The Coca-Cola Company’s long-term strategic pivot towards better-for-you beverage products appears to be yielding results, as low-calorie soft drinks and waters helped fuel organic revenue growth of 6 percent in the third quarter.
The company reported its Q3 earnings this morning, at the end of one of the more eventful quarters in recent memory for the world’s largest beverage company. In August, Coke announced its acquisition of Costa Limited in a $5 billion deal that gives it a hand across the coffee supply chain, from sourcing to distribution to retail cafes. It also became the second-largest shareholder in sports drink maker BodyArmor that same month, adding a high-profile, high-performing name to its Venturing and Emerging Brands (VEB) unit. Outside of the U.S., Coke also added Australian kombucha brand MOJO and Tropico, a maker of fruit beverages based in France, to its international portfolio.
Last week, Brian Smith was named as the new president and chief operating officer at The Coca-Cola Company, effective Jan. 1, 2019. Smith, who will succeed as president the current CEO, James Quincey, has served in a variety of roles during his 21-year career with the company, most recently as president of Coke’s Europe, Middle East and Africa (EMEA) Group since 2016. Coke also announced the retirement of chief financial officer Kathy Weller, who will be succeeded by John Murphy, president of the company’s Asia Pacific group, on Mar. 16, 2019.
“We continue to be encouraged by our performance year-to-date as we accelerate our evolution as an even more consumer-centric, total beverage company,” said Quincey, President and CEO of The Coca-Cola Company, in a statement. “The recent leadership appointments are intended to help accelerate the transformation of our company.”
Along with organic revenue growth, net income was up $1.88 billion. Net revenue was down 9 percent to $8.25 billion, above analysts projections ($8.17 billion) but depressed by a 13-point headwind from the company’s refranchising of its nationwide bottling operations. Concentrate sales were up 4 percent during the quarter. The impact of single-digit price increases, implemented earlier this year to offset freight and raw material cost bumps following the imposition of tariffs on Chinese imports, appears to have been negligible.
Total unit case volume was up 2 percent over the same period last year. In North America, unit case volume was up 1 percent. Sparkling soft drinks, up 2 percent in total unit case volume, were up 1 percent in North America, fueled by double-digit growth in sugar-free SKUs like Coca-Cola Zero Sugar and Powerade Zero. Coke’s roster of premium waters, including Topo Chico and smartwater, was also highlighted as a strong performer. Meanwhile, North American volume declines in juice, due to package downsizing, and tea were reported.
Wells Fargo Securities senior analyst Bonnie Herzog said she was “impressed with [Coke’s] ability to deliver a strong and balanced toppling, suggesting that is refranchising and portfolio transformation are paying off.” She cited organic sales growth, volume increases in China and India and core operating margin expansion as positive signs, while noting “soft” growth for juices, dairy and plant-based categories, as well as “muted” gains for coffee and tea.
Quincey also downplayed rumors that Coke has been exploring a potential entrance to the cannabidiol (CBD) infused drink market, telling a reporter during the call that the company has “no plans” to get involved at this time.
Coke’s full year underlying performance remains unchanged in this quarter’s report: at least 4 percent growth in organic revenues, and at least 9 percent growth in operating income.