Coca-Cola Co. (KO) turned in first-quarter results above analyst estimates, growing sales volume in each region while getting a hefty boost from higher prices as well.
Coca-Cola's earnings rose 7.9% in the first quarter as revenue increased nearly 6%, with higher prices and a shift in the mix of product sold contributing about half of the sales increase. The results included a 5% increase in worldwide sales volume, including 4% for sparkling drinks and 9% for still beverages.
Coca-Cola's growth came in both emerging markets, which posted more eye-popping number like 20% gains in India, as well as developed market like the U.S., Germany, Japan and Spain, offering some indications that consumers are showing some willingness to spend in some countries where the broader economies have slumped. The U.S. continues to show some positive signs as more consumers are travelling, eating out and booking vacations, trends that should remain in place as long as gasoline prices don't rise much higher.
"We shouldn't take any victory laps, but it's a better place to be than Europe," Coca-Cola Chief Executive Muhtar Kent said about the U.S. economy in an interview.
Coca-Cola also hinted that it could see an easier outlook for commodity prices for the year if spot prices for aluminum, sweeteners, juice and plastic remain around current levels, a relief after dealing with a 10% increase in input costs in the latest quarter.
Coca-Cola continues to see input costs rising up to $450 million this year. But on Tuesday's earnings call, Chief Financial Officer Gary Fayard said, "If current trends hold, we may see this outlook improve in the coming months."
Coca-Cola shares rose as high as $74.48 in Tuesday morning trading, hitting a fresh 52-week high. Recently, shares were at $74.42, up 2.7%.
Coca-Cola's results show the company's resilience as it faces a variety of tough macroeconomic conditions in different regions. Coca-Cola is managing through diverse landscapes by continuing to offer its products in a variety of different sizes and at varied price points to continue to appeal to consumers.
In China, for instance, Coca-Cola is focusing on increasing transactions by introducing a 300-milliliter bottle, a smaller size that's designed to appeal to a broader audience even as that economy is showing some signs of slowing growth.
The U.S. market is also benefiting from Coca-Cola continuing to offer its drinks in a variety of sizes. Sales volume in the closely watched market rose 2% in the latest quarter, even as prices rose about 3%. The sales increase was weighted more toward Coca-Cola's still beverages like Powerade sports drink, Dasani bottled water and Gold Peak tea, as soda sales volume only rose 1%.
While Coca-Cola has had a steady rise in worldwide volume in recent years, the company is expected to face a stronger challenge from its main rival PepsiCo Inc. (PEP). After experiencing slumping beverage sales for several years, PepsiCo plans to pour up to $600 million more this year into its marketing and advertising budget to try to boost its soda business and other brands.
While some analysts worry that PepsiCo's plans will ratchet up competition--and possibly discounting--in the space, Coca-Cola is welcoming the competition.
"Competition is healthy for the consumer, healthy for the customer, it's good for the industry," Kent said in the interview.
For the latest quarter, Coca-Cola profit of $2.05 billion, or 89 cents a share, was up from $1.9 billion, or 82 cents a share, a year earlier. The year-earlier quarter included restructuring charges of 4 cents a share. Revenue jumped 5.9% to $11.14 billion.
Analysts polled by Thomson Reuters had most recently forecast earnings of 87 cents a share on revenue of $10.82 billion.
Gross margin fell to 61% from 62.5% as input costs jumped 10%.
Coca-Cola's operating income was hurt by 2% in the quarter by unfavorable exchange rates. The company expects currency translation to continue to impact full-year operating income by mid-single digits, though the impact will be at the high end for the current quarter.
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