Coca-Cola’s 2nd-qtr net income climbs 16 percent as it sells more drinks

Wednesday, July 21, 2010

Coca-Cola 2Q net income up 16 pct, volume rises

NEW YORK — Coca-Cola Co. sold more soft drinks and juices in North America for the first time in four years during the second quarter as soft drink sales stopped years of decline. Shoppers snapped up smaller packages and new bottles, wooed by discounts, but analysts said the market will likely remain stagnant and the company will keep pushing sales overseas.

The soft drink industry’s sales have been declining for years as people focus on health and choose juices and teas instead. That has weighed on North American performance of Atlanta-based Coca-Cola, the world’s largest soft drink maker.

But in the three-month period ended July 2, soft drinks in the U.S. were flat and the Coca-Cola brand grew 1 percent on the success of new 90-calorie cans and contour-shaped 2-liter bottles. That was the first increase for the brand since 2005.

Overall North American sales volume rose 2 percent in the quarter, lapping last year’s 1 percent decline. Sales volume of juices and teas rose 7 percent, led by brands such as Simply juices. The last time the North American market’s sales volume increased was the second quarter of 2006, on an even basis that excludes acquisitions.

“It’s a small victory, just having things be stable on that front right now,” said Jack Russo, an analyst with Edward Jones.

Coca-Cola’s gain’s were similar to an improvement posted by rival PepsiCo Inc. on Tuesday. Its North American beverage volume fell 1 percent in the second quarter, when excluding a distribution agreement. But that’s an improvement from a 6 percent drop the same quarter last year.

Coca-Cola CEO Muhtar Kent said shoppers are buying the company’s new, smaller packages to keep their portions under control. The new bottle shapes of 2-liters have helped the Coca-Cola brand go into 4 million new households this year.

“What we are seeing today is not an aberration,” he told investors on a conference call. “We firmly believe that North America will be a growth market of great opportunity for the next 10 years and beyond.”

The company earned $2.37 billion, or $1.02 per share, in the quarter, up from $2.04 billion, or 88 cents, last year.

Excluding a charge for restructuring, Coca-Cola earned $1.06 per share.

Analysts expected earnings of $1.03 per share on revenue of $8.7 billion, according to Thomson Reuters.

Revenue rose 5 percent to $8.67 billion.

The company left its 2010 guidance unchanged Wednesday but said it remains cautious about meeting its targets. Shares rose 84 cents to $54.08.

Shoppers in the quarter also took advantage of steep price discounting during the Memorial Day holiday at retailers such as Walmart, which are fighting for customers as they shop different stores for the biggest bargains.

The North American market is among Coca-Cola’s most profitable, although it accounts for only one-fourth of the company’s revenue. The rest comes from abroad, with growing importance from emerging markets like China and India. The company and PepsiCo are concentrating on adding sales in emerging markets, as people there begin to earn more money.

Developed markets such as the U.S. and Europe have been weaker because shoppers are still watching their spending because of fragile economies. Worldwide, the amount of drinks sold increased 5 percent. Juices and other drinks posted a 10 percent gain, while soft drinks rose 3 percent.

Kent later told reporters that “there will be bumps along the way” in North America as people still worry about jobs, their investments and real estate. But he pledged the company will keep focusing on the market.

Quarterly sales volume for the maker of Sprite and Coke rose in every part of the world except Europe, where volume dropped 1 percent because of continued weakness in the economy. Eurasia and Africa grew the most, 10 percent.

The Coca-Cola brand’s sales volume rose 5 percent on gains from the company’s sponsorship of the World Cup and other marketing efforts.

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