During a conference call with investors today, The Coca-Cola Company reported net revenues of $9.08 billion for Q3, surpassing analysts’ projections of $8.72 billion.
“I am encouraged with our progress and results in the quarter,” said James Quincey, Coca-Cola president and chief executive officer, in a press release. “Our performance reflects the strength of an organization that is focused on delivering against its financial commitments while also making substantial structural and cultural changes.”
Despite beating analysts’ predictions on the Street, net revenues for Coke fell 15 percent compared to the same period last year, with an 18 percent headwind from the company’s ongoing refranchising of bottling territories having an impact. Total unit case volume was even, while organic revenue grew by 4 percent during the quarter.
In a sign of its stated intent to shift focus from volume growth to value growth, Coke gained or maintained value share in sparkling soft drinks, juices, sports drinks, and ready-to-drink (RTD) teas. The company also announced its plans to scale their smaller brands, such as Smart Water and Zico, internationally.
Quincey noted changes occurring throughout the beverage industry that are affecting Coke. Among them are growing numbers of small, fast competitors and evolving consumer preferences for low sugar drinks with added functional benefits.
“In order to thrive in this kind of environment, we need to be more entrepreneurial in our job,” said Quincey. “[We need] to take intelligent risks and build a broader consumer-centric portfolio.”
As part of this initiative, Coca-Cola recently acquired Topo Chico, a premium imported sparkling mineral water from Mexico. Quincey says the company plans to take the same approach with Topo Chico as they did with Honest Tea: to maintain the essence of the brand while empowering its growth.
At the same time, Quincey underscored that the company will continue to invest in its core products. After unveiling Coca-Cola Zero Sugar in the United Kingdom last year, where it continues to grow by double digits, the company used a similar approach in launching the line in the U.S. during Q3.
“We’ve seen positive results, including a meaningful acceleration in Coke Zero’s trends in the U.S. since launch and year-to-date global volume and revenue for the brand is growing double digits,” Quincey said.
Earlier this year, Coke relaunched its fruit flavored soda line Fanta with reduced added sugars in some international markets outside of the U.S. Fanta reached most major markets by the end of Q2 and delivered an increase in volume and acceleration in revenue growth. However the new Fanta didn’t resonate in all markets, notably in Costa Rica, prompting The Coca-Cola Company to return to its old formula.
“We need to tailor our market approach based on consumer mindset and tastes in each market,” said Quincey. “Our model needs to be flexible, so if a brand introduction isn’t successful, we can adapt and change strategies quickly.”
Reaction to Coca Cola’s Q3 was mostly positive from Wells Fargo analyst Bonnie Herzog.
“We think [Coca-Cola] continues to do a good job driving relevancy with consumers and leveraging innovation and mix to drive solid pricing growth,” said Herzog in an email. “We are encouraged by positive momentum in many [international] markets.”
Still, Herzog contends that Coca-Cola has more work to do to attain a more balanced revenue growth, citing the company’s flat/negative unit case volume growth over the past year.
During the call, Quincey thanked outgoing president of Coca-Cola North America (CCNA) J. Alexander “Sandy” Douglas, Jr. for his tenure with the company. Douglas, Jr., who announced his retirement earlier in the week, will be succeeded by James L. “Jim” Dinkins, who currently serves as president of the Minute Maid business unit and chief retail sales officer for CCNA, effective Jan. 1, 2018.
Projecting ahead, Kathy Waller, the company’s CFO, said Coke expects to deliver 3 percent organic revenue growth in the next quarter. Q4 will also reflect the damages from the recent hurricanes that increased the companys costs by an estimated $50 million.