Coca-Cola sales surprise on worldwide increase

ALSO READ News and Notices about See interviews with Management See what other Experts & Brokerages are saying about See previous Results of

For the first time since becoming chief executive of Coca-Cola Co in 2008, Muhtar Kent looked at the sales scorecard he carries around all the time and saw no red marks.

That is because the world's number one soft drink maker reported higher fourth-quarter sales volume in all of its worldwide operating segments, something that has not happened in five or six years, Kent said.

"That to me, is a cautiously satisfying thing to see," Kent told Reuters on Wednesday after the company reported better-than-expected sales, helped by market share gains in sodas and noncarbonated drinks and a recovering economy.

Shares of Coke, a component in the Dow Jones industrial average, closed up less than 1% after rising as much as 2.9% earlier in the session. PepsiCo, which will report results on Thursday, also rose less than 1%.

"It looks like we'll own Coke for the 32nd consecutive year," said Hank Smith, chief investment officer for Haverford Investments, which has been a Coke shareholder since its founding in 1979.

Smith said it was no surprise that Coke saw strong sales in emerging markets, something that has kept it in favor with investors despite an economic downturn.

"But they had good volume growth in the developed world as well, and that's a nice added kicker," Smith said. "We're very encouraged to see these results in light of the challenges on the commodity inflation front."

Since Coke bought its North American bottling operations in October, costs for commodities such as corn, juice, plastic and metal have a bigger impact on its profit margins.

The company said it planned to raise prices on beverages in the United States this year as it faces USD 300 million to USD 400 million in cost increases from commodities. Kent declined to give details except to say the increases would vary by market and keep Coke competitive with rivals like PepsiCo Inc and Dr Pepper Snapple Group Inc.

Coke's comments diverged from those of its second-largest bottler, Greece-based Coca-Cola Hellenic (CCH), which said earlier on Wednesday that tough market conditions would prevent it from being able to raise prices enough to keep up with soaring ingredient costs.

Bottler benefit

Both Coke and PepsiCo acquired their North American bottlers last year as a way to improve performance by cutting costs, speeding innovation and giving themselves more control over distribution.

Coke's fourth-quarter net income rose to USD 5.77 billion, or USD 2.46 per share, from USD 1.54 billion, or 66 cents per share, a year earlier.

Excluding items, earnings of 72 cents per share met the analysts' average estimate, according to Thomson Reuters I/B/E/S.

Net revenue jumped 40% to USD 10.5 billion, topping the analysts' forecast of USD 10 billion. The bottler acquisition accounted for the bulk of the gain.

Price increases, and selling a larger proportion of higher-priced drinks, added two  percentage points of growth, as sales in convenience stores -- where drinks are refrigerated and usually cost more -- started to recover after getting hammered in the recession.

Kent said in the interview that he expects that recovery to continue throughout 2011.

Gains in all areas

Worldwide sales volume rose 6% in the quarter. Excluding the distribution of some Dr Pepper brands taken over with the bottling purchase, volume was up 5%.

Including the benefit of those brands, Coke's volume rose 8% in North America, 5% in Latin America, 2% in Europe, 14% in the Eurasia and Africa segment, and 1% in the Pacific region.

However, one dark spot was China, where volume fell 3%, due in part to a tough comparison with a year-earlier period that saw a 29% increase. Coke also said it was not uncommon to see swings in quarterly sales trends in China, due to the change in timing of the lunar New Year.

Excluding the Dr Pepper brands, organic volume rose 3% in North America, an acceleration from 2% gains in the third and second quarters.

Excluding the new brands, volume of carbonated drinks rose 3% worldwide. The flagship Coca-Cola brand saw volume rise 4%, driven by gains of 37% in Russia, 20% in Turkey and 10% in India.

Volume for beverages such as Powerade sports drink, Minute Maid juice and vitaminwater rose 9%, with gains of 7% in North America and 11% internationally.

Coke shares closed up 0.4% at USD 63.15 on the New York Stock Exchange.