The Coca-Cola Company has reported robust operating results in the second quarter of 2019, driven by a strong performance of the brand’s sparkling soft drinks segment, and by new launches of Costa Coffee ready-to-drink chilled products and Coca-Cola energy drinks. Reported net revenues and organic revenues (non-GAAP) both grew 6 percent through balanced volume and price/mix, with all operating segments contributing to organic revenue growth.
Sugar reduction is in key focus of Coca-Cola’s product releases this year, in response to the ubiquitous calls for reformulation and the imposition of a tax on sugary beverages in some US states. Innovation in this space is now essential, as competitors race towards healthier, sugar-reduced versions of great tasting products.
“We believe there are more effective ways to address obesity, and we know this is an important issue for our consumers,” Scott Leith, Senior Director of Financial Communications at Coca-Cola tells. “That’s why we’re taking steps to help people reduce the amount of sugar they consume. Our actions include reducing the amount of sugar in many of our products, introducing more beverages with low or no calories, offering smaller packages, providing clear nutritional information and marketing our products responsibly.”
“We see that consumers want options with less sugar. For example, Coca-Cola Zero Sugar had double-digit growth in the second quarter, the seventh consecutive quarter of double-digit volume growth globally. Coke Energy comes in a zero sugar variant, and Costa ready-to-drink flavors have 30 percent less sugar than most RTD coffees in Great Britain,” adds Leith.
Quarterly performance
Net revenues at Coca-Cola rose by 6 percent to US$10 billion. Organic revenues also (non-GAAP) grew 6 percent. Revenue growth was driven by concentrate sales growth of 4 percent and price/mix growth of 2 percent. The operating margin, which included items impacting comparability, was 29.9 percent versus 29.4 percent in the prior year. The comparable operating margin (non-GAAP) was 30.3 percent versus 30.6 percent in the prior year. A strong underlying operating margin (non-GAAP) expansion was offset by an approximate 185 basis point (bps) negative impact from currency headwinds and net acquisitions.
Earnings per share (EPS) grew 12 percent to US$0.61. Comparable EPS (non-GAAP) grew 4 percent to US$0.63. Comparable EPS growth included the impact from a 9-point currency headwind.
The company continued to gain value share in total nonalcoholic ready-to-drink (NARTD) beverages. Year-to-date cash from operations was noted at US$4.5 billion, up 68 percent largely due to strong underlying growth, working capital initiatives and the timing of tax payments. Year-to-date free cash flow (non-GAAP) was US$3.7 billion, up 87 percent.
Expanded beverages portfolio
A strong performance for the quarter was notably driven by sparkling soft drinks, led by 4 percent volume and transaction growth in the trademark Coca-Cola. Coca-Cola Zero Sugar continues to perform well, with a seventh consecutive quarter of double-digit volume growth globally. Quarterly performance was further driven by innovation, such as Coca-Cola Plus Coffee, and a modernized marketing strategy for contemporary consumers. The company reached a first-of-its-kind partnership with Netflix to temporarily bring back 1985’s New Coke for the July 4 debut of season 3 of the hit series “Stranger Things.”
During the quarter, the company launched the first-ever Costa Coffee ready-to-drink (RTD) chilled product in Great Britain, marking the first major new product introduction since Coca-Cola acquired Costa earlier this year. The company plans to roll out the product in additional markets in the second half of the year. The brand’s coffee offers 30 percent less sugar than most RTD coffees in Costa’s core market of Great Britain. The Costa Coffee brand is also expanding through a new agreement with Coca-Cola HBC AG. The agreement will address a broad range of consumer and customer needs across multiple channels and occasions, including roast and ground coffee, RTD offerings and vending. The bottler plans to introduce Costa Coffee in at least 10 markets in 2020.
The first energy drink under the Coca-Cola brand launched in select European countries during the quarter. Coca-Cola Energy features caffeine from naturally derived sources, guarana extracts, B vitamins and no taurine, with the same recognizable Coca-Cola flavor. The product has shown early signs of success. Coca-Cola Energy is now available in 14 countries, including recent launches in Japan, Australia and South Africa. The company expects to offer Coca-Cola Energy in 20 markets by the end of 2019, including Mexico and Brazil.
“We are encouraged by Coke Energy’s initial results,” says Leith. “We continue to learn and apply insights as we scale Coke Energy across more of our system. Coke Plus Coffee has done well in a number of markets worldwide, with more launches planned for the remainder of the year.”
Since the company's initial investment in the innocent business in 2009, the innocent team has taken the business from the bestselling smoothie brand in the UK to the bestselling chilled juice brand across Europe. The brand is now expanding into Asia for the first time through a targeted rollout, starting in Tokyo. Innocent appeals to consumers who want more functional and nutritional benefits in their daily diet, in addition to those who enjoy natural, and healthy juices and smoothies.
