Coca-Cola’s Net Income Rises Despite a Drop in Revenue

Muhtar A. Kent, the chief executive of the world’s largest soft drink company, said in a conference call with analysts and investors that Coca-Cola would proceed by investing in its brands and seeking acquisitions.

“There’s some headwind in emerging markets, but we believe they are very temporary” because the middle class in those countries is growing, he said.

In the third quarter, Coca-Cola’s net income rose 6 percent to $2.45 billion, or 54 cents a share, from $2.31 billion, or 50 cents a share, a year earlier.

Excluding one-time items, the company reported earnings of 53 cents a share, in line with the expectations of analysts surveyed by Thomson Reuters.

Revenue fell 3 percent, to $12.03 billion from $12.34 billion, slightly below analysts’ estimates of $12.05 billion. The decline was largely a result of weaker-than-expected currencies in many emerging markets and the costs of revamping bottling operations in Brazil and the Philippines.

Coca-Cola’s chief financial officer, Gary P. Fayard, said he expected currency weaknesses to lower operating income by 5 to 6 percent in the fourth quarter.

A Morningstar analyst, Thomas Mullarkey, said he was encouraged by Coke’s global growth, which reached 2 percent overall, as well as the popularity of the Coca-Cola brand in North America.

“Soda is not doing great overall in the U.S.,” he said, “but the Coke brand is the leading soda brand, and so the company continues to push it forward.”

Mr. Kent said the Coke brand was resilient, helping the company deliver a record 181 billion beverage servings in the quarter.

In North America, sales volume increased 2 percent overall, largely because of the strong performance of Coke’s nonsoda offerings. Sales of noncarbonated drinks like juices and bottled water rose 5 percent, and teas, which include Honest Tea and Fuze, had double-digit percentage growth. Sales of sparkling drinks in the region were flat.

Coca-Cola's Revenue Misses Wall Street Expectations

The world's biggest soft-drink maker, with brands such as Sprite, Fanta and Minute Maid, also said revenue and profit were hurt by the stronger U.S. dollar, which reduces the value of overseas sales.

Still, earnings were in line with analysts' expectations and Coca-Cola shares fell only 27 cents, or 0.7 percent, to $37.86 on the New York Stock Exchange.

Coca-Cola gets most of its sales from outside the United States, so shifts in currency can have a big effect. In the third quarter that ended on September 28, the strong dollar shaved 5 percentage points of growth from net revenue and 7 points from operating income.

Aside from currency, results in Asia, particularly China, disappointed some analysts, though Sanford Bernstein analyst Ali Dibadj said it was not surprising, given the softening of consumer sentiment and the slowing of an economy that had been a growth engine for multinational companies in recent years.

"China is slowing down a little bit for the long-term benefit of China. As China will settle, there's a little bit of adjustment," Chief Executive Officer Muhtar Kent told Reuters. "Take a plane -- when it leaves cruising altitude and is going to land, the ride gets rougher. But it will settle."

Kent said he expects settling into a lower growth rate will happen within the next few months.

Sales volume rose 3 percent in the Pacific region; JP Morgan analyst John Faucher expected 4.5 percent growth.

In addition, European consumers have been hurt by the debt crisis. In the latest quarter, consumers were buying bottled soft drinks to take home, which is less profitable for the company than drinks sold in restaurants.

"Go to Madrid and look at the cafes. There aren't a lot of people sitting around drinking Cokes or coffee or whatever," Gary Fayard, chief financial officer, said on a conference call.

Also, European sales are growing most Eastern and Central Europe where prices are lower, Kent said. This helps volume of sales but hurts revenue.

Third-quarter net income for Coca-Cola was $2.31 billion, or 50 cents per share, up from $2.22 billion, or 48 cents per share, a year earlier.

Excluding items, earnings were 51 cents per share, in line with analysts' average estimate, according to Thomson Reuters I/B/E/S.

Revenue rose 1 percent to $12.34 billion. Analysts were expecting $12.41 billion.

Worldwide sales volume rose 4 percent in the quarter, driven by gains in all regions. Volume rose 1 percent in Europe, 2 percent in North America, 5 percent in Latin America and 11 percent in the Eurasia and Africa region.

Sales volume in the Philippines was flat, due to typhoons. In Japan, soda volume fell 5 percent from the year-earlier period when new products boosted sales. Volume rose 2 percent in China.

Closer to home, North American revenue and profit rose, helped by a recent acquisition and the impact of certain commodities hedges.

Coke is also seeing tougher competition from PepsiCo Inc, which is working hard to improve its North American beverage business. It has increased marketing spending with a focus on core brands like Pepsi-Cola and analysts have been saying that the renewed effort is working.

Through Monday's close, Coke shares were up 9 percent year-to-date, while the Dow Jones U.S. Beverage Index gained 10 percent and the Standard & Poor's 500 index rose 14.5 percent.

(Additional reporting by Brad Dorfman in Chicago; Editing by Maureen Bavdek and Phil Berlowitz)