Coca-Cola has pointed to further signs that its turnround plan is starting to gain traction, as it reported higher earnings despite an increase in advertising costs and strong currency movements that hurt its revenues. The US drinks company said on Wednesday that second-quarter revenues fell 3% to $12.2bn, but net profit rose 19 per cent to $3.1bn, or 71 cents a share.
This was in line with expectations and the group said it would maintain forecasts for the year. Coca-Cola has been cutting costs, reducing the size of drinks bottles and cans, and increasing advertising spending as it responds to consumers' shift away from fizzy drinks, especially those with artificial flavours, and packaged in large volumes. The strong dollar hit Coca-Cola's overseas operations and Muhtar Kent, chief executive, highlighted the difficult economic conditions it and rivals were facing, particularly in China, Russia and Brazil. He noted that incomes in China had not improved significantly of late.
"Given the current overall macroeconomic environment in China we are still cautious for the near term, but are excited by the long-term prospects we see in this dynamic and important market," Mr Kent said, adding Coke is continuing to increase value and volume share. "We are continuing to invest heavily for the future," he said. Mr Kent said Coca-Cola's turnround was proceeding at the right pace and it was on schedule with cost cuts. When asked about the company's M&A strategy, he said that it was looking for "bolt-on targets that fit the company's portfolio".
Coca-Cola's US performance improved, which the company said partly reflected the success of its advertising push and smaller packaging, which enabled it to charge more per ounce for its drinks. Coke said it believed the premium sector had a bright future, highlighting its Blue Sky soft drinks, which it acquired when it took over Monster Beverages, as fitting into that segment. It added that the types of packages the beverages came in were also key to the consumer experience. Shares fell 0.7 per cent to $40.90 by close of trading in New York, continuing its halting performance since the start of the year.
