Consumer spending in the U.S. has been rising. But growth has slowed in recent months despite a significant decline in gasoline prices and increase in the income of the people. Nonetheless, the much awaited holiday season was decent enough to make the retailers happy. Even the beverage giants, who have been struggling due to changes in drinking preferences of customers, reported growth.
The Coca-Cola Company (KO, Financial) reported a decent quarter, wherein its numbers were ahead of the Street’s estimates. Thus, its share prices surged after the announcement of the results. Let’s take a closer look.
Analyzing the results
Although the top line of the company fell slightly to $10.9 billion over last year, it was ahead of the analysts’ estimate of $10.8 billion. Revenue would have been even higher if the currency fluctuations would have been in the favor of the company. Both unfavorable currency movement and the selloff of the bottling operations in North America affected revenue by 6%.
Another primary reason for lower sales is a softer demand for soft drinks in the domestic market. Moreover, the company is highly dependent on soft drinks as it makes more than 50% of its revenue.
However, total sales in North America surged 2% during the quarter, clocking in at $5.37 billion. This was driven by higher demand during the holiday season as well as Coca-Cola’s efforts attract customers by introducing new healthy products such as juices and ready to drink teas.
The volumes also increased during the period. Global sparkling beverage volume was up 1% and that of still beverage was 2% higher. Further, higher soft drink prices helped the top line grow. Hence, the price mix was favorable as revenue per unit case arose.
Moving ahead
The earnings of the company dropped significantly to $0.17 per share, over last year’s quarter. This was mainly because of restructuring costs of the company and many other one-time charges. Excluding these, the bottom line stood at $0.44 per share, $0.02 per share higher than expectations. Moreover, the retailer is making restructuring efforts that will help it save $3 billion in costs.
The company made a lot of changes that helped it register an improved quarter. It has expanded its portfolio to low-calorie drinks such as teas and juices. This is because people have become increasingly health conscious and look for healthier beverage options now. Hence, this space has further room for growth.
It has also repackaged its products and reintroduced its juices and milk products in order to make it more attractive to the customers. Coke also plans to improve marketing of no-calorie drinks, especially that of Diet Coke.
Significant efforts made
The beverage giant has also made a number of acquisitions in order to grow its business. The buyouts include Fresh Trading in February 2013 and ZICO Beverages in November 2013. These additions have contributed to the top line.
It has also bought a stake in energy drink maker Monster Beverage (MNST, Financial). This has expanded its product portfolio. Furthermore, it started distributing FairLife, long life milk that is processed to eliminate fats and has added proteins and calcium. Thus, this milk is more expensive than the regular one.
Conclusion
Although Coca-Cola had a lot of hurdles, such as the currency headwinds and declining customer interests in soft drinks, it has made its way out. Through a number of strategic initiatives, it has been able to expand its business and attract customers by adding new products. The beverage giant’s future looks bright owing to its efforts to make it less dependent on carbonated drinks. However, it is only in the long run that Coca-Cola will be able to prove its mettle.
