Coke Unveils Broader Cost-Cutting Plan

It's no picnic at Coke these days. As it posted a 14% drop in earnings, Coca-Cola Co. unveiled a broader cost-cutting program and warned it doesn't expect to meet its previous financial targets. The beverage giant again reported lackluster soda volume and struggled with currency headwinds.

Coke has pursued aggressive marketing tactics, along with restructuring, to lessen the impact of dwindling soda demand on its results. The company said it would seek $3 billion in annual savings from its revamped productivity plan by 2019. Coke had first announced a three-year plan in February with the goal of cutting $1 billion.

The company also will look to restructure its operations-particularly in its global supply chain and North American manufacturing. Coke would sell back most of its company owned North American bottling operations to independent bottlers by the end of 2017, and a substantial portion of the remaining territories no later than 2020 as part of a cost-cutting programme. The soda maker also said it would add revenue growth as a metric for its employee incentive plans next year.

Coke, meanwhile, lowered its long-term revenue target to mid single-digit growth and warned it doesn't expect to meet its earnings view for high-single-digit growth this year. Likewise, the company said it doesn't expect currency-neutral growth in per-share earnings for next year to be all that different from this year's results.

The company said its world-wide beverage volumes grew 1%, while soda volume was flat. Yet, Coke said its soda and sparkling beverages gained share in the most recent period, thanks in part to its "Share a Coke" marketing campaign. The Coca-Cola brand's world-wide volume stayed even in the period, though. In North America, soda volumes fell 1%, while revenue grew as pricing and product mix increased in the region.

Beverage Giant Warns It Won't Meet Previous Financial Targets

The company's noncarbonated beverages posted 2% volume growth in the period, driven by tea, energy drinks and water. Price increases, higher input costs and a decline in sports drinks partly offset the growth, however, Coke said.

Overall, the company posted earnings of $2.11 billion, or 48 cents a share, down from $2.45 billion, or 54 cents a share, a year earlier. Excluding special items, per-share earnings were flat at 53 cents.

Revenue declined to $11.98 billion. Currency-neutral net revenue rose 1%. Analysts surveyed by Thomson Reuters had projected 53 cents a share in earnings, with $12.12 billion in revenue.

Coke has tried to fight the shrinking soda market with a range of moves beyond marketing and cost controls, including through partnerships with purveyors of other kinds of beverages. In August, the company said it would buy a 16.7% stake in energy-drink producer Monster Beverage Corp. for $2.15 billion as part of an asset swap. It is also working on developing a cold beverage system with Keurig Green Mountain Inc.