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Coca-Cola profit falls by 28 per cent

Coca-Cola has reported a 28 per cent drop in fourth-quarter profit on higher marketing costs.

india Updated: Feb 08, 2006 11:48 IST

Coca-Cola Co, the world's biggest soft-drink maker, on Tuesday reported a 28 per cent drop in fourth-quarter profit on higher marketing costs and charges to repatriate foreign earnings.

But excluding one-time items, earnings beat the analysts' average forecast by 2 cents a share, helped by higher-than-expected revenue.

Coca-Cola shares were up almost 1 per cent at $41.32 on Tuesday morning on the New York Stock Exchange.

The Atlanta-based company, which rolled out a flurry of new products last year and plans to keep up the tempo in 2006, said operating income fell 6 per cent on the planned double-digit increase in marketing and new product development.

Net earnings declined to $864 million or 36 cents a share, from $1.2 billion or 50 cents a share, a year earlier.

The 2005 net profit included charges of 10 cents per share for repatriating foreign earnings and for a charge incurred by a bottler in which Coca-Cola invests.

Excluding those charges, earnings were 46 cents a share. Analysts on average had expected 44 cents, according to Reuters Estimates.

"Given low expectations heading into the quarter on concerns about the potential currency impact and volumes in key markets such as Europe and South Asia, Coke's Q4 result is a positive," analyst John Faucher of JP Morgan Securities, said in a research note. He rates the stock at "overweight."

Revenue rose 7 per cent to $5.55 billion, reflecting a 4 per cent increase in gallon sales, a 3 per cent benefit from pricing and mix, and a 1 per cent benefit from structural changes. Analysts had forecast $5.41 billion, according to Reuters Estimates.

The company, which recently named industry veteran Muhtar Kent to the newly created post of international operations president, posted a 4 per cent rise in unit case volume, led by continued strong growth in key emerging markets, including China, Russia, Brazil and Turkey.

Reigniting anemic sales of core brands such as the flagship Coca-Cola Classic has been a challenge for the company and its bottlers since the late 1990s, when many consumers started shifting to bottled waters and other healthy drinks.

Chief Executive Neville Isdell said Tuesday that after completing a transition year in 2005, the company would measure itself against its long-term performance goals starting in 2006.

"In 2006, and unlike 2005, we're heading to the beginning of the year with a strong pipeline of marketing and innovation in place, not just in our home market of North America, but also around the world," Isdell said during a conference call with analysts.

Coca-Cola has said it targeted growth of 6 per cent to 8 per cent in operating earnings and 3 per cent to 4 per cent in unit volume.

"I think it's important that they are saying, 'Hold us to our long-term goals,' for the first time in 2006," said analyst Mark Swartzberg of Stifel, Nicolaus & Co, who rates the stock "buy."

At Monday's close, Coke shares were up 1.3 per cent so far this year and traded at nearly 18 times 2006 earnings, while rival PepsiCo Inc. was down 3.4 percent with a price-to-earnings ratio of 19.6.

But in terms of market value, Pepsi lags Coke after overtaking it late last year for the first time.

First Published: Feb 08, 2006 11:48 IST