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Coke warns about 3Q
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September 3, 1999: 10:50 a.m. ET
European recall to drive per-share profits down by 2 or 3 cents
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NEW YORK (CNNfn) - Coca-Cola Co., still trying to rebound from a recent European contamination scare, warned Friday that turmoil overseas and rising soft drink prices in the United States likely will drive down third-quarter profits.
Coke said that lost sales and increased marketing costs trying to lure back customers in Europe will cut its third-quarter earnings per share by about 2 cents or 3 cents, for total earnings of about 31 cents to 33 cents per diluted share. Analysts surveyed by First Call were anticipating earnings of 36 cents per share for the July-September quarter, compared with 35 cents in the 1998 period.
The withdrawal of millions of cans and bottles of the company's soft drinks this past June in several European countries was the company's biggest recall ever, and contributed to a 21 percent drop in the company's second-quarter net income.
Coke said other problems abroad, including slow sales in Turkey after last month's earthquake and recent flooding in China, plus rising retail soft drink prices in North America after three years of declines are hurting third-quarter results.
Costs associated with the European recall are also expected to hurt fourth-quarter results, but the Atlanta-based beverage maker offered no revised forecast. Business conditions also are expected to remain difficult in Russia, Venezuela, Colombia and parts of Eastern Europe.
Coca-Cola (KO) shares, which have struggled in recent months amid the company's woes, sank 2-1/8 to 57-3/8 amid a broad stock market rally at the start of trading Friday. Shares have traded in a range of 53-3/8 to 76-7/16 over the past year.
Meanwhile, rival Pepsico Inc (PEP) gained 1-1/8 to 34-11/16 in early trading after announcing that it should exceed third-quarter earnings-per-share forecasts despite an expected drop in operating profits.
Coke's future
Coca-Cola, meanwhile, said it's comfortable with Wall Street's current target range for 2000 earnings per share. The company was projected to earn $1.36 per share for full-year 1999, and $1.56 in 2000, according to the First Call survey.
The company said its volume trends are expected to improve in the second half of the year. Worldwide unit case volume is expected to rise in the low single-digit range during the third quarter, getting an additional 1 percentage point of growth through brands acquired from Cadbury Schweppes during the period.
"Global economic conditions have been progressing as we expected during the quarter, thus resulting in the gradually improving volume trends," CEO M. Douglas Ivester said. "I am pleased to say that we are experiencing improving unit case volume trends in each of our operating groups when compared to the trends of the previous two quarters."
North American unit case volume is expected to rise 2 percent to 3 percent, reflecting the pressure from higher retail prices in the soft drink industry.
In the second quarter, Coca-Cola's net earnings dropped in the wake of the European contamination scare that led to millions of cans and bottles of its drinks being recalled as well as softness in other international markets. The company earned $942 million, or 38 cents per diluted share, in the April-June period, down from $1.19 billion, or 48 cents per share, a year earlier. 
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Coca-Cola
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