Diet Coke still 'a work in progress'

by Monica Watrous
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Diet Coke sales declined 6% during the recent quarter.

ATLANTA — Many of the Coca-Cola Co.’s key brands drove volume gains during the recent quarter, except Diet Coke, which declined 6%. While the beverage company delivered a solid first quarter in what it called a “transitional” year, executives said more work is needed to fix the diet soft drink brand’s performance.

“I would describe Diet Coke still as a work in progress,” said Sandy Douglas, senior vice-president and president of Coca-Cola North America, during an April 22 earnings call with financial analysts. “We have done a number of things on the basics of marketing, graphics, advertising, packaging. We have some very advanced big data driven customer relationship programs going on, with consumers who love Diet Coke.

“We are seeing some improvement in the year-over-year revenue, but we are still very much focused on that as a work in progress and expect to.

“I would say this: The team and I, and our whole system, believe that in fact we will return Diet Coke to growth in the long term… but still a work in progress.”

For the first quarter ended April 3, net income attributable to shareowners of Coca-Cola was $1,557 million, or 35c per diluted share, down 4% from $1,619 million, or 36c per diluted share, in the prior-year period. Net operating revenues advanced 1% to $10,711 million from $10,576 million the year before. Organic revenue rose 8%, benefiting from the timing of the Easter holiday and six additional selling days.

Global sparkling beverage volume grew 1%, with 1% growth in Coca-Cola, 5% growth in Coke Zero, 4% growth in Sprite and 3% growth in Fanta, which was partially offset by the decline in Diet Coke. Global non-carbonated beverage volume grew 1%, with growth in ready-to-drink tea, value-added dairy and packaged water that was partially offset by a decline in juice and juice drinks due to price increases taken to cover higher input costs.

A segmented market strategy is starting to yield early results, executives said.

“In North America, we are focused on generating revenue through a greater reliance on price realization, increased media investments, coupled with our segmented price pack strategies, drove revenue growth in our sparkling portfolio through a strong 3% price mix and a 1% increase in transactions,” said Muhtar Kent, chairman and chief executive officer. “Simply put, more consumers are enjoying our products more often, and are increasingly choosing smaller packages including our iconic contour bottle, whereas in India, where our revenue growth strategies focus on expanding distribution and recruiting new consumers, we grew double-digit unit case volume growth in both our sparkling as well as still portfolio.”

Management expects the net impact of structural items and fluctuations in foreign currency exchange rates to have an unfavorable effect on full-year results. Coca-Cola projects full-year comparable currency neutral earnings per share growth to be mid-single digits, roughly in line with the growth rate in 2014. The company said it is on track to deliver more than $500 million in savings this year and $3 billion in annualized savings that by 2019 will be reinvested in marketing.

Coca-Cola also announced the signing of new letters of intent with existing bottling partners for territories covering more than 5% of bottle and can volume.

“In aggregate, territories transitioned to date, and those covered by definitive agreements or letters of intent, represent a little over 15% of total U.S. bottle/can volume,” Mr. Kent said. “Further, as we continue to transition territories, we are getting better and faster, which is why we are confident that our previously stated timeline to have two-thirds of bottle/can volume distributed by our independent bottling partners by 2017 is very much on track.”
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