Coke reports 18% drop in net income

Coca-Cola Co.’s profits dropped in the final quarter of 2008 because of one-time charges at its largest bottler, but the Atlanta-based beverage giant continued to sell more cases of its products around the globe.

Coca-Cola’s sales volume rose 4 percent in the fourth quarter, including double-digit growth in China, India and Eastern Europe. North America was the only region to have a decline in volume, down 3 percent for the quarter.

Coca-Cola benefited from being an affordable luxury, selling “moments of pleasure” for cents at a time, said Coca-Cola President and CEO Muhtar Kent. It also is pushing its global network even further to reach more consumers, he said.

“We have been investing with our bottling partners heavily in the last 12-18 months,” Kent said. “That’s paying dividends. That’s paying results — more coolers, better routes of distribution, better local advertising, better distributors and wholesalers.”

Coca-Cola’s fourth-quarter results required some deciphering. Its fourth-quarter net income fell 18 percent to $995 million, or 43 cents a share. The company took about $500 million in net one-time charges, primarily for the write-down of intangible assets at Coca-Cola Enterprises.

CCE, Coke’s largest bottler, announced Wednesday it took a $2.3 billion charge as it lowered the value of its franchise rights for North America. Coca-Cola owns about one-third of CCE stock and is required to reflect the change in value in its statements.

Excluding one-time items, Coca-Cola said it made 64 cents a share, a 10 percent increase to comparable earnings in the fourth quarter of 2007. Analysts expected the company to make 61 cents a share, according to Thomson Financial.

Revenue fell 3 percent to $7.13 billion. The decline was caused by Coca-Cola selling ownership in some bottlers, which had added to revenue in previous periods, and the negative impact of currency exchange rates.

For the full year, Coca-Cola’s net income fell 3 percent to $5.8 billion, or $2.49 a share. Excluding one-time items, earnings per share was $3.15, up 17 percent. Revenue rose 11 percent to $31.9 billion. The market reacted favorably. Coca-Cola stock rose 7.6 percent Thursday to close at $44.39.

“Much better than expected volume growth and overall fundamentals should lift the stock, especially in light of low expectations given results from the company’s consumer staples peers,” J.P. Morgan beverage analyst John Faucher wrote in a note to investors.

Coca-Cola was affected slightly by the global economic slowdown. The pace of growth in volume slowed. Global case volume rose 5 percent in 2008, compared to 6 percent in 2007.

North America remained a sore spot for the company. Volume was down 1 percent for the year as sales for carbonated soft drinks continued to fall. Even before the U.S. recession, Coca-Cola struggled to drive growth in its home market. Case volume fell 1 percent in 2007 and was flat in 2006.

In 2009, Coca-Cola also could be hurt by currency exchange rates, as it was in the fourth quarter, if the dollar holds or gains value. A stronger dollar diminishes the reported profit and revenue made overseas as results are brought back home and translated into U.S. dollars.

Coca-Cola, though, will stay on the offensive, Kent said. The company is rolling out a new global marketing campaign called “Open Happiness.”

“There is no better time to expand the base of the business than nowadays. … We feel the airwaves are less crowded and the media costs are lower,” Kent said.

Coca-Cola continues to work on a productivity initiative designed to save the company $500 million a year by the end of 2011. Kent would not say whether this means cutting the overall head-count, but the move is not a reaction to the recession, he said.

Coca-Cola started “re-wiring” its business 18 months ago to make the company more effective, Kent said. “It’s a faster, more nimble, more market-facing organization,” he said.

Coca-Cola also is rolling out new packages. The company and bottlers have been testing 18- and 20-packs of cans and 16-ounce bottles and cans.

The 16-ounce packages, sold for 99 cents, provide a lower price point than 20-ounce drinks to grab customers at convenience stores.

The new packages, though, aren’t just about lowering prices, Kent said. It’s about providing choices that cater to the consumer needs, he said.

“The right pack at the right price in the right channel for the right occasion,” Kent said. “Before we had less choices. Now, we have more choices, but choices that are targeted, not just put out there and say ‘Pick one’ to the consumer.”