Coca-Cola Q4 profit down, but tops estimates - Update 2

(RTTNews) - Thursday, beverages giant Coca-Cola Co. (KO | Quote | Chart | News | PowerRating) posted an 18% decline in profit for the fourth quarter, hurt by higher one-time charges. On an adjusted basis, earnings per share grew 10%, beating market projections, marking the ninth consecutive quarter of double-digit comparable earnings growth. However, operating revenue for the quarter declined.

Fourth-quarter net income was $995 million, down from $1.21 billion in the previous year. On a per share basis, earnings declined 17% to $0.43 from last year's $0.52.

Reported results for the fourth quarter 2008 included a net charge of $0.21 per share primarily related to a non-cash impairment charge at Coca-Cola Enterprises Inc., an equity investee, restructuring charges and asset write-downs. Prior-year's reported earnings included a net charge of $0.06 primarily related to restructuring charges and asset write-downs.

Excluding charges, comparable net income for the period was $1.48 billion or $0.64 per share versus $1.36 billion or $0.58 per share in last-year period. On average, 10 analysts polled by Thomson Reuters expected the company to report earnings of $0.61 per share. Analysts' estimates typically exclude special items.

Quarterly net operating revenues fell 3% to $7.13 billion from $7.33 billion in the previous year period, missing seven Wall Street analysts' consensus revenue estimate of $7.52 billion.

Commenting on the results, Muhtar Kent, president and chief executive officer, Coca-Cola said, "Our performance in the fourth quarter was very solid. We delivered consistent, quality results for the quarter and for the full year. For the year, we again exceeded our long-term growth targets despite a very challenging economic environment. And importantly, we gained volume and value share in most of our leading markets through solid execution of our strategies."

Worldwide unit case volume grew 4%, successfully cycling 5% growth in the prior year quarter. The company recorded 6% growth in International operations, while North America unit case volume declined 3% in the quarter.

Globally, the company said it continued to gain volume and value share in nonalcoholic ready-to-drink beverages as well as in core sparkling and still beverages.

In key emerging markets, unit case volume in China increased 29%, India 28% and Eastern Europe unit case volume grew in double digits. Latin America delivered solid, balanced growth in unit case volume led by 6% rise in Mexico and 7% growth in Brazil. Europe achieved unit case volume growth of 2% in the quarter.

Following the slowdown in North American sales amid a growing consumer emphasis on health and an economic slowdown, beverage companies have significantly relied more on developing markets like China, India and Russia for growth. In September last year, Coca-Cola offered to acquire China's largest privately-owned juice producer China Huiyuan Juice Group Ltd., in a deal valued at US$2.4 billion, as part of the company's efforts to boost its presence in the fast-growing Chinese beverage industry. According to Thursday's reports, Coca-Cola said it would invest $1.2 billion in Russia over the next 3 to 5 years.

In the fourth quarter, sparkling beverages increased unit case volume 2%, with 3% growth in International sparkling beverage unit case volume. Still beverage unit case volume grew 11% in the quarter, led by strong growth across the portfolio, and International still beverage unit case volume climbed 17%.

In October last year, Coca-Cola, which sells Coke, Minute Maid orange juice, Dasani bottled water, VitaminWater, Nestea and other brands, had reported a 14% rise in third-quarter profit as sales in emerging markets offset U.S. weakness. Coca-Cola's third quarter net income was $1.89 billion or $0.81 per share, while excluding certain charges and gains, non-GAAP net income rose about 17% to $1.93 billion or $0.83 per share. Net operating revenues for the quarter advanced 9% year-over-year to $8.39 billion.

Coca Cola's major rival, PepsiCo Inc. (PEP | Quote | Chart | News | PowerRating) is slated to release its fourth-quarter results on Friday, February 13, before the market opens. Analysts project earnings of $0.88 per share, higher than last year's $0.80, on revenues of $12.80 billion, representing a 3.7% growth from last year's $12.35 billion. The Purchase, New York-based Food and beverage giant in mid-November had said it expects to meet its core profit forecast for the full year of $3.67-$3.68 per share, which the company lowered in October amid the weakening economic situation. In October, PepsiCo revealed a 10% drop in its third-quarter net income to $1.58 billion or $0.99 per share, hurt by the challenging macro environment and higher input costs.

Another peer Dr Pepper Snapple Group Inc.'s (DPS | Quote | Chart | News | PowerRating) earnings for the fourth quarter is estimated by the analysts to be $0.37 per share, on revenues of $1.34 billion. Dr Pepper Snapple, which was separated from Cadbury Plc (CBY | Quote | Chart | News | PowerRating) on May 7, 2008, currently expects full-year 2008 earnings per share of approximately $1.54 to $1.57, or approximately $1.83 to $1.86 excluding certain items. The Plano, Texas-based company's previous forecast for reported earnings was at least $1.65 per share, or at least $1.94 per share excluding certain items. For the full-year, the company expects net sales growth of about 1%. Analysts project earnings of $1.82 per share on sales of $5.73 billion for the year.

For the fiscal year 2008, Coca Cola's net income dropped 3% to $5.81 billion or $2.49 per share from prior year's $5.98 billion or $2.57 per share a year ago. Comparable net income was $7.36 billion or $3.15 per share, up 17% from $6.29 billion or $2.70 per share in 2007. Annual net operating revenues grew 11% to $31.94 billion from $28.86 billion last year. Analysts projected earnings of $3.12 per share on revenues of $32.44 billion for the full year.

Unit case volume growth was 5% for the year. Full-year operating income increased 16% on a reported basis, while the growth was 17% excluding items.

Further, the company said it is currently on track to deliver $500 million in annualized savings from productivity initiatives by year-end 2011. The continued acceleration of these efforts will enable cash flows to be redeployed to drive investments for growth, Coca-Cola noted.

In a January 26 research note, Credit Suisse lowered its price target on Coca-Cola to $47 from $55, with 'Neutral' rating. The brokerage said that operationally, it expects flattish volume growth and EBIT for the year 2009, below long-term guidance. India and Philippines present different challenges, as these are company owned bottling operations, while Eurasia is eroding and the China juice deal looks expensive, with longer-term benefit.

On January 14, brokerage Barclays Capital said it continued to believe that Coca-Cola offers investors a relatively stable fundamental performance, compared to the rest of the world, and that the long duration cash flows of its iconic brands support a reasonably secure dividend, compared to most other companies.

In the past 52 weeks, shares have been trading in a range of $40.28 -$61.90, with a three month average volume of 13 million shares. Shares are currently trading at $42.99, up $1.72 or 4.39% on a volume of 3.095 million shares.

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