Coca-Cola posts higher profit, sales

World's largest beverage maker says strong sales of its fizzy drinks overseas helped to offset ongoing weakness in cola sales at home.

By Parija B. Kavilanz, senior writer

NEW YORK ( -- Coca-Cola Co. posted a jump in its third-quarter profit and sales Wednesday, helped by strength in its overseas markets, although the company continues to suffer sluggish cola sales in its key North America market.

The Atlanta-based Coke (Charts, Fortune 500), the world's largest beverage maker ahead of Pepsi (Charts, Fortune 500), logged a profit of 71 cents a share in the quarter, up from 62 cents a share a year earlier.

The company said earnings-per-share for the quarter included a restructuring charge of 3 cents per share.

Revenue for the quarter increased 19 percent to $7.6 billion. Analysts, on average, had forecast a profit of 68 cents a share on revenue of $7.3 billion.

Investors applauded Coke's results. Coke shares rose almost 2 percent on the New York Stock Exchange. The stock has had a nice run-up, rising about 20 percent so far this year, outpacing a 15 percent gain in rival Pepsi's shares over the same period.

North America: not yet in the clear

Coke's cola sales in North America, as measured by unit case volume growth, declined 2 percent last quarter, which the company blamed on higher prices for its drinks in stores.

Both Coke and Pepsi are struggling to grow sales and market share for their carbonated soft drinks in the United States as more health-conscious consumers migrate to energy drinks and bottled water products.

However, weakness in Coca-Cola's carbonated drink sales was offset by a 10 percent unit case volume increase of its "still" beverages, which include its bottled water and energy drinks such as Powerade and Dasani.

Overall, North America sales rose 1 percent, which marked the first quarter of growth in the category in five quarters. The company said Coke "Zero," a calorie-free variation of Coca-Cola launched in 2005, and Diet Coke, were the strongest performers in the cola category last quarter.

"We are not satisfied. We want to revitalize the sparkling [beverages] in this market," Coca-Cola's president Muhtar Kent, told analysts during the company's conference call to discuss the quarter.

Kent said Coke was also pinning its hopes on its Glaceau unit to be a catalyst for fueling market share growth in North America.

The company bought Glaceau, maker of Vitaminenergy and Smartwater, for $4 billion earlier this year.

Internationally, the company enjoyed an 8 percent unit case volume growth in the period, boosted by double-digit growth in emerging markets such as China, Turkey, Russia, India, Pakistan, Brazil, the Philippines and Eastern Europe.

Two markets, the European Union (EU) and Germany, (which the company categorizes separately, despite its EU membership), under-perfomed in the period. Sales slipped 2 percent in the EU and 9 percent in Germany because of "unfavorable summer weather across Western Europe," Muhtar said.

Looking ahead, Coke executives were somewhat more optimistic about the business environment for the rest of the year compared to a more dour forecast delivered earlier this year.

"On the global macro-economic outlook, we expect improving trends and solid performances in our overseas markets, " Gary Fayard, Coke's chief financial officer, said during the call. "We're also committed to restoring growth in North America."

Also, Fayard said price increases for raw materials such as corn sweetener and aluminum, which forced Coke to raise beverage prices this year, were moderating in the U.S.

"We believe the worst is behind us," Fayard said. What's more, he said commodity costs in 2008 were expected to be essentially flat with 2007.

Coke did not deliver earnings guidance for the rest of the year or for 2008. However, analysts polled by Thomson Financial expect the company to post a full-year profit of $2.63 per share on sales of $27.9 billion.

"This was a good quarter for Coke," said Matt Riley, analyst with Morningstar. "There is still some cola weakness in the U.S. but North America overall did better than I expected."

At the same time, Riley said he was surprised by Fayard's comments about commodity pressures easing.

"I think Coke is the first beverage company to come out and say that things are looking better," Riley said "I think that's also because unlike Pepsi, Coke has limited exposure to corn other than as a sweetener."

Given Pepsi's extensive food business, which include the Frito-Lay snacks, Pepsi last week warned that rising for corn and cooking oil and energy will remain a risk to its business this year and going into 2008.

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