April 26, 2011 / 12:00 PM / 8 years ago

UPDATE 6-Coca-Cola profit misses on expenses, earthquake

* Q1 adj EPS 86 cents vs Wall Street view 87 cents

* Revenue $10.52 bln vs Street view $10.57 bln

* Japan quake shaving 2-4 cents off EPS for rest of year

* Shares down 1.2 pct (Adds CEO and investor comments)

By Martinne Geller

NEW YORK, April 26 (Reuters) - Coca-Cola Co’s (KO.N) quarterly results slightly missed Wall Street estimates as the earthquake in Japan and marketing expenses overshadowed strong sales volume, and its shares fell 1.2 percent.

The results disappointed some investors who are used to seeing the company beat expectations, according to Gary Bradshaw, a portfolio manager at Hodges Capital Management.

“It’s just Wall Street today — you miss and the first thing some people are going to do is sell,” said Bradshaw, predicting that the shares will be higher in 18 months.

“I just get the sense that Coke is doing everything they can to wring out profits ... and I would be a buyer,” he said.

(For a graphic on Coca-Cola shares, see r.reuters.com/sas29r.)

Atlanta-based Coca-Cola, which sells Minute Maid juice and Powerade sports drink in addition to its cola, said raising prices and selling more higher-margin drinks gave a 1 to 2 percent lift to first-quarter sales in North America, where volume excluding licensed brands rose 2 percent.

For the rest of the year, it hopes for a 3 percent to 4 percent lift from pricing, which Chief Executive Muhtar Kent said may be fueled by sales of the smaller, refrigerated drinks sold in convenience stores and gas stations, which have higher margins.

While sales in those stores may slow if gasoline prices keep rising, Kent said easing unemployment could be a cushion.

“If current trends continue and unemployment is coming down, that will be a mitigating factor, in my opinion, to the higher gasoline prices,” he told Reuters in an interview.

The U.S. unemployment rate is expected to hold steady at 8.8 percent in next week’s monthly report from the U.S. Labor Department. The rate peaked above 10 percent during the recession.

“We are pleased to see Coke’s improving performance in North America, and we retain our cautiously optimistic stance for the remainder of the year, but there are clear risks to recovery,” said Morningstar analyst Philip Gorham.


Coke said on Tuesday that net income rose to $1.9 billion, or 82 cents per share, in the first quarter from $1.61 billion, or 69 cents per share, a year earlier.

Earnings per share were reduced by 1 cent because of lost revenue in Japan following the earthquake in March, and by another penny from marketing expenses as the company moves its newly acquired bottling business to its accounting schedule.

Excluding those and other one-time items, earnings were 86 cents per share, missing the average analyst estimate by a penny, according to Thomson Reuters I/B/E/S.

Coke expects work interruptions in Japan to shave 2 cents to 4 cents per share off full-year earnings. It does not expect Japanese bottlers to be able to fully meet demand during the upcoming summer selling season.

But the weak U.S. dollar could boost full-year operating income by a low- to mid-single-digit percentage, it said.

Coca-Cola, part of the Dow Jones Industrial average .DJI, has seen its shares jump 10 percent since mid-March, when an industry newsletter said Diet Coke overtook Pepsi-Cola as the No. 2 soda in the United States last year, behind Coca-Cola.

With a price-to-earnings ratio of 17.6, Coke trades at a premium to PepsiCo Inc PEP.N and Dr Pepper Snapple Group Inc DPS.N. Both rivals trade at multiples between 14 and 15, according to Reuters data.

Coca-Cola shares were down 84 cents at $66.90 on Tuesday in afternoon trading on the New York Stock Exchange.

Gary Bradshaw, a portfolio manager with Hodges Capital Management in Dallas, said the dip made the stock attractive.

“With the stock down, I’d be more of a buyer looking out long-term,” he said.

First-quarter revenue rose 40 percent to $10.52 billion, in part because of last year’s acquisition of North American bottlers. Analysts on average were expecting $10.57 billion.

Worldwide volume rose 6 percent in the quarter, with North American volume, excluding new cross-licensed brands such as Dr Pepper, up 2 percent. (Reporting by Martinne Geller; editing by Robert MacMillan, Andre Grenon and John Wallace)

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