Los Angeles — Coca-Cola is getting results from its moves to slim down operations and revamp products for healthy-minded consumers.
The company posted sales that beat analysts’ estimates in the first quarter, helped by refreshed versions of its core diet brands and a growing portfolio of products that push beyond soda into new categories.
Atlanta-based Coca-Cola has, for years, been selling off the bottlers it owned to refocus on becoming a marketing and formulation company. After a lengthy transition period, the strategy is finally bearing fruit, with the company saying it’s on-track to deliver full-year targets.
The growth of both new and core brands affirms the company’s long-term strategy. Slow results previously failed to excite investors, putting Coke’s stock in a holding pattern. That may now change. The shares gained as much as 1.6% as of 7.42am in early trading in New York. The stock was down 4.1% this year by Monday’s close.
CEO James Quincey has pushed Coke to grow beyond its namesake brand to become a "total beverage company". The strategy continues efforts that began under predecessor Muhtar Kent. This has included investing in start-up beverage makers in the search for Coke’s next $1bn brand.
This is part of the company’s key goal of reducing its dependence on soda: per capita soft-drink consumption in the US fell to a 31-year low in 2016, the latest year with data available, according to trade publication Beverage Digest.
But the company hasn’t remained idle with its core brands. It recently relaunched its Coke Zero and Diet Coke brands in a bid to revive their sales. Diet Coke has faced declining popularity as consumers eschew artificial sweeteners and opt for other kinds of beverages. Coca-Cola is now selling Diet Coke in new flavours and in taller, thinner cans.
In the quarter, its Coca-Cola Zero Sugar brand saw double-digit growth, the company said. Diet Coke returned to positive volume growth in North America as a result of the rebranding.
Profit was 47c a share, excluding some items, surpassing analysts’ average estimate of 46c. Revenue was $7.6bn, compared with an estimate of $7.35bn.
Refreshing water
Coca-Cola’s results were also boosted in the quarter by its portfolio of sparkling waters. The carbonated versions of its Dasani and Smartwater brands saw double-digit growth. And the recent acquisition of Topo Chico’s US distribution rights paid off: the mineral water brand’s US retail value was up more than 30% in the quarter, Coke has said.
In recent years, the company has been using its investment arm to acquire or take stakes in promising start-ups. These include Honest Tea, Fairlife dairy and Suja Life, which makes high-pressure processed juices, kombucha and drinking vinegars. Coca-Cola is also expanding its venture model beyond the US and has already started looking for investment candidates in Central and Eastern Europe, the company has said previously.
Coke has largely stuck with a strategy of smaller, bolt-on acquisitions, but pressure may be rising for larger deals. Keurig Green Mountain — formerly a Coca-Cola investment — recently agreed to take control of Dr Pepper Snapple Group, making it the third-largest non-alcoholic beverage company in the US.
Coca-Cola and chief rival PepsiCo have also increased spending on e-commerce promotion. For Coke, that means improving online product placement, integrating with voice products such as Amazon’s Echo and adding impulse-buy opportunities at click-and-collect pick-up lockers.
Bloomberg
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