Cost-Cutting Is Helping Coke Make More Money

February 9, 2016, 6:01 PM UTC
Photo courtesy: Bloomberg via Getty Images

Coca-Cola (KO) reported a better-than-expected quarterly profit, helped by aggressive cost-cutting and lower commodity costs.

The soda maker, which is targeting $3 billion in annual cost savings by 2019, has been cutting costs through job reductions and selling some of its bottling operations and factories.

Coca-Cola said on Tuesday it would refranchise all its North America bottling operations by the end of 2017, three years earlier than expected, and also refranchise its bottling operations in China.

The company is also trying to boost sales by raising prices and promoting smaller pack sizes.

“In the United States, in particular, we have a price-pack architecture strategy, promoting the mini cans and the 8-ounce glass bottles,” CFO Kathy Waller told Reuters, adding that the strategy was doing well in the region.

Coca-Cola’s global sales volume rose 3% in the fourth quarter ended Dec. 31, helped by higher demand for Coke, Sprite, and Coke Zero.

Net operating revenue fell 8% to $10 billion, the third straight quarterly drop. Excluding the impact of acquisitions, divestitures and foreign currency, revenue declined 1 percent.

Revenue from North America, its biggest market, fell 7%.

However, net income attributable to shareholders jumped nearly 61% to $1.24 billion, or 28 cents per share, in the quarter.

Selling, general and administrative expenses fell 9.2 percent to $3.94 billion.

Lower costs for commodities also helped margins in the quarter, Waller said.

Sugar prices have been pressured due to expectations of a bumper crop in Brazil in 2016/17, while corn prices have been depressed due to a global glut.

Sugar and corn are the two main ingredients used by soft-drink makers.


Excluding items, the company earned 38 cents per share.

Analysts on average had expected earnings of 37 cents per share and revenue of $9.91 billion, according to Thomson Reuters I/B/E/S.

Coca-Cola forecast 2016 currency-neutral adjusted earnings growth of 6% to 8% per share.

The company said it plans to buy back $2 billion-$2.5 billion of shares in 2016.

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