Coca-Cola’s moves to make its drinks more appetising to millennials are paying off.
The soda giant beat forecasts for profits and revenues in the first three months of the year, as a makeover of its Diet Coke brand helped drive sales even as US soda consumption stands at a 31-year low.
Diet Coke returned to quarterly sales growth in North America for the first time in eight years, after the company redesigned its no-calorie cans with neon colours and unveiled flavours such as "twisted mango" and "feisty cherry", citing demand from millennials for "adventures and new experiences".
Coca-Cola chief executive James Quincey said he was "encouraged by the initial consumer response" to the Diet Coke rebrand.
The big soda companies have been grappling for years with shrinking demand for their historic core products as consumers look to wean themselves away from sugar.
New products
Coca-Cola and PepsiCo, which sell a combined $100 billion a year in drinks and snacks, have tried to reduce their reliance on soda by launching or acquiring new products, particularly in faster-growing drinks categories such as water and tea. In recent years, Coca-Cola has bought or taken stakes in brands such as Honest Tea, the organic tea brand, Suja Life, a cold-pressed juice maker, and AdeS, a soya-based beverage brand.
However, on Tuesday Coke said that it was a strong showing in its trademark cola beverage that had powered overall volume growth of 3 per cent in the quarter, impressing analysts. Soda volumes grew 4 per cent while water and sports drinks climbed only 1 per cent.
"The remarkable improvement in volume trends is good news," said Pablo Zuanic, analyst at Susquehanna Financial.
The stock may "tread water" due to weaker pricing, however, Mr Zuanic warned. Coca-Cola cut prices in North America, Asia and Europe during the quarter. Shares were down 2 per cent in late-morning trading in New York.
Restructuring
Coke has been undergoing a broad restructuring as it moves away from bottling and distribution, which has affected its income statements in the past few years. The strategy is expected to drive higher operating margins as the company looks to become a more “asset-light” operation, but has hit sales in the short term.
The Atlanta-based company said revenues declined 16 per cent year on year to $7.6 billion as a result of the restructuring. This was better than analyst forecasts for $7.3 billion.
Stripping out structural changes, organic sales growth was 5 per cent in the quarter, ahead of forecasts of 4 per cent. Growth in North America, Coke’s home market, was 1 per cent.
Adjusted earnings grew to 47 cents a share in the first three months of the year, from 43 cents a year ago, better than Wall Street expectations for 46 cents. – Copyright The Financial Times Limited 2018
