share in 2019 could rise or fall by 1%. CNBC said this means it could earn less than the $2.08 per share it earned a year earlier, and below the $2.23 per share predicted by analysts.
Coca-Cola, which still derives much of its revenue from its iconic soda line, has made significant inroads overhauling the segment amid shifting consumer tastes. But this quarter was the latest sign that the pressure facing soda isn't abating. Sales volume dipped 1%, a reflection in part on the company's focus to prioritize higher margin products, such as smaller cans, at the expense of volume.
A year after overhauling its Diet Coke empire with a taller, slimmer can and four new varieties to join the original beverage, Coca-Cola recently announced two more options: Blueberry Açai and Strawberry Guava. And later this month, Coca-Cola will release its first new flavors in more than a decade — Orange Vanilla Coke and Orange Vanilla Coke Zero Sugar.
During the latest quarter, Coca-Cola also said it is facing an ongoing challenge plaguing other food and beverage companies; higher freight and rising input costs. To offset this, Coca-Cola has raised beverage prices, but that appeared to sour some consumers.
The Atlanta-based beverage company also has been active in M&A in a bid to lessen its dependence on sugar-laced drinks. It recently closed its $5.1 billion purchase of Costa Coffee, a British coffeehouse chain. More big food and beverage companies are moving into the coffee business because it is trendy for consumers and a fast-growing money maker for companies to add to their portfolios.
Coca-Cola also has added more juice, dairy and plant-based beverages as well as water, enhanced water and sports drinks, but those two segments posted either a decline or a narrow increase during the most recent quarter. This could indicate that competitive pressure is mounting as more companies enter the space.
Still, Bonnie Herzog, an analyst for Wells Fargo Securities, said in a research note that Coca-Cola's strong revenue growth suggested " that its refranchising and portfolio transformation are paying off."
"With a muted outlook and no M&A catalyst, we expect shares to underperform today," Herzog noted. "That said, we believe (Coca-Cola's long-term) outlook remains robust and, as such, we reiterate our outperform rating."
Coca-Cola's shares were down 7% to $46.23 in mid-morning trading.
For 2018, Coca-Cola posted organic growth of 5%, but that figure is forecast to ease to 4% in the current year.
The company's moves to overhaul its portfolio have drawn praise from analysts, and are indicative that Coca-Cola is not willing to sit still in the face of a changing market place. The latest quarter provided evidence that despite its best efforts, soda remains a core focus. While the Costa deal just closed last month, pressure could soon build on the company to show that these and other transactions are starting to pay off.
"Our results demonstrate progress in our transformation as a consumer-centric, total beverage company and the power of a more strategically aligned system," James Quincey, Coca-Cola's CEO, said in a statement. "Coca-Cola has established a strong foundation to capitalize on long-term growth opportunities and drive sustained shareowner value."
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