Coke’s Focus on Healthier Drinks Pays Off With Profit Beat

(Bloomberg) -- Coca-Cola Co. is getting results from its moves to slim down operations and revamp products for healthy-minded consumers.

The company posted sales that beat analysts’ estimates in the first quarter, helped by refreshed versions of its core diet brands and a growing portfolio of products that push beyond soda into new categories.

Atlanta-based Coca-Cola has for years been selling off the bottlers it owned in order to refocus on becoming a marketing and formulation company. After a lengthy transition period, the strategy is finally bearing fruit, with the company saying it’s on-track to deliver full-year targets.

The growth of both new and core brands affirms the company’s long-term strategy. Slow results previously failed to excite investors, putting Coke’s stock in a holding pattern. That may now change. The shares gained as much as 1.6 percent as of 7:42 a.m. in early trading in New York. The stock was down 4.1 percent this year through Monday’s close.

Chief Executive Officer James Quincey, 53, has pushed Coke to grow beyond its namesake brand to become a “total beverage company.” The strategy continues efforts that began under predecessor Muhtar Kent. This has included investing in startup beverage makers in the search for Coke’s next $1 billion brand.

This is part of the company’s key goal of reducing its dependence on soda: Per capita soft-drink consumption in the U.S. fell to a 31-year low in 2016, the latest year with data available, according to trade publication Beverage-Digest.

Coke’s Focus on Healthier Drinks Pays Off With Profit Beat

But the company hasn’t remained idle with its core brands. It recently relaunched its Coke Zero and Diet Coke brands in a bid to revive their sales. Diet Coke has faced declining popularity as consumers eschew artificial sweeteners and opt for other kinds of beverages. Coca-Cola is now selling Diet Coke in new flavors and in taller, skinnier cans.

In the quarter, its Coca-Cola Zero Sugar brand saw double-digit growth, the company said. Diet Coke returned to positive volume growth in North America as a result of the rebranding.

Profit was 47 cents a share, excluding some items, surpassing analysts’ average estimate of 46 cents. Revenue was $7.6 billion, compared with an estimate of $7.35 billion.

Refreshing Water

Coca-Cola’s results were also boosted by its portfolio of sparkling waters in the quarter. The carbonated versions of its Dasani and Smartwater brands saw double-digit growth. And the recent acquisition of Topo Chico’s U.S. distribution rights paid off: The mineral water brand’s U.S. retail value was up more than 30 percent in the quarter, Coke said.

In recent years, the company has been using its investment arm to acquire or take stakes in promising upstarts. These include Honest Tea, Fairlife dairy and Suja Life LLC, which makes high-pressure processed juices, kombucha and drinking vinegars. Coca-Cola is expanding its venture model beyond the U.S. and has already started looking for investment candidates in Central and Eastern Europe, the company has previously said.

Coke has largely stuck with a strategy of smaller, bolt-on acquisitions, but pressure may be rising for larger deals. Keurig Green Mountain Inc. -- formerly a Coca-Cola investment -- recently agreed to take control of Dr Pepper Snapple Group Inc., making it the third-largest nonalcoholic beverage company in the U.S.

Coca-Cola and chief rival PepsiCo Inc. have also increased spending on e-commerce promotion. For Coke, that means improving online product placement, integrating with voice products like Amazon.com Inc.’s Echo and adding impulse-buy opportunities at click-and-collect pickup lockers.

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