Coke Beats Expectations in Quarter Helped by Cost-Cutting and Commodity Prices
10 Feb 2016 --- Coca-Cola beat analyst expectation in its fourth quarter results, helped by its performance in the US, favorable commodity prices and cost-cutting.
The world’s largest soft drinks company reported a net profit of $1.24 bn in the last three months of the year, up over 60 per cent on the previous year.
But operating revenues were down 8 per cent to $10bn in the period, mirroring a drop in the previous quarter, as its performance was hit by the strength of the dollar.
There was also a drop in sales in China in the period, which is a key market for Coke.
Coke is pursuing a strategy of cutting costs through selling assets, such as bottling operations and axing jobs as it looks to hit a target of $3 bn cost savings by 2019.
Its performance in the quarter was also aided by both lower corn and sugar prices, which are two key ingredients in making soft drinks.
In the quarter, volume sales of Coca-Cola were up one per cent; Sprite was up 3 per cent and Coca-Cola Zero was up 7 per cent, which partially offset a 5 per cent decline in volume sales of Diet Coke.
Across its portfolio of still drinks, the strong performer was packaged water, up 8 per cent and ready-to-drink tea, up 6 per cent, while juice and juice drinks were up 5 per cent.
In Europe, organic revenues were down 2 per cent, which Coke primarily attributed to a quirk in the reporting calendar meaning there were fewer days to sell its products compared to 2014.
Organic revenues were up 7 per cent in Latin America, driven by a strong price mix, the company said.
In the US, organic revenues were down 2 per cent, though the company pointed out that it had benefited from its expanded distribution of energy drink Monster.
Coca-Cola also highlighted that it is to refranchise its North American bottling operations three years earlier than expected by the end of 2017.
Muhtar Kent, chairman and Chief executive Officer of The Coca-Cola Company said, "In late 2014, we laid out a clear five-point plan to reinvigorate growth and increase profitability. In 2015, a transition year, we delivered on this plan despite an increasingly challenging global macroeconomic environment.
“Our fourth quarter performance was a testament to the action we took as the Company continued to deliver solid pricing and unit case volume growth, culminating in 4% organic revenue growth for the full year. Importantly, this topline growth was led by our flagship market of North America, which delivered its strongest annual performance in three years.
"Today, building on our top-line momentum and the success of refranchising efforts to date in North America, we have announced that we are accelerating the pace and scale of our system transformation with plans to refranchise 100% of Company-owned North American bottling territories by the end of 2017, including all of the cold-fill production facilities.
“We are also announcing that we have entered into a non-binding letter of intent to refranchise our bottling operations in China to our existing partners China Foods Limited, part of COFCO Limited, and Swire Beverage Holdings Limited, building on other recent global refranchising initiatives in Europe and Africa.
“We are also announcing that we have entered into a non-binding letter of intent to refranchise our bottling operations in China to our existing partners China Foods Limited, part of COFCO Limited, and Swire Beverage Holdings Limited, building on other recent global refranchising initiatives in Europe and Africa.
"This acceleration of our global refranchising marks a step change in our efforts to refocus The Coca-Cola Company on its core business of building strong, valuable brands and leading a system of strong bottling partners.
“When this transformation is complete, we will look very different than we do today. Expanding Coca-Cola bottlers in various regions will grow in terms of revenue, employment and reach as we transition Company-owned operations to the franchise system.
“The Coca-Cola Company will return to its focus as a higher margin, higher return and less capital intensive operation. With the accelerated refranchising plans announced today, we will move from a system where about 18% of our volume was produced by Company-owned bottlers in 2015 to about 3%.
"Looking forward to 2016, we remain committed to achieving underlying performance in line with our long-term growth model and delivering long-term, sustainable value to our system and shareowners."
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