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Bad weather complicates Coca-Cola's soda struggles

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Associated Press
Published:
NEW YORK -- Coca-Cola is struggling to sell more soda in the U.S., and it can't seem to catch a break.
The world's largest beverage maker on Tuesday blamed a confluence of factors including unusually bad weather for its disappointing second-quarter results. It cited cold, wet conditions at home and flooding in parts of Europe for weak volume growth globally. Profit declined 4 percent.
The temporary setbacks clouded the underlying challenge the company faces in North America and other developed markets, where soda consumption has been declining for years amid criticism that sugary drinks fuel obesity rates.
In the latest quarter, for example, Coca-Cola said soda volume in North America fell 4 percent. But the figure has declined in 20 of the 26 quarters since the start of 2007, including a 2 percent slide a year ago.
It was flat in four quarters and rose by just 1 percent in the other two quarters.
Still, executives expressed confidence they'd be able to return to growth with greater investments in marketing, new packaging and other tactics.
"I hate to use the weather, but a lot of it was the weather," Chief Financial Officer Gary Fayard said in an interview on CNBC, apparently acknowledging the frequency with which companies cite the weather when they deliver disappointing results.
When asked if people drink less soda when it's cold and wet outside, Fayard said that was indeed the case.
"We are an industry that's susceptible to weather," he said.
Coke's shares fell 90 cents, or 2.2 percent, to $40.11. Over the past year, the company's stock is up more than 7 percent.
Looking ahead to the second half of the year, executives expressed confidence that the weather would even out and that business would improve, including in key markets such as India, China and North America.
In the meantime, Coca-Cola and rival PepsiCo Inc. have been trying to come up with a soda that uses a natural, low-calorie sweetener to reverse the slide in U.S. soda consumption. The challenge is that such sweeteners often have a bad aftertaste. Notably, Coca-Cola has yet to roll out a mid-calorie version of Fanta and Sprite using the sweetener stevia that it began testing last summer.
Nevertheless, executives at both companies have expressed optimism that natural, lower-calorie sodas can get soda sales on the path to growth.
"We're watching, we're learning," said Steve Cahillane, who heads the company's North American and Latin American operations.
To hit back at critics, Coca-Cola also began a TV ad campaign addressing obesity for the first time in January. The ad noted that weight gain is the result of consuming too many calories of any kind, not just soda.
Similar ads have since been rolled out, with a focus on cable news channels where Coca-Cola believes viewers are more influential in shaping public opinion.
Coca-Cola, based in Atlanta, has also been relying on its bottled teas, water and sports drinks to boost sales. It sold more of such uncarbonated drinks in North America for three months ended June 28, but not enough to offset the decline in sodas.
During the quarter, volume for Europe also declined 4 percent, with Coca-Cola noting the impact of severe flooding in parts of Germany and central Europe. By contrast, the region encompassing Africa, the Middle East and Russia saw a 9 percent gain in volume. The Asia region rose 2 percent, with volume in China even from a year ago.
In addition to bad weather, the company noted that it was dealing with challenging economic conditions and other socioeconomics factors, such as unrest in the Middle East.
For the second quarter, Coca-Cola Co. said it earned $2.68 billion, or 59 cents per share. That's down 4 percent from $2.79 billion, or 61 cents per share, a year earlier.
Excluding one-time items, the company said it earned 63 cents per share, in line with Wall Street expectations.
Revenue slid to $12.75 billion, short of the $12.95 billion analysts expected, according to FactSet.

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