Coca-Cola (KO, Financial) released its first quarter fiscal 2018 results on Tuesday with top and bottom lines beating expectations, thanks to the growth witnessed from the new diet flavors. The beverage giant re-launched its classic Diet Coke drink and also introduced new brands that were quite instrumental in driving sales.
The company has been putting in great effort to tackle the changing dynamics of the industry through pricing and innovation. Coca-Cola introduced new millennial-focused Diet Coke variants that made the brand return to positive volume growth in its domestic market, North America. The company registered organic sales growth of 5% for the quarter.
Quarter snapshot
Coca-Cola earned $0.47 a share from continuing operations, compared with analysts’ expectations of $0.46 a share. But the company’s revenue declined 16% to $7.6 billion over last year same quarter. Revenue was, however, ahead of analysts’ expectations of $7.34 billion. The drop in revenue was already anticipated since the carbonated soft drink producer was working on refranchising its bottling operations. Evidently, the company’s refranchising and portfolio development efforts are bearing fruits.
Coca-Cola’s first-quarter organic sales rose 5%. The company recorded net income of $1.37 billion, translating to $0.32 a share. That compares with earnings of $1.18 billion, or $0.27 a share, reported a year ago.
Innovative moves bears results
With the return of its Diet Coke along with new flavors in skinny and refurbished, Coca-Cola was able to sell more in North America during the quarter. According to the company, this is the first time that the company witnessed volume growth since 2010. Coca-Cola was happy to see the positive effect of the re-launch of the brand, despite witnessing a modest growth.
On the contrary, analysts have their doubts whether adding artificially sweetened flavors like Zesty Blood Orange and Twisted Mango will help the company regain its lost customer who have shifted to healthier options, including ice tea or flavored seltzer waters.
Chief Executive James Quincey said that the company had taken this bold move to attract its lost Diet Coke fans through a strong marketing push. Even the modest growth signifies success ahead, considering that the drink hasn’t been on shelves for very long.
The company reported that around one-third of the volume growth is attributable to the new flavors such as Ginger Lime and Feisty Cherry, with sales more or less evenly split among all the flavors. The company registered drink volume improvement of 3% during the quarter compared with a year earlier. This includes the impact of soda volume growth of 4% and 5% improvement in tea and coffee.
Strategizing for the long haul
Large food companies have been struggling to maintain market share and are facing difficulty in adjusting to the changing consumer preference from sugary soft drinks to healthier options. But Coca-Cola is learning the art of adopting to the changes. During the earnings call, James Quincey said:
"We've been learning over the last couple years, the team has been learning on what is going to help a great brand like Diet Coke re-engage ... I think this round, we came out with some good marketing, some reinvigorated packaging, shapes, sizes, and looks, and obviously ... innovation on the flavors."
During the quarter, Coke registered growth for Topo Chico that competes with the popular and millennial favorite LaCroix in North America.
The company benefited from its innovative efforts, which it extended to other countries as well. Coca-Cola launched the Fuze Tea drink in as many as 37 countries in Europe, expanding its footprint to 49 countries now. Apart from this, the company also introduced beverages of other flavors, such as the low-calorie herb and fruit-infused drinks to attract millennials. Coca-Cola knows that it would have to maneuver its offerings with altering preferences of the population and that it is important to sustain long term development.
Disclosure: I do not hold any position in the stock mentioned in this article.
