Coke Earnings Jump but Firm
Dissatisfied with Results
Beverage
Giant to Look at Marketing
POSTED: 5:06 am EST
February 17, 2005
ATLANTA
-- The Coca-Cola Co., the world's largest beverage
maker, said Wednesday it will renew its focus on marketing
Diet Coke as it reported it isn't satisfied with a 30 percent
increase in fourth-quarter earnings because of only modest
growth in revenue and volume.
The results beat Wall Street
expectations and drove investors to send Coke shares upward.
Still, executives said Coke's performance in recent months
doesn't meet the standards that the company and the public
have come to expect.
"We believe that Coca-Cola still
has much work to do, as there are several markets that require
attention," UBS analyst Caroline Levy said in a research note.
She added that rival PepsiCo
Inc. of Purchase, N.Y., may be building reserves to respond to
any potential strategic initiatives by Coke, which could
hamper Coke's efforts to retool its business.
"While Coca-Cola appears to be
moving in the right direction, we will likely require further
visibility on the success of (its) new initiatives before
revisiting our view," she said.
For the three months ending Dec.
31, Atlanta-based Coke said it earned $1.20 billion, or 50
cents a share, compared to a profit of $927 million, or 38
cents a share, a year ago.
Excluding one-time items, Coke
said it earned $1.12 billion, or 46 cents a share. That beat
the 40 cents a share that analysts surveyed by Thomson First
Call were expecting.
Revenue in the quarter was $5.26
billion, a 2 percent increase from the $5.18 billion recorded
a year ago.
Coke shares rose 65 cents, or
1.5 percent, to close at $43.30 Wednesday on the New York
Stock Exchange.
Despite the results, chief
executive Neville Isdell said he wasn't happy. He noted the
slim revenue growth and worldwide unit case volume growth of
only 2 percent for all of 2004. In
North
America, a key business unit for Coke, unit case volume
declined 1 percent in the fourth quarter, while full-year unit
case volume in North America was flat.
Donald Knauss, head of Coke's
North America unit, said the company plans
accelerated marketing in 2005. In particular, he said the
company plans a "major reemphasis" of Diet Coke to deal with
an increasingly diet-conscious public.
"We believe there is tremendous
opportunity to meet the consumer trends on health and
wellness," Knauss said.
Earlier this month, Coca-Cola
said it will begin selling Diet Coke sweetened with sugar
substitute Splenda in the spring. Rival PepsiCo plans to
reformulate its single-calorie drink Pepsi One with the
sweetener as well.
Diet Coke with Splenda will have
a distinct label with the name of the sweetener on it as well
as a yellow streak. Coca-Cola will continue to sell
traditional Diet Coke, which is flavored with aspartame,
separately.
Chief financial officer Gary
Fayard said the increased marketing and weak performance in
certain markets will weigh down the company's results in 2005,
though he did not provide details on earnings per share
guidance, in keeping with company policy.
In the company's unit that
includes Europe, parts of Asia and the Middle
East, unit case volume increased 3 percent in the fourth
quarter, though volume in the region was flat for the year in
part because of Coke's performance in Germany, where unit case
volume declined 15 percent in the quarter and 11 percent for
the year.
Unit case volume grew 4 percent
in the quarter in the company's Africa and Latin
America units.
In November, Isdell told
investors the company needs to execute better.
Among the
plans to boost growth: much more advertising. The company
plans to spend an additional $350 million to $400 million on
marketing this year, shifting its ads from local, promotional
types to big-media buys that could span an entire country or
continent.
The company has asked five
marketing agencies to each create an ad varying in length up
to 90 seconds that involves themes that cross different
cultures and geographies. Three themes it is trying to focus
on are iconic, football (soccer) and holidays like Christmas
and the Islamic holy month of Ramadan.
Once completed in the spring,
each country that Coke does business in will be given the
option to use any one or more of the spots.
"The goal is to be more
consistent and bring back some bigness to brand Coca-Cola,"
spokesman Kelly Brooks said. He described it as Coke's
"attempt to restore its global iconic status."
The company's last truly global
marketing campaign was its "Always" slogan that was used from
1993-1999, Brooks said. The slogan was meant to capture Coke's
enduring qualities past, present and future, Brooks said
Last month, Coke announced
several management changes and the resignation of its North
American marketing boss.
For all of 2004, Coke said it
earned $4.85 billion, or $2 a share, compared to earnings of
$4.35 billion, or $1.77 a share, for the previous year.
Twelve-month revenue was $21.96 billion, compared to $21.04
billion in 2003.
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