NEW YORK (Reuters) - Coca-Cola Co (KO.N) reported higher-than-expected quarterly profit on Wednesday as strong international growth offset the effects of a weak U.S. economy and flat sales volume at home.
But the positive surprise had much to do with favorable currency exchange rates, thereby muting Wall Street enthusiasm. Shares of the world’s largest soft drink maker were little changed in afternoon trade.
“They had a great quarter and beat the Street,” said Gary Bradshaw, a portfolio manager with Hodges Capital Management. “But I think folks are stepping back and saying, ‘Well, if the dollar’s weak now, maybe they won’t do so well when things firm up’.”
The Atlanta-based company, which also hosted its annual shareholder meeting Wednesday, said first-quarter net income rose 19 percent to $1.50 billion, or 64 cents per share, from $1.26 billion, or 54 cents per share, a year ago.
Excluding 3 cents per share in restructuring charges and asset write-downs, Coke earned 67 cents per share. On that basis, the average analyst estimate was 63 cents, according to Reuters Estimates.
Excluding the impact of currency fluctuations, operating income rose 8 percent.
Operating revenue for the quarter, ended March 28, rose 21 percent to $7.38 billion, above the analyst target of $6.90 billion, according to Reuters Estimate. It would have risen only 12 percent without the benefit related to translating euros and other strong currencies into dollars.
Bottler acquisitions and higher sales of drink concentrate each contributed five percentage points of revenue growth, while price increases and a product mix featuring more higher-priced items added two percentage points.
Overall unit case volume rose 6 percent in the quarter, driven by a 7 percent gain in markets abroad. North American volume was flat, Coke said, blaming “challenges in the U.S. economy.”
North American sales in the food-service and hospitality segment fell 4 percent as many cash-strapped consumers cut down on dining out due to the faltering economy.
Chief Financial Officer Gary Fayard said on a conference call he expects North American softness to continue through the rest of the year, and the relative weakness of the U.S. dollar should boost 2008 operating income by a mid-single-digit percentage rate.
Coke’s international business, especially in emerging markets like China, India, Brazil and Turkey, has grown more important to investors in recent years as growth slows in mature markets like North America.
In the latest quarter, volume rose 3 percent in the European Union, 9 percent in Latin America, 10 percent in the company’s Pacific Group and 13 percent in its Eurasia unit, which includes India, Turkey, Russia and Eastern Europe. Volume fell 1 percent in Africa.
Morgan Stanley analyst Bill Pecoriello said Coke remains a top pick, adding that with its international exposure, it should continue to exceed expectations despite domestic sluggishness.
Sales volume in its carbonated soft drinks, including Coca-Cola, Sprite and Fanta, rose 3 percent. Volume of noncarbonated beverages such as Dasani bottled water, Minute Maid orange juice and Glaceau vitaminwater rose 17 percent.
Coke shares added 6 cents at $61 on the New York Stock Exchange.
Editing by Steve Orlofsky/Jeffrey Benkoe