Coke: Water, Sports Drinks Drive Solid Q1 Growth

The Coca-Cola Company enjoyed a solid start to 2019, surpassing analysts’ projections in reporting 6% growth in Q1 organic sales.

The Atlanta-based soda giant also recorded net revenue growth of 5% ($8 billion). Net sales were up 5%, 2% of which was attributed to bottlers building up inventory in the event of potential Brexit-related disruptions. Price/mix increased 4% during the quarter. Unit case volume declined 1%.

The company is entering its fourth full year under the stewardship of CEO James Quincey, who has championed Coke’s evolution from a soda maker to a “total beverage company.” In the past 12 months, Coke has actively worked to align itself with that mission: In August, it purchased specialty coffee retailer Costa Coffee for $5.1 billion, and that same month it also became the distributor for and the largest minority shareholder in fast-rising sports drink brand BodyArmor. Other initiatives, such as the European launch of a Coke-branded energy drink, are set to follow this year.

Bottled water and sports drinks led the way with a 6% increase in sales during the first quarter. According to Quincey, growth was driven by strong performance in smaller, immediate consumption packages, reflecting a focus on “value over volume.”

Elsewhere, concentrates and sparkling soft drinks each grew 1%, with original Coca-Cola and Coca-Cola Zero Sugar driving growth. Juice, dairy and plant-based beverages were flat.

Sales for the company’s’s coffee and tea products, which includes Dunkin’ and McCafe products, were flat. The company announced it will introduce Costa-branded ready-to-drink products “across formats and channels” in Q2, primarily in markets where brand awareness is already high.

Quincey also noted that Coke Plus Coffee, which was tested in several Asian markets last year, will be launched in a further 25 markets globally by the end of 2019. The product is “designed to reach consumers during specific occasions and channels like the mid-afternoon energy slump of work,” he said.

In an interview this morning on CNBC, Quincey called the first quarter “a very strong start to the year.” He praised Coke Zero Sugar (double-digit growth in volume and revenue) and Coke’s water portfolio for contributing strong performances during the period.

“Generally speaking, premium waters around the world, whether it be Smart Water, or Ice Dew in China, our focus on the more premium orders, on smaller packages, on single serve packages is help reinvigorate that part of the portfolio, along with some of the sports drinks brands and in-house hydration,” Quincey said during an appearance on “Squak on the Street.” “So, that’s very on trend, too, with consumers and a lot of momentum and a lot of innovation going behind that, backed up by the execution of the bottlers.”

Summarizing the earnings report, Wells Fargo Securities analyst Bonnie Herzog reiterated the firm’s “outperform” position. She wrote that she was “impressed with KO’s ability to deliver a strong topline, suggesting that its refranchising and portfolio transformation are paying off.”

She also noted the margins “suggest KO’s underlying business is benefiting from strong pricing and cost savings.”

Coke maintains full year 2019 revenue projection of 4% (compared to 4.8% by Wells Fargo).

Shares of the company were up 3% in premarket trading, according to CNBC.