Weather, healthy living take bite out of Coca-Cola profits
Coca-Cola is struggling to sell more soda in North America, and it can't seem to catch a break.
The world's largest beverage maker on Tuesday blamed a confluence of factors including unusually bad weather for its disappointing second-quarter results. It cited cold, wet conditions at home and flooding in parts of Europe for weak volume growth globally and a four per cent profit decline.
But the temporary setbacks clouded the underlying challenge the company faces in the U.S. and other developed markets, where soda consumption has been declining for years amid criticism that sugary drinks fuel obesity rates.
In the latest quarter, for example, Coca-Cola said soda volume for North America fell 4 per cent. But the figure has declined in four of the past five quarters, including a 2 per cent slide a year ago. It was flat in the other quarter.
Weather cited in slowdown
Still, executives expressed confidence they'd be able to return to growth with greater investments in marketing, new packaging and other tactics.
"I hate to use the weather, but a lot of it was the weather," chief financial officer Gary Fayard said in an interview on CNBC, apparently acknowledging the frequency with which companies cite the weather when they deliver disappointing results.
When asked if people drink less soda when it's cold and wet outside, Fayard said that was indeed the case.
"We are an industry that's susceptible to weather," he said.
Coke's shares fell 1.9 per cent or 78 cents to $40.23.
Looking ahead to the second half of the year, executives expressed confidence that the weather would even out and that business would improve, including in key markets such as India and North America.
In the meantime, Coca-Cola and rival PepsiCo Inc. have been trying to come up with a soda that uses a natural, low-calorie sweetener to reverse the slide in U.S. soda consumption. The challenge is that such sweeteners often have a bad aftertaste. Notably, Coca-Cola has yet to roll out a mid-calorie version of Fanta and Sprite using the sweetener stevia that it tested last summer.
Nevertheless, executives at both companies have expressed optimism that natural, lower-calorie sodas can get soda sales on the path to growth.
"We're watching, we're learning," said Steve Cahillane, who heads the company's North American and Latin American operations.
New ad campaign
To hit back at critics, Coca-Cola also began a TV ad campaign addressing obesity for the first time earlier this year. The ad noted that weight gain is the result of consuming too many calories of any kind, not just soda.
Similar ads have since been rolled out, with a focus on cable news channels where Coca-Cola believes viewers are more influential in shaping public opinion.
Coca-Cola, based in Atlanta, has also been relying on its bottled teas, water and sports drinks to boost sales. It sold more of such uncarbonated drinks in North America for three months ended June 28, but not enough to offset the decline in sodas.
During the quarter, volume for Europe also declined 4 per cent, with Coca-Cola noting the impact of severe flooding in parts of Germany and central Europe. By contrast, the region encompassing Africa, the Middle East and Russia saw a 9 per cent gain in volume. The Asia region rose 2 per cent, with volume in China even from a year ago.
In addition to bad weather, the company noted that it was dealing with challenging economic conditions and other socioeconomics factors, such as unrest in the Middle East.
For the second quarter, Coca-Cola Co. said it earned $2.68 billion, or 59 cents per share. That's down 4 per cent from $2.79 billion, or 61 cents per share, a year earlier.
Excluding one-time items, the company said it earned 63 cents per share, in line with Wall Street expectations.
Revenue slid to $12.75 billion, short of the $12.95 billion analysts expected, according to FactSet.