Coca-Cola Q3 earnings call -- better but with room to improve

Posted Oct 19th 2006 10:20AM by Victoria Erhart
Filed under: Before the Bell, International Markets, Earnings Reports, Good news, Bad News, Products and Services, Management, Industry, Live Coverage, Competitive Strategy, Coca-Cola (KO)

Coca-Cola Co. (NYSE: KO) issued Q3 2006 data today (19 October), prior to the market opening. Chairman and CEO Neville Isdell put a good face on a number of statistics. Overall the news is positive. Worldwide unit case volume increased 5% in Q3, with most of that growth coming from Coca-Cola's international markets. Carbonated beverages grew 5% in volume for Q3, the best quarter since 2000.

Q3 EPS of 62 cents are up 15%, with 8% EPS increase YTD. But numerous times during his remarks, Mr. Isdell stressed that he was more focused on long-term shareholder growth in the face of shorter-term difficulties. Also, marketing campaigns to increase sales and revenues were "gaining traction," code for nor quite hitting the mark just yet. The repeated use of "turning the corner" indicates that Coca-Cola is fighting on a number of fronts.

A few of the financial highlights include Q3 revenues up 7%. Operating income increased 11%. Little repurchase of shares in Q3 but YTD $1.2 billion spent to repurchase shares out of $2-$2.5 billion set aside for that purchase. Globally, Coca-Cola was up in case volume consumption 3% worldwide, Sprite was up 6% worldwide (11% in international markets), Fanta up 7% globally. POWERade was up 7% in unit case volume. Dasani water increased unit case volume 18%. Minute Made showed single-digit growth.

Breaking down these aggregated results into geographic markets indicates that Europe showed a 10% increase in unit case volume. Coca-Cola enjoyed a very successful World Cup marketing campaign, including the successful launch of Coca-Cola Zero in July. Unit case volume grew 9% in North Africa, Eurasia and the Middle East. Very good growth in Russia, China and Turkey.

Coca-Cola is still fighting in several important markets. Soft drink consumption is down 4% in Japan. CEO Isdell maintains the "recovery process has started in Japan." Overall market share declined but ready to drink coffee unit sales improved slightly. The growth of Starbucks in Japan has negatively impacted Coca-Cola's sales of canned chilled coffees. Cherry Coke will be reintroduced.

The India market is still burdened with fallout from accusations of pesticides in Coca-Cola products. For the first time in 8 quarters, the India market showed a unit case sales increase of 4% vs. a 22% decline from the previous year. Unit case volume also declined in the Philippines. The South Asia and Pacific Rim market will remain weak for the yest of the year.

The very important North America market continues to show mixed results. Revenues were up 4%, while profits were down 7%. Carbonated beverage consumption is down overall, but the market for energy drinks, as well as for various tea and coffee products is growing. Cost of materials for orange juice products continue to rise. CEO Isdell remains focused on long term growth in this market. His strategy is to "recreate growth in the core brands rather than growth via the introduction of new products," though there are a number of new products in the development pipeline.

Consumption of both carbonated and non-carbonated beverages is up in the Latin American market.

CEO Isdell's closing remark to analysts: "Business is on a solid footing despite always a few bumps in the road. We will continue to focus on improving execution of our strategic plan."

Tags: Coca-Cola, Coke, ernings reports, ErningsReports, ko

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