Coke Profits get health kick in the third quarter

(Reuters) – Coca-Cola Co's quarterly sales and earnings exceeded Wall Street expectations on Tuesday, as investments aimed at changing consumer tastes paid off with higher sales of sugar-free soft drinks and vitamin waters.

A Coca-Cola truck is making its way through downtown Los Angeles, California, USA, October 24, 2018. REUTERS / Mike Blake

The world's largest beverage producer, such as its competitor PepsiCo Inc, has built a portfolio of carbonated drinks and doubles its investment in improved waters such as electrolyte-filled Smartwater.

Earlier this year, Coca-Cola also paid $ 5.1 billion for the second largest coffee chain in the world and participated in Kobe Bryant's sponsored BodyArmor sports drink to attract a younger audience that prefers slurping latte over large drinks.

Chief Executive Officer James Quincey has downplayed media reports in recent weeks that the company is investigating cannabis drinks in North America as a wave of legalization is spreading to Canada and some US states.

"We have no plans to go into that area at this stage," he said on a post-earnings call with analysts, adding that the pace of acquisitions in the quarter should not be seen as a sign of how the company would go on here.

"Of course, M & A is not a strategy in itself – it is a precursor to our strategy."

Organic sales, or sales from its core business, increased 6 percent in the third quarter, led by double-digit volume growth at Diet Coke and Coca-Cola Zero Sugar.

Volumes, an important indicator of demand, rose 2 percent in the quarter, more or less stable year on year. Carbonated beverages rose 2 percent in the quarter, while water and sports drinks, which had risen only 1 percent in the previous quarter, grew 5 percent.

"We're starting to see growth returning to the water as we set a little lower priorities and invested more in premium and innovation," said Quincey.

Ginger limes

Earlier this year, the company introduced new slimline diet soda cans along with flavors such as ginger lime and vibrant cherry. Earlier this month, it was promised to introduce two new variants of its smartwater brand on the west coast of the United States.

The strategy following Quincey's appointment last year was supported by Wall Street analysts and investors.

A 2 percent gain on Tuesday brought the stock back into positive territory this year, compared with a Pepsi decline of nearly 6 percent and a decline in the S & P consumer staples index of nearly 5 percent over the same period.

Net income attributable to the Company's shareholders increased 30 percent in the third quarter ended September 30.

Excluding a one-time charge, Coca-Cola said it had earned 58 cents a share, which, according to the refining data, surpassed the analysts' average estimate by 3 cents.

Sales declined 9 percent to $ 8.25 billion due to the sale of low-margin bottlers, but exceeded expectations.

"We are impressed with Coca-Cola's ability to deliver a strong and balanced top line, suggesting that refranchization and portfolio transformation are paying off," said Wells Fargo analyst Bonnie Herzog.

Reporting by Aishwarya Venugopal in Bengaluru; Cut by Sriraj Kalluvila and Patrick Graham

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