Coca-Cola can expect to pay more starting this fall after the company's biggest bottler said Thursday that it would raise prices.
The issues at the bottler also hurt Coca-Cola Co.'s bottom line, since it owns about 35 percent of that business. The world's biggest beverage company said its profit fell 23 percent in the second quarter as it took a charge because of the bottler's woes.
Coca-Cola Enterprises, which has about 80 percent of the U.S. market for Coke, said it would raise prices in September because of higher commodity costs and declining U.S. soda sales. Bottlers set prices for retailers like grocery stores.
At Coca-Cola Co., the results were again led by the international operations.
The company is facing declining soda sales in the U.S., and managed to keep U.S. sales volume steady in the second quarter thanks to a boost from Glaceau's Vitaminwater, which it bought for $4.1 billion last June. International sales rose 5 percent even as they were hurt by natural disasters in Asia and labor strikes in Europe.
"I know what is top of mind for all of you — the current macroeconomic environment and its impact on our results," said Chief Executive Muhtar Kent, who succeeded Neville Isdell on July 1. "It is clear we will face with some challenges around the globe."
The Atlanta-based drinks company earned $1.42 billion, or 61 cents per share, down from $1.85 billion, or 80 cents per share, in the year-ago quarter. The results included a charge of 40 cents per share related to Coca-Cola Enterprises. Excluding one-time items, the per share figure came to $1.01. Revenue rose 17 percent to $9.05 billion from $7.73 billion.
Analysts polled by Thomson Financial had expected a profit of 96 cents per share on revenue of $8.93 billion, on average. But the company's shares fell about 4 percent.
Volume growth for the overall business was 3 percent, which disappointed analysts. Bill Pecoriello of Morgan Stanley said Wall Street had expected volume growth of 4 percent to 5 percent, although he reiterated his "Overweight" rating on the shares.
In the long term, Coca-Cola Co. expects volume growth of 3 percent to 4 percent, operating income growth of 6 percent to 8 percent and earnings per share growth in the high single digits.
The company also said it has initiated a cost-cutting plan to save $400 million to $500 million a year by 2011.
Coca-Cola Co. shares fell $2.11, or 4 percent, to $50.23 in late afternoon trading. Shares in Coca-Cola Enterprises fell 7 cents, 0.4 percent, to $16.77.
"Investors are probably spooked a little that growth is slowing overseas," Edward Jones analyst Jack Russo said. Russo said he expected slower international growth over the next couple quarters because the slowing economy is having a greater impact in some emerging markets than in the U.S.
Demand was soft in Russia and Brazil, Goldman Sachs analyst Judy Hong noted. "Results may signal a macro-driven turn in consumption trends abroad," she wrote to investors.
The bottler posted a second-quarter loss Thursday of $3.17 billion, or $6.52 per share, compared with profit of $270 million, or 56 cents per share, in the year-ago quarter. The company said the loss included a $5.3 billion write-down in the value of a franchise license in North America due to an expected decline in operating income, higher commodity prices and its falling share price.
Chief Executive John Brock said the company would review its supply chain, operations and price strategy as well as "put into motion the essential changes required" to improve its performance in the U.S. The company said it would raise prices by a mid-single digit to high single-digit percentage.
Analysts have said that if the bottler raised prices, then Coca-Cola may also want to raise prices on the concentrate it supplies to the bottlers.
"We think this is the right move for the bottlers and concentrate companies to be making given the realities of the environment," Pecoriello wrote about the bottler's price hike.
Kent declined to say on Thursday whether Coca-Cola would in fact charge bottlers more for concentrate. He said the company has a strong working relationship with its bottlers and would weigh the trade-off between volume and price to maintain growth and market share.