The Coca-Cola Company came out strong in Q4, reporting 6 percent organic revenue growth following a year of restructuring and cross-category portfolio expansion. The company expects that momentum to carry into 2018, predicting roughly 4 percent growth at the year’s end.
In an earnings call with investors today, James Quincey, in his first year-end report as CEO, credited a number of operational changes for contributing to the company’s global growth. Among the shifts was an executive restructuring that accompanied Quincey’s appointment in May. The company had also announced 1,200 layoffs last year which began in the second half of 2017, citing a need for a “leaner” model.
Despite reporting flat unit case volume sales, Coke reported growth in its expanded product portfolio. Partnerships with McDonald’s and Dunkin’ Donuts for branded ready-to-drink (RTD) coffee products provided Coke with a 7 point market share in the fast-growing category by the end of the year. The company also repositioned brands such as Honest Tea and Smartwater for international markets.
However, Coke Zero Sugar — a relaunch of the Coca-Cola Zero line — was among the biggest successes in carbonated soft drinks last year, launching in 20 markets and driving nearly 10 points of growth in Q4, Quincey noted.
“Ultimately, all of these strategic and tactical changes mean something very important,” Quincey said. “We are assertively shifting our culture, the way we operate, the way we look at growth opportunities and the way we engage with our bottling system. It’s been a lot of change, and much of it is only just starting to show tangible results, which is a good thing when you think about future performance.”
With Coke Zero Sugar proving to so far be a success, Quincey said he hopes the recent revamp of Diet Coke will similarly turn around declining sales.
“It’s one of our points of dissatisfaction in 2017 [that] we were not able to turnaround Diet Coke,” he said. “I think the team have come up with a strong plan for 2018 with the new flavors, the new can design and size and some of the marketing. And I think we are going to have hopefully a better year in 2018 in terms of Diet Coke.”
However, Quincey said that while it is “a good step in the right direction,” he didn’t believe the rebrand alone will be enough to correct the course.
Analysts largely responded kindly to the report. Wells Fargo Securities analyst Bonnie Herzog wrote that the outlook for 2018 was strong, in large part thanks to growth in international markets as well as the completion of the company’s refranchising efforts in the U.S., China, Japan, and Africa.
“A good quarter and strong FY18 outlook,” Herzog wrote. “[Coke] continues to do a good job driving relevancy with consumers and leveraging innovation and mix to drive solid pricing growth. While flat unit case volume growth remains a concern, we are encouraged by positive momentum in many [international] markets.”
Some analysts on the call, including Steve Powers of Deutsche Bank Securities, expressed healthy skepticism about Coke’s high 4 percent growth prediction, noting the rest of the CPG industry is largely predicting between 2 and 3 percent for the fiscal year.
“The results are starting to come,” Quincey responded. “The momentum is building. We’re not out of the woods in 2018. The world still remains uncertain and volatile. But I think the momentum’s in the business and the momentum’s in the actions that we laid out that needed to be taken, plus a little bit of an improvement in the emerging macros, makes us confident that 4% is a good number for 2018.”
Quincey also stated his belief that U.S. tax reform passed by Congress in December will help spur investment and fuel economic growth, although he noted it was too soon to tell how large an effect it will have.
Coke’s stock finished the day up by 0.16 percent at $44.98 per share.
Update: An earlier version of this story cited an article stating Coke had closed the West Coast office of its Venturing & Emerging Brands (VEB) unit. The company has said this is inaccurate and the office has not closed. Changes to VEB’s sales team are related to the company’s re-franchising efforts and more personnel will be hired in the near future and total VEB employment will grow.