Coca-Cola falls amid sluggish sales growth
by Duane D Stanford, 2014-10-22 06:49:53.0
ATLANTA — Coca-Cola shares fell the most in six years after third-quarter sales missed estimates and a $3bn cost-cutting plan announced by CEO Muhtar Kent failed to satisfy investors.
Sales fell to $11.98bn in the quarter from $12bn a year earlier, Atlanta-based Coca-Cola said on Tuesday. Analysts had estimated $12.1bn on average, according to data compiled by Bloomberg.
Coca-Cola, the world’s largest beverage maker, is struggling with sluggish international growth and concern over obesity and artificial sweeteners.
After criticism that he was not responding quickly enough to the slump, Mr Kent vowed on Tuesday to reduce expenses by $3bn a year by 2019.
Shareholders might be waiting for more dramatic action, especially since it is unclear how much of those cost savings would wind up in investors’ pockets, said Ali Dibadj, a New York-based analyst at Sanford C Bernstein.
"I wouldn’t call this capitulation by management as they continue to move too slowly for our tastes," said Mr Dibadj, who has the equivalent of a buy rating on Coca-Cola. The company had not indicated how much of the $3bn would be returned to shareholders, rather than "squandered" on marketing and advertising, he said.
The shares dropped as much as 6.6% to $40.45 in New York on Tuesday, marking the biggest intraday decline since October 2008. Earlier this month, the stock was trading in record territory. It had risen 4.8% this year up to on Tuesday, compared with a 3% gain for the Standard & Poor’s 500 index.
Sales volume declined 1% in North America last quarter, while global volume climbed 1%. Stifel Nicolaus analyst Mark Swartzberg had projected global growth of 3.4%.
Third-quarter net income fell 14% to $2.1bn, or 48c per share, from $2.45bn, or 54c, a year earlier. Excluding some items, profit was 53c per share in the period, matching analysts’ estimates.
As part of the plan to streamline Coca-Cola, most company-owned distribution territories in North America will be sold to independent bottlers by the end of 2017, with most of the rest being refranchised by 2020.
"We recognise that we need to increase the scope and pace of change as we continue to face a challenging macroeconomic environment," Mr Kent said.
The bottling effort addresses concerns raised by shareholders such as Wintergreen Advisers, an investment firm run by David Winters. On Monday, Wintergreen released a statement pushing for changes at Coca-Cola. It included a complaint that the company had taken too long to offload its bottling operations. Wintergreen and analysts also have called for deeper cuts at the company, which has a market value of about $190bn.
Mr Kent had pledged in February to trim $1bn in costs by 2016. The company’s board also reined in its stock-compensation plan, which investors such as Warren Buffett had seen as excessive. Mr Winters had lobbied against the plan, calling it a "raw deal" for shareholders that was too generous and diluted the stock.
PepsiCo, Coca-Cola’s biggest rival, is tightening its belt as well. CEO Indra Nooyi is cutting $5bn over the next five years, helping bolster profit. The second-largest beverage company raised its earnings forecast for the year when it delivered quarterly results this month.
As it reduces costs, Coca-Cola also reset its expectations for sales growth, saying the economy would remain challenging throughout next year. The company lowered the bottom end of its long-term net revenue growth target to as low as 4% from 5%.
Bloomberg
Coca-Cola. Picture: REUTERS/JACKY NAEGELEN
ATLANTA — Coca-Cola shares fell the most in six years after third-quarter sales missed estimates and a $3bn cost-cutting plan announced by CEO Muhtar Kent failed to satisfy investors.
Sales fell to $11.98bn in the quarter from $12bn a year earlier, Atlanta-based Coca-Cola said on Tuesday. Analysts had estimated $12.1bn on average, according to data compiled by Bloomberg.
Coca-Cola, the world’s largest beverage maker, is struggling with sluggish international growth and concern over obesity and artificial sweeteners.
After criticism that he was not responding quickly enough to the slump, Mr Kent vowed on Tuesday to reduce expenses by $3bn a year by 2019.
Shareholders might be waiting for more dramatic action, especially since it is unclear how much of those cost savings would wind up in investors’ pockets, said Ali Dibadj, a New York-based analyst at Sanford C Bernstein.
"I wouldn’t call this capitulation by management as they continue to move too slowly for our tastes," said Mr Dibadj, who has the equivalent of a buy rating on Coca-Cola. The company had not indicated how much of the $3bn would be returned to shareholders, rather than "squandered" on marketing and advertising, he said.
The shares dropped as much as 6.6% to $40.45 in New York on Tuesday, marking the biggest intraday decline since October 2008. Earlier this month, the stock was trading in record territory. It had risen 4.8% this year up to on Tuesday, compared with a 3% gain for the Standard & Poor’s 500 index.
Sales volume declined 1% in North America last quarter, while global volume climbed 1%. Stifel Nicolaus analyst Mark Swartzberg had projected global growth of 3.4%.
Third-quarter net income fell 14% to $2.1bn, or 48c per share, from $2.45bn, or 54c, a year earlier. Excluding some items, profit was 53c per share in the period, matching analysts’ estimates.
As part of the plan to streamline Coca-Cola, most company-owned distribution territories in North America will be sold to independent bottlers by the end of 2017, with most of the rest being refranchised by 2020.
"We recognise that we need to increase the scope and pace of change as we continue to face a challenging macroeconomic environment," Mr Kent said.
The bottling effort addresses concerns raised by shareholders such as Wintergreen Advisers, an investment firm run by David Winters. On Monday, Wintergreen released a statement pushing for changes at Coca-Cola. It included a complaint that the company had taken too long to offload its bottling operations. Wintergreen and analysts also have called for deeper cuts at the company, which has a market value of about $190bn.
Mr Kent had pledged in February to trim $1bn in costs by 2016. The company’s board also reined in its stock-compensation plan, which investors such as Warren Buffett had seen as excessive. Mr Winters had lobbied against the plan, calling it a "raw deal" for shareholders that was too generous and diluted the stock.
PepsiCo, Coca-Cola’s biggest rival, is tightening its belt as well. CEO Indra Nooyi is cutting $5bn over the next five years, helping bolster profit. The second-largest beverage company raised its earnings forecast for the year when it delivered quarterly results this month.
As it reduces costs, Coca-Cola also reset its expectations for sales growth, saying the economy would remain challenging throughout next year. The company lowered the bottom end of its long-term net revenue growth target to as low as 4% from 5%.
Bloomberg
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