The world’s largest soft-drink maker saw its shares reach a 52-week high of $74.48 as news of its 8 percent increase in earnings for the first quarter-ended March 30 began to spread through the markets. Coca-Cola (NYSE:KO) announced that earnings climbed to $2.05 billion or 89 cents per share, up from $1.9 billion or 82 cents per share from just one year ago. The company that also makes Minute Maid juices, Vitaminwater, Powerade energy drinks and Dasani bottled water reported that revenues grew by 6 percent to $11.1 billion, an increase from $10.5 billion for the same period one year ago. A consensus of analysts had expected revenue of $10.8 billion for the beverage giant. Bloomberg reported that Coca-Cola global revenue increased by 5 percent with all geographic operating units posting revenue increases for the first quarter. The North American unit accounted for just 44 percent of all revenue with international units representing 56 percent of all company revenue.
Pricing Power
The company took advantage of its ability to raise prices in the U.S. and in many international markets. Prices increased by 3 percent for the quarter versus 1.5 percent for all of 2011. Coca-Cola has also been experimenting with offering consumers and retailers different size beverages. As recently as 2008 they only offered 20-ounce bottles in addition to 12-ounce cans and 2-liter bottles. Now customers may find 7.5-ounce cans, 14-ounce, 12-ounce and 12.5-ounce bottles of their favorite refreshment. Global growth included gains in India of 20 percent, China improved 9 percent, and Brazil rose 4 percent. Demand for bottled water increased 15 percent and energy drinks continued their spectacular rise by 25 percent. The brand’s Coca-Cola beverage only gained 4 percent. One area of concern continues to be foreign currency exchange as it had a 2 percent negative impact on earnings and may further depress net income in coming quarters.
2020 Vision
The company is in the third year of its 2020 Vision program to realize broad-based improvement in the 200 countries that the company serves along with the many brands that Coca-Cola is responsible for bringing to consumers. The company reported that it is well on its way to recognize $500 to $650 million in annualized-savings by the end of 2015. This is despite the long, hard effort to manage rising commodity costs that have squeezed margins to 61 percent from 62.5 percent from one year ago. Costs of goods sold rose by 10 percent for the first quarter as ingredients continued their upward move. This hasn’t stopped rival soft-drink maker PepisCo (NYSE: PEP) from making inroads on Coke’s dominant position in the marketplace. Company chief executive officer Muhtar Kent remarked that despite the challenges of the U.S. economy recovery that “…it’s still a better place than Europe.” He added that “We are highly focused on creating value for consumers, customers, communities and investors.”
A Sweet Spot
The soft-drink market has been decreasing in the U.S. for seven years now, but Coca-Cola has been able to offset that loss by selling more from the bottled-water and energy drinks segments. Coupled with the offer of smaller sizes to the ever-budget conscious consumer and the company looks to have avoided some of the pitfalls that its competitors have found themselves struggling to manage.
International sales continue to climb and support their many brands as Coke marches toward the London Summer Olympics and one of its splashiest advertising and marketing efforts in recent memory. The world’s attention will be focused on the Olympics later this summer and Coca-Cola will be keeping an eye on how many of its brands are attracting consumers and wooing drinkers from other beverage companies.
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