Coke benefits from thirsty Europe

Related tags Cent Coca-cola

Europeans seeking refreshment from one of the hottest summers on
record have enabled Coca-Cola to celebrate what would have
otherwise been a disappointing set of third quarter results.

Europeans seeking refreshment from one of the hottest summers on record have enabled Coca-Cola to celebrate what would have otherwise been a disappointing set of third quarter results. European sales volume was up 9 per cent, a figure that has not been reflected elsewhere. Global volume rose by only 4 per cent, falling short of Coca-Cola's stated aim of consistently achieving 5 to 6 per cent annual volume growth.

Moreover, operating income declined 1 per cent in the third quarter. The company points to the negative impact of operating charges, increased stock-based compensation expense and a first quarter litigation settlement as contributing factors.

Nonetheless, heavy consumption, especially in France, Spain, UK and Italy has ensured a good showing on the continent. Germany also delivered positive growth of 4 per cent in the quarter, dispelling fears that the mandatory deposit law change would adversely affect soft drink operations in the country.

By in large, unit case growth on the continent has been driven by core carbonated soft drinks with Coca-Cola growing at 5 per cent, Fanta at 4 per cent, and Sprite at 8 per cent. Brand diversification in the form of Coke Light with Lemon, Vanilla Coke, Sprite Ice Cube and Sprite Zero has also helped Coke to perform well on the continent.

In addition, the noncarbonated beverage sector continues to grow strongly with expansion into new categories. Sales of Coke's Powerade brand increased 71 per cent, juices and juice drinks grew 21 per cent and energy drinks increased 84 per cent.

In Great Britain, unit cases grew 8 per cent in the quarter and 7 per cent year-to-date. And in Spain, unit case volume increased 11 per cent in the third quarter, led by the highly profitable immediate consumption packages.

In other parts of the world, Coca Cola fared less well. Japan for example saw a 6 per cent fall in volume and volumes in North America only grew by 1 per cent from the year-ago quarter. In many regions the company is busy restructuring its bottling operations at some cost. And for the first nine months of 2003, selling, general and administrative expenses increased 7 per cent, reflecting increases related to structural changes and the Evian and Danone water acquisitions.

The company has of course been keen to put a positive shine on the overall results. As chairman Doug Daft points out, the company still managed to generate cash from operations to the tune of $4.1 billion during the first nine months, compared to $3.4 billion in the prior year period. On a year-to-date basis, the company has repurchased $915 million of its common stock and intends to repurchase approximately $1.5 billion of its stock for the full year 2003.

Such an impressive accumulation of cash suggests that the company is struggling to find new markets to invest in. It will be interesting to see therefore what 2004 holds for Coca Cola, for the third quarter results suggest that Coca-Cola is still struggling with its overseas markets, many of which are at saturation point. In the meantime, the business will continue to revamp the Coke brand while at the same time attempt to expand further out of the carbonated drinks sector. In addition, the restructuring of the group's bottling operations is an ongoing concern.

Coca-Cola​ is the world's largest beverage company. The company markets four of the world's top five soft drink brands and a wide range of other beverages, including diet and light soft drinks, waters, juices and juice drinks, teas, coffees and sports drinks.

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