It wasn't all flat.
Coca-Cola Co. (KO) reported better-than-feared third-quarter earnings on Wednesday, Oct. 25, as the beverage company continues to reinvent itself for more health-focused consumers.
During the quarter ending Sept. 29, Coca-Cola generated comparable earnings of 50 cents per share on revenue of $9.08 billion, down 15% year-over-year thanks to the refranchising of the company's bottling territories. Analysts surveyed by FactSet expected earnings of 49 cents per sale on sales of $8.73 billion.
Coca-Cola's full year guidance is also mostly unchanged. The company still expects 3% organic revenue growth and earnings per share flat to declining 2% from last year's $1.91 per share.
"The Company continued to make progress on its multi-faceted transformation, including a fast-tracked evolution to build an even more consumer-centric brand portfolio," Coca-Cola said in a statement, touting its rollout of Coca-Cola Zero Sugar in the United States and acquisition of sparkling mineral water brand Topo Chico earlier this month. It's also launched ready-to-drink coffee partnerships with Dunkin Brands Group Inc.'s (DNKN) Dunkin' Donuts and McDonald's Corp. (MCD) .
"We think KO continues to do a good job driving relevancy with consumers and leveraging innovation and mix to drive solid pricing growth," wrote Wells Fargo analyst Bonnie Herzog. "We are encouraged by positive momentum in many intl. markets. However, with flat/neg. unit case volume growth for over a year, work clearly still remains to drive more balanced revenue growth going forward. We expect KO's stock to trade relatively flat today."
While Coca-Cola continues to "drive relevance" in its core brands like Coke, CEO James Quincey told analysts on the conference call that expanding its portfolio of smaller brands is crucial to the company's success.
"The consumer landscape is changing," he said. "We see an increasing number of smaller, faster competitors" catering to consumers seeking more variety. "In order to thrive in this kind of environment, we need to be more entrepreneurial and agile." The Topo Chico acquisition is one such effort at "growing our portfolio multiple ways."
Topo Chico, part of Coca-Cola's venturing and emerging brands unit, will follow the same playbook Coca-Cola used after acquiring Honest Tea, maintaining the brand's entrepreneurial spirit while rapidly expanding its reach.
"Growing premium beverage such as adult craft beverages," like mixers, is another priority, Quincey added. Coca-Cola introduced a premium mixer brand, Royal Bliss, in Spain, and also relaunched Schweppes mixers in the U.K.
Strong North American performance came after Coca-Cola's biggest competitor, PepsiCo Inc. (PEP) , reported weak results in the region. Quincey downplayed the comparison, saying that in the highly competitive North American market, "it's not just one large competitor we face-there are lots of competitors, large, medium, and small."
But the grocery environment is changing rapidly, with Coca-Cola's retail customers becoming more price sensitive and private label brands becoming more common.
"The pricing conversation becomes more manageable because in the end you're creating disproportionate value to the customer" when products are innovative, Quincey said on the call. "We are a very multi-channel business. Yes, we have large presence in the grocery channel, but we have multiple other environments where we sell our beverages and part of it is being in lots of different places that helps manage the pricing dynamic."
The "emerging dynamic" of "extra pressure from private label or the stratification of pricing" is a challenge Coca-Cola has weathered in other parts of the world, he said. "We're believers in our way to create value...even in this ongoing changing environment."
In addition to private label and pricing pressure, more and more grocery shopping is done online, led by Amazon.com Inc.'s (AMZN) acquisition of Whole Foods, Walmart Stores Inc.'s (WMT) acquisition of Jet.com and subsequent e-commerce push, and Target Corp.'s (TGT) grocery price cuts.
"We over-index in terms of share, generally speaking, online," Quincey said, noting that e-commerce is a broad term encompassing pure e-commerce players, brick-and-mortar retailers with an e-commerce presence and restaurant chains. "There's a wide spectrum of how consumers are interacting with customers that are digitally enabled." There's "progress" for Coca-Cola in all these channels.
Coca-Cola announced Monday that 30-year company veteran Sandy Douglas will retire, to be replaced as President of Coca-Cola North America by Jim Dinkins on Jan. 1. Quincey praised Dinkins, saying "there's no one better positioned to understand" Coca-Cola's challenges within North American than he is.
Coca-Cola shares rose 0.4% to $46.37 in Wednesday morning trading.
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