Coca-Cola 2nd-Qtr Profit Rises 6.6% on Dasani, Powerade Drinks

July 18 (Bloomberg) -- Coca-Cola Co., the world's largest soft-drink maker, said profit rose 6.6 percent as demand for Dasani water and Powerade sports drinks lifted sales.

Net income increased to $1.84 billion, or 78 cents a share, from $1.72 billion, or 72 cents, a year earlier, Atlanta-based Coca-Cola said today in a statement. Sales rose 2.6 percent to $6.48 billion, led by gains in the U.S., Asia and Latin America.

Chief Executive Officer E. Neville Isdell promoted lower- calorie drinks such as Powerade and flavored Dasani in an effort to win consumers from rival PepsiCo Inc., which leads in noncarbonated beverages. Isdell added soccer ball-shaped bottles to lift sales in Europe during the monthlong World Cup soccer tournament, and introduced drinks including Tab Energy and Vault.

``These little tweaks, these little innovations, can make a big difference for Coke,'' said Don Yacktman, president of Yacktman Asset Management in Austin, Texas, which holds 2.24 million shares of Coca-Cola among more than $1 billion in assets.

Morgan Stanley analyst Bill Pecoriello estimated Coca- Cola's profit would be 72 cents a share, which matched the average estimate of 17 analysts surveyed by Thomson Financial. Thomson doesn't disclose the parameters of its estimate to Bloomberg. Pecoriello, who is based in Purchase, New York, is top-ranked by Institutional Investor.

Coca-Cola's per-share earnings were bolstered by share repurchases. The company plans to buy back as much as $2.5 billion this year, following repurchases of $2 billion in 2005.

Japan Declines

Shares of Coca-Cola rose 5 cents to $42.70 yesterday in New York Stock Exchange composite trading. They've declined less than 1 percent in the past year, compared with a 14 percent gain for PepsiCo.

PepsiCo said July 13 that second-quarter sales rose 12 percent as it promoted healthier drinks such as Lipton citrus green tea and Gatorade, and lower-fat snacks such as Baked Cheetos. PepsiCo generates less than 20 percent of its revenue from sugary sodas, compared with 80 percent for Coca-Cola.

In Japan, bolder packaging for Coca-Cola's Georgia coffee ``confused our core customer base,'' Isdell said on an April 19 conference call with analysts and investors. Volume dropped 2 percent in the first quarter and 6 percent in the second quarter.

The company in June created new ads showing a younger man and an older man drinking mainstay flavors such as Mocha Kilimanjaro and Emerald Mountain Blend. Coca-Cola on July 11 promoted Dan Sayre to president of the Japan division to replace Masahiko Uotani, who was named to the newly created position of chairman of the unit.

Georgia coffee's market share in Japan fell to 39 percent last year, from 42.5 percent five years ago, according to data compiled by London-based consulting firm Euromonitor Inc.

World Cup

Japan's declines were muted by gains in faster-growing markets such as China and Russia.

Coca-Cola's purchase last year of Multon juice helped increase revenue in Russia, and demand for sodas and drinks such as Minute Maid lifted sales in China.

Coca-Cola's volume in Europe was driven by a late Easter holiday and the World Cup soccer tournament, Bear Stearns & Co. analyst Carlos Laboy said in a June 9 research note. Laboy upgraded Coca-Cola to ``outperform'' from ``peer perform.''

``A lot of these other economies are growing much faster than the U.S., so it's been a good strategy to focus there,'' said Marc Inboden, money manager with Beese Fulmer & Pincoe Inc. in Canton, Ohio, which holds 70,000 shares of Coca-Cola among $400 million in assets.

`Bloke Coke'

Coca-Cola is expanding its calorie-free Coca-Cola Zero soda in markets such as Germany, the U.K., France and Australia.

The soda has been dubbed ``Bloke Coke'' by British media because it is targeted at drinkers who like the taste of regular Coca-Cola but don't want the extra calories.

Volume in Germany was lifted by Coca-Cola's May purchase of the Apollinaris water company.

Revenue in Europe was reduced by a change in canning rights in Spain. Bottlers there have taken over full manufacturing for canned sodas, instead of buying the finished product from Coca- Cola and simply reselling it. The change will reduce revenue by $775 million for the full year, Coca-Cola said in February.

Coca-Cola's volume in the U.S. was driven by coupons that offered free multi-packs of Dasani water when customers bought three or four 12-packs of soda, according to Pecoriello.

Isdell, 63, introduced new logos for Sprite soda, and began a marketing campaign aimed at teens and young adults with the tagline ``sublymonal,'' which alludes to the drink's lemon-lime flavor.

Coca-Cola also created new ads for its fruit-flavored Tab Energy drink, Full Throttle and Vault soda. Isdell permanently increased Coca-Cola's marketing budget last year by $400 million, to $2.5 billion.

[ 07-18-2006, 04:43 PM: Message edited by: Ramón Cokeaholic ]

Comments?... Opinions?... please...

[ 07-18-2006, 04:44 PM: Message edited by: Ramón Cokeaholic ]

Originally posted by Ramón Cokeaholic:
Comments?... Opinions?... please...

- The long slow recovery from the short term thinking of the Guizouita era continues. But as long as Buffett is involved in running the company, full recovery is not going to be acomplished.

- The key fact in the whole article? KO is an 80% soft drinks company, while PEP is a 20% one. PEP is, in fact, a potato chip company with a soft drinks division.

- KO remains, especially when Buffett gets out of the way, a tremendous company to either be acquired by a larger foods company, or to acquire several foods companies. KO must realize that it cannot continue as simply a soft-drinks company with a juice division. It has to diversify, as PEP has done.

Thanks SamC [img]smile.gif[/img]

Although Coke had bad experiences with the acquisition of Columbia Pictures and (i'm not so sure) wine cellars, a good move is diversifying but... the example is here: a sport drink and a flavored water gave KO great numbers this period... this is the result of giving more options than sodas...

[ 07-18-2006, 11:14 PM: Message edited by: Ramón Cokeaholic ]

why should coke get into food? coke still has a better profit margin than pepsico.

and Coke is well-known for being a total beverage company...

KO consists of really four business segments. Its namesake syrup business. Its investments in bottlers. Its orange juice business (Minute Maid). And its growing involvment in "non-soda" drinks.

PEP, while an eternal #2 in soft drinks, is a larger company. Becuase the major part of the mis-named PepsiCo is no Pepsi, but Frito-Lay. It has a more diverse exposure to the market via market leader Gatorade, market leader Tropicana, market leader Frito-Lay, and highly profitable Quaker (which makes most of the generic cereal for supermarket brands, not only its own products).

As food companies consolidate, KO gets smaller and smaller in comparison. It risks being too small to do things.

But if KO were to merge with, say, Kraft...

[ 07-19-2006, 07:39 AM: Message edited by: SamC ]

Originally posted by SamC:
KO consists of really four business segments. Its namesake syrup business. Its investments in bottlers. Its orange juice business (Minute Maid). And its growing involvment in "non-soda" drinks.

PEP, while an eternal #2 in soft drinks, is a larger company. Becuase the major part of the mis-named PepsiCo is no Pepsi, but Frito-Lay. It has a more diverse exposure to the market via market leader Gatorade, market leader Tropicana, market leader Frito-Lay, and highly profitable Quaker (which makes most of the generic cereal for supermarket brands, not only its own products).

As food companies consolidate, KO gets smaller and smaller in comparison. It risks being too small to do things.

But if KO were to merge with, say, Kraft...

you make a good point about someday being too small to compete.

i read an article recently about how pepsico often coordinates promotions at grocery stores with it's snacks and beverages. that's something coke can't do on it's own. also, since pepsi dominates the snack aisle, supermarkets might be more willing to give them other advantages in the soda aisle.

the question for coke is what to buy. there aren't many things as profitable as soda. i mean, pepsico brings in more money than coke, but coke still has higher profits.

Originally posted by popologist:
i read an article recently about how pepsico often coordinates promotions at grocery stores with it's snacks and beverages. that's something coke can't do on it's own. also, since pepsi dominates the snack aisle, supermarkets might be more willing to give them other advantages in the soda aisle.

Coca-Cola did promotions in coordination with Kraft BTW... but like you mention, they don't do it on it's own... they need the support also of supermarkets, fast food chains and convenience stores to do it...

Coca Cola - watch out...the big bad PepsiCo giant is coming... [img]smile.gif[/img]

SamC made some great points about some of the brands and categories PepsiCo now has under its belt. In addition to the behemoth brands already mentioned (Gatorade, Quaker, Tropicana, Frito-Lay) they also have agreements and partnerships with other HUGE names...

Lipton, Dole, Frappuccino, Sobe, and now Ben & Jerry's to name a few.

Coke may be a huge beverage company...but PepsiCo is positioned much better for success in the long term...IMO.

Actually Pepsi just recorded its best profit gain in two years...

Net income up 14% and revenue up 12% in the 2nd Qtr. The stock closed at its 52 week high last week!

[ 07-20-2006, 01:27 PM: Message edited by: CStoreCatMan ]