Coke profit rises, beats Wall St forecasts

ATLANTA - Coca-Cola Co today reported a 9 per cent jump in quarterly net income, easily beating Wall Street forecasts, due mainly to strong soft drink sales in China, Mexico and other international markets.

Coca-Cola shares were up 2 per cent in afternoon trading.

The world's largest soft drink maker, which has rolled out a flurry of new drinks in a bid to boost its business, said it took market share from its rivals in the soft drink, bottled water and sports drink categories in the second quarter.

Reigniting sales of Coca-Cola Classic and other core soft drink brands has been a top priority since the Atlanta-based company embarked on a sweeping restructuring of its global operations more than five years ago.

In the second quarter Coke earned US$1.72 billion ($2.57 billion), or 72 cents a share, compared with US$1.58 billion, or 65 cents a share, a year earlier. Revenue increased to US$6.31 billion from US$5.96 billion.

The earnings included 4 cents per share in one-time gains. The company also benefited from positive currency exchange rates.

Analysts on average had forecast a profit, excluding extraordinary items, of 64 cents per share on sales of US$6.3 billion, according to Reuters Estimates.

Legg Mason analyst Mark Swartzberg, who has a "buy" rating on Coke, said the results demonstrated that chairman and chief executive Neville Isdell had "begun to effectively transform Coke and restore its capacity to grow."

But Isdell, who has been candid about the need to improve marketing and innovation since he took over Coke's reins a year ago, cautioned that significant challenges remain.

"2005 is still a transition year," Isdell told analysts in a conference call. He noted that the company was taking steps to improve on its poor performance in several important markets, including India and the Philippines.

The unexpectedly strong results followed on the heels of the roll-out of new drinks that Coke hopes will boost consumer interest, especially in North America, its largest and most important market.

A version of Diet Coke sweetened with the sugar substitute Splenda and a new diet cola called Coke Zero are among the new products. The company has invested an additional US$400 million this year to back its innovation and marketing plans.

One of the keys to the company's future would be capturing more consumers who have moved away from sugary soft drinks to diet versions or to healthier low-or no-calorie beverages such as water and orange juices with reduced sugar.

Doing so would go a long way toward driving up Coke's sales by volume, which rose a healthy 5 per cent overall in the second quarter. Sales were boosted by 15 per cent growth in the company's North Asian, Eurasian and Middle East markets.

Demand for Coke's drinks jumped 22 per cent in China.

Volumes were up 9 per cent in Latin America, buoyed by an 8 per cent rise in Mexico, and 1 per cent in North America, a market that accounts for about 30 per cent of Coke's revenues. But sales in the company's East Asian, South Asian and Pacific Rim markets slumped 4 per cent.

India was a particularly sore spot for Coca-Cola. Sales in the Asian nation fell 14 per cent, hurt by the impact of price increases for Coke soft drinks. The company also underperformed in the Philippines, where sales dropped 6 per cent.

Germany, one of the company's most important European markets, experienced a smaller dip of 1 per cent.

"We believe turning these (three) markets to profitability is key to solidifying the profit base," said Banc of America Securities analyst Bryan Spillane, who has a neutral rating on Coke shares.

Coca-Cola was up 88 cents at US$44.21 on the New York Stock Exchange. The soft drink maker repurchased $1 billion worth of its stock in the second quarter and said its repurchases for all of 2005 were expected to total at least US$2 billion.

- REUTERS