Coca-Cola has seen brand Coke volumes increase in North America

Coca-Cola has seen brand Coke volumes increase in North America

Coca-Cola Co CEO Muhtar Kent said yesterday (22 July) that his company's first-half results proved “steady progress” in a turbulent industry.

The market, however, failed to match his optimism and shares in the soft drinks company dropped 3% yesterday, their biggest fall in about a year.

What was surprising was that the slump took place despite a generally positive response from analysts - albeit from already rather low expectations as the company attempts to boost volumes, particularly in the difficult North American CSD market.

However, Kent for once had the luxury of arguing that North America's sparkling beverages were a bright spot as brand Coca-Cola grew volumes by 1% in Q2, with Fanta up 4% and Sprite up 2%. The CEO said the improvements were driven by smaller pack sizes for the brands that drove 60% of brand Coke's volume growth.

According to analysts at Nomura, this shows Coca-Cola focussing on better price discipline in the US, something that “appears to be coming through”.

“In addition,” Nomura added, “volume was held in N America in Q2, although this may prove more difficult in Q3 against a tougher volume comp (+2%).”

The volumes success in North America was reflected in Coca-Cola's global volumes as sparkling beverages increased by 2%, which according to Wells Fargo's Bonnie Herzog is the company's strongest result in the category in over a year. Still beverage global growth of 5% in the quarter put Coca-Cola's overall volumes up 3%, which Herzog said marks the first quarter in over a year of volume growth within the company's long-term target of 3-4%.

It was just these targets, however, that drew continued criticism from analysts, who for the past six months have urged Kent to drop his so-called 2020 Vision that aims to boost sales and volumes and focus more on margins.

“We think it is well understood that Coke is unlikely to perform any better than its long-term targets this year or next,” Stifel's Mark Swartzberg said. 

One voice missing from the criticism was Herzog, who said she “continues to respect Coca-Cola's management team and its vision”.

“Thus far, we believe KO has demonstrated its ability to generate improved results despite the challenging macroeconomic environment through its strategic focus and successful marketing initiatives,” Herzog said.

It appears Coca-Cola's management team still has some backers as it wrestles with a range of global problems including tax increases in Mexico, dwindling diet soda sales in the US and flat volume growth in Brazil, something that Kent was forced to defend in a conference call with analysts.

That support, however, seemingly failed to convince investors, who yesterday voted with their stock. And with analysts pointing to tougher comparables in Q3 than in Q2, there is likely to be further confidence tests in Kent and co before the year is out.