Coke Profit Beats Estimates but Investors Still Thirsty for More
Since taking up the helm a little over a year ago, Chief Executive Officer James Quincey has been trimming expenses and trying to shift the soda giant’s portfolio toward healthier drinks. And while he’s managed to revitalize Diet Coke — even as some consumers turn away from artificial sweeteners — the company’s stock has been stuck in neutral.
Coke posted on Wednesday morning second-quarter sales and profit that topped analysts’ estimates, with its Diet Coke rebranding and a double-digit boost in Coca-Cola Zero Sugar buoying results. But investors were underwhelmed, with the shares little changed in early trading, swinging between modest losses and gains.
“The stock has hung in there over the last year — I think investors are looking for that next catalyst,” said Ken Shea, an analyst at Bloomberg Intelligence.
Profit in the latest quarter amounted to 61 cents a share, excluding some items, beating the average estimate of 60 cents. Adjusted operating revenue was $8.9 billion, compared with projections for $8.54 billion.
Though it remains the third-largest carbonated soft drink in the U.S., Diet Coke saw volume drop 4.3 percent last year, according to industry publication Beverage-Digest. In January, Coke launched the biggest-ever makeover for its original zero-calorie brand, releasing classic Diet Coke and four new flavors in taller, skinnier cans, spurring the American rebound. New flavors made up about a third of the brand’s growth.
It’s now pushing those products further into global markets. The soda maker expanded its Diet Coke rebranding into Great Britain last quarter and debuted Coca-Cola Stevia No Sugar in New Zealand. The company also got a boost from its portfolio of bottled water and sports drinks, with unit case volume up 4 percent.
For years, the company has been selling off the bottlers it owned in order to refocus on becoming a marketing and formulation company. Still, Coca-Cola faces a tough road ahead, with changes to how consumers eat and shop rattling the U.S. food and beverage market. Coke also said it expects the currency to be a bigger-than-expected headwind during the rest of the year, dragging down comparable operating income by 4 percent.
Quincey, 53, has pushed Coke to grow beyond its namesake brand to become a “total beverage company.” The strategy continues efforts that began under predecessor Muhtar Kent. This has included investing in startup beverage makers in the search for its next $1 billion brand.
Quincey has been extending a productivity push started by Kent. Since becoming CEO last year, Quincey vowed to cut expenses by an additional $800 million.
“I don’t think he’ll be on the hot seat for a while — he inherited a tough hand,” Shea said of Quincey’s tenure. “He deserves credit for tackling a pretty big challenge.”