CocaColas Health Kick Fails to Offset Challenges Overseas

Coca-Cola’s Health Kick Fails to Offset Challenges Overseas

Feb. 9, 2017
Pushing more wholesome beverages, water and smaller cans, especially at home in the U.S., has let the company woo consumers and generate higher profit margins. But currency fluctuations, sluggish international economies and pressure on its core soda business continue to cloud Coca-Cola’s future.

Coca-Cola Co.’s  (IW 500/26) bid to offer lower-calorie drinks and healthier options has yet to fix its daunting challenges overseas.

Pushing more wholesome beverages, water and smaller cans, especially at home in the U.S., has let the company woo consumers and generate higher profit margins. But currency fluctuations, sluggish international economies and pressure on its core soda business continue to cloud Coca-Cola’s future.

Earnings may decline as much as 4% in the coming year, hurt in part by a sweeping overhaul of its operations, Coca-Cola said on February 9. In a plan underway for years, the beverage giant is offloading large swaths of its company-owned bottling operations. Coca-Cola is on track to complete spinoffs of all its U.S. bottling in 2017.

The company, which sells products in more than 200 countries, also is dealing with especially strong headwinds in emerging markets such as Latin America. Coca-Cola is facing “persistent macroeconomic pressures in our emerging and developing markets,” CEO Muhtar Kent said.

The results underwhelmed investors, who sent the shares down as much as 3.1% to $40.72 in New York trading, the biggest intraday decline in three months. The stock fell 3.5% last year, hampered by the company’s difficult outlook.

The Atlanta-based company reported a 2% decline in sparkling-beverage volume during the fourth quarter. Its still-drink category -- a proxy for some of its more healthful options -- rose 2%, but that remains a smaller piece of the business. Earnings amounted to 37 cents a share in the period, matching analysts’ estimates.

Three-Decade Low

In North America, the picture was brighter: Smaller package sizes helped revive soda sales in the fourth quarter and stem volume declines for the year. Sparkling-beverage volume grew 1% in the final three months of 2016. The company is coming off a grim stretch for the soft-drink industry: U.S. per capita consumption hit a three-decade low in 2015, according to Beverage-Digest, a trade publication.

The company has made efforts to push other options with less sugar, aimed at consumers looking to curb their calorie intake. Coca-Cola Zero Sugar case volume grew by a percentage in the double digits in Western Europe during the fourth quarter. The company plans to expand distribution of the product in 2017 to more European markets.

Coke is also promoting Smartwater, one of its bottled-water brands, to new markets around the world.

The great shrinkdown of its containers has improved Coca-Cola’s price mix, helping it meet earnings estimates in the latest quarter. Now the company plans to expand the strategy abroad.

Smaller cans will be introduced in struggling emerging and developing markets as a more affordable option, said Chief Operating Officer James Quincey, who’s slated to become CEO on May 1.

The approach “fits nicely with our broader strategy to help consumers manage their consumption of added sugars,” he said.

By Jennifer Kaplan

About the Author

Bloomberg

Licensed content from Bloomberg, copyright 2016.

Sponsored Recommendations

Voice your opinion!

To join the conversation, and become an exclusive member of IndustryWeek, create an account today!