BUSINESS

Coca-Cola's profit up even as sales disappoint in third quarter

10/16/2012 08:24 EDT | Updated 12/16/2012 05:12 EST
NEW YORK, N.Y. - The Coca-Cola Co. has a formula for growth in the volatile economic climate: sell more of its drinks in emerging markets and evolve its stable of products at home, where concerns over sugary drinks are intensifying.

The world's biggest beverage maker, which makes Sprite, Fanta, Minute Maid and Dasani water, said the strategy helped lift its global sales volume by 4 per cent in the third quarter. But the Atlanta-based company was hit by unfavourable currency exchange rates, as well as pressures to keep prices in check in economically hard-hit regions in Asia and Europe.

Total revenue rose just 1 per cent as a result, which was shy of Wall Street expectations.

In its flagship North American market, Coca-Cola has been relying on a shifting mix of products amid changing consumer tastes and criticism over the role sugary drinks play in fueling obesity rates.

The 2 per cent bump in sales volume for the region was driven by what Coca-Cola refers to as its "still beverages," such as Powerade sports drinks and Fuze teas. Coke Zero, which was introduced in 2005 as a better-tasting alternative to traditional diet sodas, saw growth of 9 per cent. But overall sales volume of its sodas in the region was flat from a year ago.

In an interview with the Associated Press, CEO Muhtar Kent said the U.S. market remains a growth area for the company. He noted that product innovation — such as mini-cans tailored to those watching their portions — has helped the company stay relevant and build market share.

Kent also cited the company's tests of natural, zero-calorie sweeteners for Fanta and Sprite as examples of ongoing renewal.

Taken together, Kent said that the results for the quarter show Coca-Cola has been able to "crack the calculus for growth" even in the tough economy.

Part of that strategy has been focusing on emerging markets such as India, where the ranks of middle-class consumers are growing rapidly. Coca-Cola estimates that per capita consumption of its drinks in the country is 12 servings a year, compared with 403 servings a year in the United States.

During the quarter, sales volume in India rose 15 per cent with the Coca-Cola brand up 34 per cent.

In China, volume rose just 2 per cent after growing 11 per cent in the year-ago period. Kent said the ongoing economic slowdown in the country is expected to impact the industry over the next six months, but that the market will still serve as a long-term driver of growth.

In Europe, the company said volume rose 1 per cent for the period amid the challenging economy and bad weather. Revenue declined 8 per cent because of unfavourable currency exchange rates and a less profitable mix of products.

Companies that do a lot of their business overseas are hurt when the dollar is strong because sales in other countries' currencies translate into fewer dollars back home.

Coca-Cola said it earned $2.31 billion, or 50 cents per share, for the period. That compares with $2.22 billion, or 48 cents per share, in the year-ago quarter. Not including one-time items, the company says it earned 51 cents per share, in line with analyst expectations.

Revenue rose 1 per cent to $12.34 billion, but fell shy of Wall Street expectations of $12.4 billion. Not including the impact of currency exchange rates, revenue rose 6 per cent.

For the year, the company said it expects costs for ingredients to ease.

Shares of Coca-Cola were down 23 cents to close at $37.90 Tuesday.