- The Washington Times - Tuesday, April 21, 2009

MILWAUKEE (AP) - Consumers overseas bought more Coca-Cola products in the first quarter than a year earlier, but the company’s first-quarter profit fell 10 percent because of one-time costs and the dollar’s strength abroad, Coca-Cola Co. said Tuesday.

Coca-Cola shares fell slightly in afternoon trading as investors worried that the strong dollar could continue to hurt the company. Investors also were reacting to the company’s dismissal of rival PepsiCo Inc.’s announcement Monday that it was offering $6 billion to buy out its two largest bottlers as insignificant to its own business.

PepsiCo said owning the bottlers would let it respond more nimbly to the drop in soft drinks’ popularity in favor of healthier options like water and juices.

Some analysts speculated that Coca-Cola _ which owns 35 percent of its largest bottler, Coca-Cola Enterprises Inc. _ may make similar moves since it faces the same challenges.

But Coca-Cola President and Chief Executive Muhtar Kent said the company still believes franchising its bottling is the best way to compete and reach its cost-savings goals.

“We are aligned like never before to drive costs out of the system,” he said.

Shares of Coca-Cola fell $1.24, or 2.8 percent, to $43.09 Tuesday while shares of Coca-Cola Enterprises fell 50 cents, or 3.3 percent, to $14.77.

Bill Pecoriello, chief executive of ConsumerEdge Research LLC, said Pepsi’s purchase could put pressure on Coca-Cola because it could save Pepsi money and Pepsi may boost its marketing in the U.S.

“If the competitor has extra savings they’re putting back in the market, well Coke is going to have to answer that in terms of their spending,” he said.

Coca-Cola’s volume rose 2 percent in the quarter, Pecoriello said 1 percentage point more than he expected, expected, even with a decline in the U.S. and parts of Europe.

But he said the strong dollar is a big concern because Coca-Cola derives 80 percent of its profits outside the U.S.

Coca-Cola’s net income for the period ended April 3 slipped to $1.35 billion, or 58 cents per share, from $1.5 billion, or 64 cents per share, a year ago. Excluding restructuring charges, write-downs and other one-time items, it earned $1.51 billion, or 65 cents per share, which met the expectations of analysts polled by Thomson Reuters.

The company took a more significant hit from the strong dollar, which it said dragged down quarterly performance 17 percent. A rising U.S. dollar hurts companies that do significant business overseas because it cuts into the value of their sales and profits in those markets.

The company said it expects that effect to continue and reduce its second-quarter profit by 14 percent to 16 percent _ implying that profit will come in below targets. Despite that _ and higher costs for pensions, among other things _ Coca-Cola said it was confident it would reach its goals for the year.

Overall, sales in the quarter, which included five extra selling days, dipped 3 percent to $7.17 billion to miss Wall Street’s estimate of $7.36 billion.

Rising overseas sales only partially offset slumping sales in the U.S. and Canada and eastern and central Europe. Some of the biggest improvements were in India, China and Mexico.

Kent told analysts on a conference call that the Atlanta-based company was upbeat about the future and was confident in its plan to save $500 million a year by 2011.

“The global economic crisis, while big in scale and scope, has certainly been less daunting for businesses like ours that provide affordable, high-velocity products that are a staple in consumers’ daily lives,” he said.

In North America, Coca-Cola unit case volume fell 2 percent, as retail volume fell 4 percent and volume in the foodservice and hospitality business gained 3 percent.

The company is trying to keep consumers drinking its soft drinks by offering 16-ounce plastic bottles of brands like Coke, Coke Zero, Diet Coke, and Sprite for 99 cents.

Christopher Shanahan, a food industry analyst with Frost & Sullivan, said lowering price points and shrinking package sizes _ from $1.25 for a 20-ounce bottle _ keeps consumers within the brand family and buying the company’s products, even if they ultimately spend less.

“The goal is to have that logo in every person’s home no matter what, (even) if you’ve got to offer small packages and smaller units,” he said. “In the future, when times are better, then that should change.”

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