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Coke quarterly profit falls 24%

By SCOTT LEITH
The Atlanta Journal-Constitution
Published on: 10/21/04

Coca-Cola's worldwide sales volume barely budged in the third quarter, while profits tumbled 24 percent.

With those results, new Chairman and Chief Executive E. Neville Isdell was left to reiterate what he's said before — that Coke needs improvement on many levels.

"Overall, I'm not pleased," said Isdell, who is still early in the process of trying to formulate a turnaround plan for Coca-Cola.

Coke's third quarter, which was dampened by poor results in North America and parts of Europe, closed with profits of $935 million, or 39 cents per share.

While that was a drop of 24 percent, Coke's earnings were shaved by 11 cents per share in one-time costs. Excluding those, Coke earned 50 cents per share, beating estimates of 47 cents.

Coke's sales revenue totaled $5.66 billion, down slightly compared with 2003.

Isdell, who took the helm in June, said he's looking at Coke's troubles on two main levels.

"First are opportunities that can be resolved immediately," he said Thursday in a conference call with analysts and investors. These include such moves as trying to boost demand for Coke's lackluster midcalorie cola, C2, by cutting prices.

Coke also faces tougher tasks, such as improving morale and "bench strength" in management. "These are what I call getting the basics right," Isdell said.

Sales volume growth, an important indicator of performance that measures the number of cases sold, is currently at the lowest rate of the decade.

Volume increased 1 percent worldwide, the same as in the second quarter. Coke's worst spots included Germany, where volume declined 16 percent because of deposit laws that have hurt sales.

In North America, volume slid 3 percent, chiefly because of soft retail traffic, poor weather and higher prices. The company said retail pricing increased 6 percent during the quarter, which spanned July through September.

Although there were poor results in some key markets, Isdell highlighted upsides in several places, notably Brazil, China and South Africa.

In those countries, sales of carbonated soft drinks grew 14 percent, he said. "These markets are proof-positive that we can, and do, grow [carbonated soft drinks] when we do the right things for the business," Isdell said.

While there has been softness in several markets, notably the U.S. soft drink business, Isdell said beverage sales continue to grow worldwide.

"We're in a great industry," he said. "There's not a problem. We just have to get the offerings right."

Isdell touched on many topics during Thursday's conference call, but he didn't deal with several critical issues, such as expectations for future growth.

He said many issues will be addressed Nov. 11, when Coke has scheduled a much-anticipated meeting with analysts and investors in New York.

"There are going to be no grand pronouncements, no rosy promises," he said. But there will be "tangible benchmarks" to measure Coke's progress.

Coke's third-quarter results, released after the stock market closed, may have been disappointing overall, but they came as little surprise, given that the company had already issued projections in September.

By beating estimates, Coke even earned a bit of credit.

"The profit growth seems to be better than expected," said analyst John Faucher, of J.P. Morgan.

One key, he said, is hearing about Isdell's bigger plans. "Everyone's still waiting for the Nov. 11 meeting."

Source: http://www.ajc.com/business/content/business/coke/1004/22coke.html