Coke Profit Falls on Soft Sales, High Costs

Coca-Cola Co. (KO) on Tuesday reported an 11 percent drop in quarterly net income, hurt by weak soft drink sales in North America, higher expenses and a jump in taxes due to a repatriation of foreign earnings.

The world's largest soft drink maker, however, said it had gained on its rivals in the fast-growing bottled water and sports drink markets and held its ground in the all-important carbonated soft drink category in the first quarter.

Coca-Cola earned $1 billion, or 42 cents a share, for the three months ended March 31, compared with $1.13 billion, or 46 cents a share, a year earlier. Revenue increased to $5.27 billion from $5.08 billion.

Excluding the tax liability of a decision to repatriate about $2.5 billion earned overseas, its profit would have been 47 cents a share. Analysts on average had forecast a profit of 43 cents per share on sales of $5.15 billion, according to Reuters Estimates.

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Chairman and Chief Executive Neville Isdell (search) said the first-quarter results reflected the Atlanta-based firm's determination to invest money to improve its marketing, product innovation and organizational structure.

"We still have much work ahead of us, but I am very confident that we are doing the right things, making good progress and that our continued emphasis on execution will bring about long-term benefit," Isdell said in a statement accompanying the results.

Coca-Cola said the weak U.S. dollar and other currency changes added about 5 percent to its operating income. A falling dollar improves financial results when overseas earnings are converted into U.S. currency.

The results come amid a continued restructuring of Coca-Cola's operations that is designed to boost the company's performance in its more than 200 markets around the world.

Coca-Cola is hoping to improve its fortunes in 2005 with the rollout of a flurry of drinks, including an energy drink called Full Throttle and a version of Diet Coke (search) sweetened with the sugar substitute Splenda (search).

One of the keys to Coke's future is capturing more consumers who have moved away from sugary soft drinks to diet versions or to healthier low-or no-calorie beverages such as water and orange juices with reduced sugar.

Doing so would go a long way toward driving up Coke's unit case volume. This key sales measure rose 3 percent overall in the first quarter, boosted by double-digit growth in China, Brazil and other emerging markets.

But volume in North America, Coke's largest market and the one often used as a gauge of its fortunes, was flat.

Coca-Cola is scheduled to hold its annual shareholder meeting on Tuesday in Wilmington, Del.