The Coca-Cola Company (NYSE:KO) announced its second quarter earnings, reporting 3% rise in international volume, and 2% sparkling volume growth. However, the slight drop in top line came as a setback for the beverage giant. It earned revenues of $12.57 billion, 1% lower than the year-ago period. However, revenues surged by an impressive 18.9% sequentially. Let’s take a closer look to find out the key takeaways of the results.
Domestic market saw a surge
Coca-Cola got a boost in its sparkling category on account of volume rise in the North American market. While the industry as a whole faced challenges in the carbonated soft drink category, with customers increasingly opting for healthier choices, Coca-Cola’s volume strengthened by a good 1% in its domestic market. Additionally, Fanta’s volume grew 4%, while that of Sprite’s rose 2%, contributing to the total growth. It only goes on to prove that Coca-Cola has a strong hold over the North American market even though sugary beverages are being replaced very fast by consumers.
- Warning! GuruFocus has detected 4 Warning Signs with KO. Click here to check it out.
- KO 15-Year Financial Data
- The intrinsic value of KO
- Peter Lynch Chart of KO
The company’s net pricing in North America as a whole rose 1%, while that of the sparkling category increased 3%. Although Diet Coke failed to bring home solid returns, the company is hopeful about its new product Coca-Cola Life, a drink that’s low on calories and is targeted toward health-conscious consumers.
Coca-Cola’s growth wasn’t limited to its domestic market alone and spread across the Europe and Asia-Pacific regions, with China alone accounting for 9% growth. Even the Indian market looked promising with a double-digit hike, while Japan posted 1% growth.
Sales drop in Latin America is concerning for the company
Although the sparkling unit sparkled in Coca-Cola’s domestic market, it couldn’t impress the Latin American buyers and resulted in a 1% decline in volume – a trend that was triggered by the imposition of a soda tax by the Mexican government this year.
Mexico, with the world’s highest obesity rate of 32.8%, is a hotspot for diseases associated with obesity. In order to counter the growing problem, the government levied a tax of a peso (8 cents) for every liter of sweetened beverages since the beginning of 2014. This affected the pricing structure, owing to which a huge chunk of the country’s population was discouraged from buying sugary drinks. The price rise could spell problems for Coca-Cola’s business as Mexico offers the largest per capita consumption of the company’s beverages.
Brazil’s news was not heartening, either. Despite FIFA World Cup, volumes were flat owing to declining consumer spending brought about by the economic instability in Brazil. Latin American sales suffered a 9% drop due to reduced demand for Coca-Cola’s drinks in the two markets.
Going the healthy way boosted tea volumes
The company did a brisk business in the tea category on the back of growing popularity of healthier drinks. Volumes grew 4% worldwide, with the U.S. and Japan, the biggest markets, performing notably well. North America’s 6% growth was propelled by double digit growth in Gold Peak and Honest Tea, Japan saw a 5% increase in tea sales. The growing popularity of tea comes as positive news as the U.S. tea sector could garner sales worth $5.3 billion this year.
There are ample reasons to be hopeful about a brighter tomorrow for Coca-Cola. Not only has its domestic market performed well, its tea volumes also experienced heightened sales, which could go up even higher in the future. If the company can come up with ideas to boost its sales in Latin America, it would be sorted.