Six-year low
Coca-Cola shares fall 6% as sales disappoint.
ATLANTA • Coca-Cola Co. shares fell the most in six years after third-quarter sales missed estimates and a US$3billion cost-cutting plan announced by chief executive Muhtar Kent failed to satisfy investors.
Sales fell to US$11.98-billion in the quarter from US$12billion a year earlier, CocaCola said Tuesday. Analysts had estimated US$12.1-billion on average, according to data compiled by Bloomberg.
Coca-Cola, the world’s largest beverage maker, is struggling with sluggish international growth and mounting concerns over obesity and artificial sweeteners. After criticism that he wasn’t responding quickly enough to the slump, Mr. Kent vowed Tuesday to reduce expenses by US$3-billion a year by 2019. Shareholders may still be waiting for more dramatic action, especially since it’s unclear how much of those cost savings will wind up in investors’ pockets, said Ali Dibadj, a New York-based analyst at Sanford C. Bernstein & Co.
“I wouldn’t call this capitulation by management as they continue to move too slowly for our tastes,” said Mr. Dibadj. The soda maker hasn’t indicated how much of the US$3-billion will be returned to shareholders, rather than “squandered” on marketing and advertising, he said.
The shares dropped 6% to close at US$40.68 in New York. Earlier this month, the stock was trading in record territory.
Sales volume fell 1% in North America last quarter, while global volume climbed 1%. Mark Swartzberg, an analyst at Stifel Nicolaus & Co., had projected global growth of 3.4%.
Third-quarter net income fell 14% to US$2.1-billion, or US48¢ a share, from US$ 2.45billion (US54¢) a year earlier. Excluding some items, profit was US53¢ a share in the period, matching analysts’ estimates.
As part of the plan to streamline Coca-Cola, the majority of company-owned distribution territories in North America will be sold back to independent bottlers by the end of 2017, with most of the rest being re-franchised by 2020. That’s an acceleration of a previously announced plan to sell the majority of the bottlers by 2020.
“We recognize that we need to increase the scope and pace of change as we continue to face a challenging macroeconomic environment,” Mr. Kent said in a statement.
The bottling effort addresses concerns raised by shareholders such as Wintergreen Advisers LLC, an investment firm run by David Winters. Just Monday, Wintergreen released a statement pushing for changes at Coca-Cola. It included a complaint that the company had taken too long to off-load its bottling operations.
Wintergreen and analysts also have called for deeper cuts at the company, which has a market value of about US$190-billion.
Mr. Kent had pledged in February to trim US$1-billion in costs by 2016. The company’s board also reined in its stock-compensation plan, which investors such as Warren Buffett had seen as excessive. Mr. Winters had lobbied against the plan, calling it a “raw deal” for shareholders that was too generous and diluted the stock.
PepsiCo Inc., Coca-Cola’s biggest rival, is tightening its belt as well. CEO Indra Nooyi is cutting US$5-billion over the next five years, helping bolster profit. The secondlargest beverage company raised its earnings forecast for the year when it delivered quarterly results earlier this month.
As it reduces costs, CocaCola also reset its expectations for sales growth, saying the economy would remain challenging through 2015. The company lowered the bottom end of its long-term net revenue growth target to as low as 4% from 5%. CocaCola retained its goal to grow per-share earnings by a high single-digit percentage after this year.
Coca-Cola’s woes have overshadowed a U.S. market-share gain from the company’s “Share a Coke” program, which replaced its logo on bottles and cans with common names and phrases.
“We worry that bigger issues will continue to plague the company,” Vivien Azer, an analyst for Cowen & Co. in New York, said this week in a note. “Macro weakness in emerging markets, in particular Latin America, concerns over diets, and currency headwinds, to name a few.”