Coca-Cola (NYSE: KO ) reported earnings before the opening bell rang on Tuesday. Here's what you need to know about the company's results, and why the shares were down immediately after the earnings announcements.
The cola giant delivered earnings of $0.63 per share for the second quarter, which was in line with Wall Street expectations. However, revenue fell to $12.75 billion, shy of the $12.95 billion analysts expected. Global sales volume rose 1% for the quarter, despite significant weakness in North American and European soda sales. Coke shares were down more than 2% after the company issued its quarterly results Tuesday morning.
Under the weather
Even though U.S. soda volumes have fallen for roughly a decade, Coca-Cola attributed the fizzled-out consumption in both domestic and international markets to unusually cool and wet weather. Volume growth in Vietnam, which rose a robust 28%. But, disappointingly, India grew at a mere 1%. Consumption was flat in several key emerging markets, notably China and Brazil. Volumes declined 1% for the second quarter in North America, while European volumes fell a gloomy 4%. Sometimes, even being one of the globe's most diversified companies isn't enough to ward off a dreary sales quarter.
While the average U.S. consumer swigs 401 servings of Coke products per person annually, Indian and Chinese inhabitants sip 14 and 39 servings, respectively, creating huge opportunities for companies like Coke and rivals PepsiCo and Dr Pepper Snapple in these relatively untapped emerging markets. But the sticky wicket that Coke and its competitors find themselves in is that their global brands have already conquered many parts of the world economy, specifically developed markets similar to our domestic one. They now need to succeed in markets with more regional preferences, which may pose a bigger problem than initially thought.
Sunny climate for noncarbonated drink sales
The one bright spot for Coke's sluggish second-quarter results was sales of noncarbonated beverages. For the second quarter, overall volume for noncarbonated drinks rose 5% in North America, fueled by sales of products such as Dasani bottled water, Powerade, and SmartWater. Since noncarbonated drinks are growing at a faster rate than carbonated ones, Coca-Cola's future success rests in the breadth and depth of its noncarbonated offerings. Noncarbonated beverages make up about 25% of the company's global sales, a figure that will likely increase in future years.
Some Coke shareholders may be feeling sluggish after Tuesday's earnings announcement. But serious, long-term investors thirst for stock price dips of great companies, and view them as significant buying opportunities.
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