Coca-Cola Co.’s second-quarter profit rose 43 percent, and the world’s largest beverage maker said Tuesday its rapid overseas growth helped offset weak domestic volumes, even as foreign currency exchange dragged down sales.
Results for the maker of Coke, Sprite and VitaminWater beat expectations, though the stock fell slightly as investors reacted to the company’s announcement that it expected foreign currency to drag down results by as much as the same amount — 14 percent — in the third quarter.
But these international sales are helping carry the company right now and setting it up for long-term growth, said Edward Jones analyst Jack Russo.
International sales volume rose 5 percent in the quarter, with double-digit gains in China and India, while domestic sales volume fell 1 percent, reflecting the trend of North American consumers cutting back on their spending. Overall sales volume rose 4 percent.
The bulk of the Atlanta-based company’s sales are made abroad, an area the company has been focusing on expanding as its domestic business softens.
“They are clearly set up for growth, with what we’re seeing right now overseas and will see going forward,” Russo said.
For the three months ending July 3, Coca-Cola said it earned $2.04 billion, or 88 cents per share, up from $1.42 billion, or 61 cents per share, a year earlier.
Profit in the quarter rose mostly because last year’s quarter was dragged down by 40 cents a share in restructuring charges and asset write-downs. That compares with 4 cents per share in charges in the most recent quarter.
Excluding restructuring charges, write-downs and other items, Coca-Cola earned 92 cents per share in the most recent quarter. Analysts expected 89 cents per share.
CEO Muhtar Kent said more than 80 percent of the company’s revenue comes from business outside the U.S., and the company was pleased with its latest results there.
Still, those foreign sales were dragged down by the stronger dollar, which hurt operating income by 14 percent in the quarter. Overall, sales fell 9 percent to $8.27 billion, missing Wall Street’s estimate of $8.66 billion. Companies that do significant international business are hurt by a stronger dollar as revenue is translated from local currencies into fewer dollars.
Coca-Cola estimated the drag of foreign currencies would hurt operating income by 12 percent to 14 percent in the third quarter, and by the low single digits in the fourth quarter.
Meanwhile, Kent said consumers are responding to Coca-Cola’s efforts to push sales and offer new sizes and price-points, such as 16 ounces for 99 cents in the U.S. Coca-Cola has also been raising prices on its two-liter bottles, which are set locally by its bottlers and vary from market to market.
Kent said those changes hadn’t hurt volume as much as the company had thought it would. Often when prices are raised consumers react by spurning products.
“We actually thought that was going to be more painful than it has been,” he told wire reporters on a conference call.
Coca-Cola is also cutting costs and is on track to save $500 million a year by 2011 through restructuring, with more than half of that by the end of 2009, he said.
In North America, case volume fell 1 percent but Coca-Cola gained slightly in its share of sales volume. Sales volume of Coke Zero grew 24 percent. In addition to cost, consumers are cutting back on soft drinks for health reasons, switching to juices and teas. Coca-Cola said its unit case volume for soda fell 2 percent in North America in the quarter, while its volume of still beverages — like teas and juices — rose 1 percent.
International case volume rose 5 percent, which includes 33 percent growth in India and 14 percent in China.