Food & Beverage

Coca-Cola beats expectations on top and bottom line, as Diet Coke returns to growth

Key Points
  • Coca-Cola has been managing industry headwinds through pricing and innovations.
  • New millennial-focused Diet Coke flavors helped return the brand to positive volume growth in North America.
  • Coke reported organic sales growth of 5 percent.
Coca-Cola posts quarterly beat, organic growth up 5%
Coca-Cola posts quarterly beat, organic growth up 5%

Coca-Cola on Tuesday reported quarterly earnings and revenue that beat analysts' expectations as a relaunch of its classic Diet Coke drink and an expansion of newer brands helped drive sales.

Big Food companies have lost share to upstart brands and have struggled to adapt to a move away from sugary soft drinks. Coke, though, has launched new versions of its classic drinks. In the latest quarter, it launched Diet Coke drinks in sleeker bottles and new flavors like Feisty Cherry. The launch helped bring Diet Coke back to positive volume growth in North America.

"We've been learning over the last couple years, the team has been learning on what is going to help a great brand like Diet Coke re-engage ... I think this round, we came out with some good marketing, some reinvigorated packaging, shapes, sizes, and looks, and obviously ... innovation on the flavors," CEO James Quincey said in its earnings call.

Here's how the company did compared with what Wall Street expected:

  • Earnings: 47 cents per share, adjusted vs. 46 cents per share forecast by Thomson Reuters
  • Revenue: $7.6 billion vs. $7.34 billion forecast by Thomson Reuters

Meantime, Coke this quarter reported North American growth for Topo Chico, a sparkling water drink it acquired that competes with millennial favorite LaCroix.

Coke said first-quarter organic sales, which strips out the impact of currency, grew 5 percent.

The company reported net income of $1.37 billion, or 32 cents a share, up from earnings of $1.18 billion, or 27 cents a share, year ago.

After adjusting for continuing operations and other items, Coke said it earned 47 cents a share, which was a penny better than analysts were expecting, according to a Thomson Reuters survey.

Earning from continuing operations rose to 47 cents a share from continuing operations, a penny ahead of analysts expectations.

Coke said revenue fell 16 percent to $7.6 billion from the previous year, but sales surpassed expectations because the decline was anticipated as the company worked on refranchising its bottling operations.

"Overall, we were impressed with [Coke's] ability to deliver a strong and balanced topline suggesting that its refranchising and portfolio evolution efforts are paying off," Wells Fargo analyst Bonnie Herzog said.

Shares of Coke were flat in early morning trading.

Coke also brought its innovations abroad. It said it launched its Fuze Tea drink in 37 countries across Europe, building off a 49-country footprint. New flavors for the beverage included its herb- and fruit-infused drinks with fewer calories.

"Sometimes we've had good successes, we've been shy about moving them around the world. We've got to lift them, we've got to shift them, we've got to scale quickly," Quincey said.

Globally, Coca-Cola volume growth was 4 percent.

Coke said impact from the new U.K. sugar tax is still too early to tell, but it has reformulated a number of its brands to reduce sugar level. It has also been pushing hard on Coke Zero and Diet Coke, such that two-thirds of its entire portfolio will not pay the tax.

The tax, which came into effect earlier this month, is aimed to help battle childhood obesity.