Coke's Mixed Results Show Hope for the Future
Despite net loss, turnaround seems to be going well.
Beleaguered soft-drink giant Coca-Cola (KO) reported a mixed quarter Tuesday, with some bad news that was mostly expected offset by encouraging operating results that should give hope to investors.
Coke's first-quarter revenue was down slightly from a year ago, mainly because of weak growth in North America and Europe combined with inventory reductions by its bottlers. This weakness was expected, since the company warned analysts two weeks ago that volume growth for the quarter would fall short of estimates.
Coke also reported a net loss of $0.02 a share, its second straight quarter in the red after more than a decade of uninterrupted profits. Things are not as bad as they seem, though, since that loss was the result of various noncash charges stemming from the company's massive restructuring plan. Excluding those charges, Coke's operating income came in at $0.32 a share, substantially above the $0.21 analysts had been expecting.
The past year has been a tough one for Coke. Stymied acquisitions and a contamination scare in Europe resulted in a public-relations nightmare, culminating in the resignation of CEO Doug Ivester in December. New CEO Douglas Daft has taken the reins firmly, implementing a restructuring plan that will involve short-term pain (including massive layoffs and restructuring charges this year) to ensure the long-term strength of the company.
The strong operating profits are an encouraging sign that Coke's restructuring is on the right track, but there's still plenty of work to be done. Revenue growth will have to pick up substantially if the company is to meet its stated target of 8% annual volume growth, and it faces strong competition from reinvigorated rival Pepsi (PEP). Still, the light at the end of the tunnel is visible. If Coke can keep on its current track without getting derailed (and Daft has shown every sign of knowing what he's doing), it could be a year or two away from revisiting its former glory.
David Kathman does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.