Coca-Cola Earnings Beat Expectations

The Coca-Cola Co. (KO), the world's largest beverage maker, reported a 30 percent increase in fourth-quarter earnings, but said it was not satisfied with only modest growth in revenue and unit case volume. It plans increased marketing of Diet Coke to cater to a more diet-conscious public.

The results, announced before the market opened Wednesday, beat Wall Street expectations.

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 98 cents, or 2.3 percent, to $43.63 on the New York Stock Exchange.

Despite the results, chief executive Neville Isdell (search) said he wasn't happy. He noted the slim revenue growth as well as the fact that worldwide unit case volume growth was 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.

"We are not satisfied with our performance in 2004," Isdell said. In a conference call with investors, he added, "Hopefully, what you will sense as we move toward 2005 is the steps that we are taking are the right ones."

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.

"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 (search) in the spring. Rival PepsiCo Inc. (PEP) 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.

Coke noted that its fourth quarter and full-year 2004 results were boosted by 3 cents a share because of positive currency fluctuations and better operational performance late in the quarter and another 3 cents a share because of a lower than expected tax rate on operations, a settlement with a supplier related to a prior-year product recall and higher than expected gallon sales in North America.

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.

The earnings results come amid Coke's effort to boost volume growth figures that have been slumping over the last several quarters.

In November, Isdell told investors the company needs to execute better. He pleaded with investors for patience in the short term in exchange for higher profits in the long term. He noted profits in 2005 will not be as good as the company would like.

Among the plans to boost growth: much more advertising. The company said at the investor conference that it planned 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.

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.