KO Coca Cola Company

Profit and revenue fall, but beverage maker plays up strategy shift on packaging, pricing

By Jennifer Maloney and Anne Steele 

Coca-Cola Co.'s profit fell by more than half in the final quarter of the year, hurt by weakness in developing markets, but the company pointed to signs in North America and elsewhere that its shift to lower-calorie beverages and smaller, higher-priced packages is working.

Coke has been divesting from its bottling operations to focus on its more profitable concentrate business, a process it expects to accelerate in 2017 to meet a self-imposed December deadline. That contributed to the 56% decline in fourth-quarter net income, to $550 million, compared with $1.24 billion a year earlier. The company expects adjusted earnings per share to decline 1% to 4% in 2017.

In the U.S., Coke is shifting from a volume-based model to one in which the company shares profit with its bottlers, selling smaller cans and bottles at higher prices. Smaller packages in the U.S. grew almost 10% in the quarter, said Chief Operating Officer James Quincey, who will become CEO of the company in May.

North America offered a brighter picture of Coke's operations in general: Higher pricing and smaller packages drove revenue growth of 8%, even as volume grew just 1%. Global volumes fell 1% in the quarter, dragged down by declines in Latin America.

Coke is reformulating its beverages and offering more zero-calorie options as governments in the U.S. and elsewhere weigh special taxes on sugary drinks to fight rising obesity and diabetes rates.

Coca-Cola Zero Sugar, a new version launched last summer in the U.K., saw double-digit volume growth in Western Europe, boosted by expansion into France, Belgium, Netherlands and Ireland. The soda tastes closer to original Coke, and its name is intended to better communicate to consumers that it contains no sugar.

The company continued the global expansion of its premium smartwater brand, which saw double-digit volume growth in North America in 2016. Rival PepsiCo Inc. last month launched a competing product called LIFEWTR.

Coke's revenue has declined in each of the past four years. Despite a diversification push into juices, bottled waters and other beverages, soda still represents about 70% of company sales.

Mr. Quincey has said that he would like to go faster in diversifying Coke's beverage portfolio. In a conference call with analysts Thursday, he noted that the company has done a few bolt-on acquisitions each year and "hopefully we will do a few in 2017."

On a call later in the day with reporters, Coke's current CEO, Muhtar Kent, said that the border-adjustment tax proposed by congressional Republicans wouldn't hurt the company.

"We produce locally...we sell locally and we pay taxes locally," he said. "So from our perspective, obviously, it's not going to make a difference to our business."

But Mr. Kent expressed concern about President Donald Trump's public statements. "This kind of rhetoric is also somewhat worrying because it will have a negative impact on global trade," Mr. Kent said.

Coke's soda volumes world-wide fell 2% in the quarter, while noncarbonated drinks, which include tea, coffee and juice, grew 2%.

Revenue slipped 5.9% to $9.41 billion, but stayed above analysts' prediction for $9.13 billion. The company said foreign exchange shaved 2% off its revenue in the quarter.

PepsiCo is scheduled to report its results next week.

Write to Jennifer Maloney at jennifer.maloney@wsj.com and Anne Steele at Anne.Steele@wsj.com

(END) Dow Jones Newswires

February 10, 2017 02:48 ET (07:48 GMT)

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