No-sugar drinks fuel Coca-Cola profits in second quarter

Coca-Cola beat market expectations for both sales and profits during its second quarter as the company’s revamp of Diet Coke and general shift in its portfolio away from sugary fizzy drinks takes hold.

Although the beverage maker’s net revenues fell from a year earlier due to the refranchising of its company-owned bottling operations, it tweaked higher the bottom end of its underlying revenue and operating income forecasts for the full year, tipped greater currency headwinds and less cash from operations.

Coca-Cola, like many of its industry peers, is trying to rebalance its portfolio as health-conscious consumers eschew the fizzy, sugary drinks that had long been the company’s bread and butter. The company said on Wednesday that growth in its no-sugar sparkling soft drinks accelerated from the first three months of the year, driven by Coca-Cola Zero Sugar and Diet Coke, while it also expanded its Diet Coke rebranding to the UK.

For the three months ended June 29th, net revenue fell 8 per cent from a year ago to $8.93 billion (€7.6bn), which the company pinned on a 15 per cent “headwind” from the refranchising of its US bottling operations. The result was still better than the average forecast of $8.54 billion from analysts surveyed by Thomson Reuters.

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Organic sales

Organic sales climbed 5 per cent, driven by sales of concentrates. Case volume, a proxy for demand, was up 2 per cent led by original Coca-Cola and its Zero Sugar version and Fuze Tea.

Net income was $2.3 billion in the quarter, up by just over $1 billion from a year ago, or 54 cent a share. Adjusted earnings were 61 cent a share, weighed down by currency effects but edging past market forecasts by one cent.

In its full-year forecasts, Coke left unchanged its guidance for comparable earnings growth of between 8 per cent and 10 per cent from 2017’s $1.91 a share. But it said it now expected to generate organic revenue growth of at least 4 per cent and an increase of at least 9 per cent in comparable currency adjusted operating income. In April it tipped approximately 4 per cent organic revenue growth and between 8 per cent and 9 per cent growth in the operating income measure.

"We're encouraged with our performance year-to-date as we continue our evolution as a consumer-centric, total beverage company," said James Quincey, Coke's chief executive. – Copyright The Financial Times Limited 2018