The Coca-Cola Company : Coca-Cola Net Up 13% on Higher Case Volume
02/12/2013| 08:44am US/Eastern
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--Coca-Cola's fourth-quarter net up 13% on 3% increase in sales volume
--Weak results in Europe, China weigh on sales
--Revenue misses Wall Street consensus estimates
Coca-Cola Co. (KO) disappointed investors with weak four-quarter results challenged by ongoing macroeconomic issues in Europe and China and a "lukewarm" recovery in the U.S.
The beverage giant's fourth-quarter earnings rose 13%, but its global sales volume rose just 3%, the lowest quarterly increase of 2012. A main drag on the quarter was ongoing struggles in Europe, where volume fell 5%, as Coca-Cola tries to navigate a slowdown in consumer confidence on the continent as well some aggressive price competition on drinks.
China, another key market, also saw volume fall 4% in the quarter, in part due to the recent economic slowdown there that has crimped disposable income.
"We recognize that consumers across the globe continue to feel the effects of a still-uncertain global economy," Coca-Cola Chairman and Chief Executive Muhtar Kent said on Tuesday's earnings call.
The weaker-than-expected sales sent Coca-Cola shares down 1.9% to $37.89 in recent trading. Over the last year, Coca-Cola shares are up 11.5%, outpacing the Dow Jones Industrial Average's gain of 9.4%
Coca-Cola executives dismissed the quarter's results as being indicative of ongoing slowdown in Coca-Cola's business. While neither Europe or China are expected to improve immediately, the company expects conditions in both markets to improve as the year progresses.
"It happened, but it's not the start of a trend," Chief Financial Officer Gary Fayard said on Tuesday's earnings call, referring to the fourth-quarter volume.
In Europe, for one, Mr. Kent said that consumers there sense that the economy likely won't deteriorate much further, but that the climb out of the depths of the continents downturn will take some time.
The U.S. is clearly further along in its recovery from the downturn, but Mr. Kent said Coca-Cola's home market still has a ways to go. Coca-Cola's sales volume rose just 1% in the fourth-quarter, with its core soda business continuing to sell less products. "It's a recovery that's at best lukewarm, but it could get better," Mr. Kent said.
Coca-Cola does see commodity costs being less of a headwind this year. It projects its bill for sweeteners, juices, metals and plastic will rise $100 million, less than half of the increase in 2012. That may give the company less leeway to raise prices, something the soda industry has relied on to increase revenue as volumes remain weak, but put less pressure on profits.
Weak demand for soda in developed markets is being offset somewhat by continued growth in pockets overseas. While Coca-Cola's portfolio of bubbly drinks posted a 2% decline in North America, its flagship cola posted a 32% volume increase in India and 19% in Russia.
As sparkling drinks post meager growth overall, Coca-Cola is relying more heavily on a portfolio of still drinks, from ready-to-drink iced teas to bottled water, to increase sales. Coca-Cola's iced tea volume was up 16% in the fourth quarter, led by brands such as Gold Peak and Honest Tea, while bottled water volume rose 12%.
For the quarter, Coca-Cola reported a profit of $1.87 billion, or 41 cents a share, up from $1.66 billion, or 36 cents, a year earlier. Excluding restructuring charges and other costs, Coca-Cola's earnings rose to 45 cents from 39 cents.
Revenue increased 3.8% to $11.46 billion, or rose 5% on a comparable currency basis.
Analysts polled by Thomson Reuters had most recently forecast per-share earnings of 44 cents on revenue of $11.53 billion.
Gross margin fell to 59.6% from 60.1% due to higher costs.
--Melodie Warner contributed to this article.
Write to Paul Ziobro at paul.ziobro@dowjones.com.
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