Coca-Cola cans move along the production line of Sendai Coca-Cola Products Co.’s Zao plant in Zao town, Miyagi prefecture, Japan. (Bloomberg)
Firm says expansion overseas, higher prices drove profit jump in Q1
NEW YORK (AP) ― The Coca-Cola Co. is continuing to expand its reach worldwide and turning to a variety of smaller drink sizes to boost profits and keep rising commodity costs in check.
The world’s biggest soda maker on Tuesday reported better-than-expected profit for its first quarter as it sold more of its drinks around the globe.
Although the volume growth came from all regions, Coke said increases were far greater in emerging markets. In the region encompassing Russia, India, the Middle East and Africa, for example, volume grew 9 percent, compared with a 2 percent increase in North America.
The Atlanta-based company, which has more than 500 brands including Fanta, Sprite and Minute Maid, also had strong growth beyond its sodas as consumers have become more concerned about consuming too many empty calories. Global volume for bottled water grew 15 percent in the quarter, while volume for energy drinks rose 25 percent. That surpassed the volume gains in the company’s namesake Coca-Cola soda, which increased 4 percent.
Even the slight bump in volume in North America was driven largely by the company’s Powerade sports drinks, Dasani bottled water and zero-calorie vitaminwater.
Despite the competition and market saturation at home, CEO Muhtar Kent said: “We believe North America is a growth market for our business.”
Total revenue was $11.14 billion for the three months ended March 30, up 6 percent from $10.52 billion a year ago. Analysts expected revenue of $10.82 billion for the latest quarter.
Coke has managed to offset rising commodity costs in recent years by offering drinks in smaller packages that bring bigger profits. Just four years ago, for example, the company offered only one size for on-the-go occasions in the U.S. ― a 20-ounce bottle.
Since then, Coke has rolled out drinks in 14-ounce, 12-ounce and 12.5-ounce bottles, as well as a 7.5-ounce “mini-can.”
“Moms buy the mini-cans. They love if for their kids,” Kent said.
In addition to improving margins, Kent said those smaller sizes are desired by consumers concerned about reducing their sugar intake.
Although Coco-Cola does not break out price increases, the company said such pricing models helped drive up revenue by 3 percent.
For the quarter, Coke said it earned $2.05 billion, or 89 cents per share, which was a penny per share more than what analysts polled by FactSet expected. In the year-ago period, it had net income of $1.9 billion, or 82 cents per share.
The company also said that the cost-cutting program it began in the quarter is on track. When completed, the measures are expected to save up to $650 million annually by 2015.
Coke is looking to trim costs wherever possible as another way to offset rising prices for ingredients, which continue to eat into profits for food and drink makers industry-wide. Coke said its cost of goods rose 10 percent in the quarter.
Kent also noted that Coke’s global marketing campaign for the summer Olympics in London is set to strengthen its brands by “tapping into emotional passion points like sports and music.”
Shares of Coca-Cola closed up $1.51, or 2 percent, at $73.95.