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Coke edges past target
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October 20, 2000: 9:58 a.m. ET
Sees savings from restructuring but warns of euro risk; share price fizzes
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NEW YORK (CNNfn) - Coca-Cola Co. said Friday that profit rose sharply in the third quarter, edging past Wall Street forecasts, but said next year's results could be hurt if the euro doesn't rebound from current levels.
The world's largest soft drink maker said it earned 42 cents a diluted share excluding special items in the quarter, above the 41-cent-a-share forecast of analysts surveyed by First Call, which tracks profit forecasts.
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CNN's Dan Ronan reports on the soft drink giant's latest quarterly earnings.
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Including a restructuring charge and a gain from a recent purchase, Coke's net income rose to nearly $1.1 billion, or 43 cents a share, from $787 million, or 32 cents a share, a year earlier.
"To me, their outlook looks very good, but to hedge or not to hedge is the question," said Manny Goldman, a beverages analyst with ING Barings in San Francisco, adding that about 16 percent of Coke's earnings come from euro-based countries. "I think the uncertainty about what the euro will do probably has some people worries about the revenue potential."
Hedging is a tactic many companies who sell internationally use to offset differences in exchange rates. Typically they use various market instruments to bet that the value of an international currency will stay low, helping to offset losses when purchases made by overseas consumers is translated back into U.S. dollars.
Stock loses its fizz
Investors appeared more focused on Coke's future prospects than its current profit outlook, sending shares of the Dow Jones industrial average component down $3.38 to $53.75 in afternoon trade. Its stock has dropped 16 percent in the past 10 months. Goldman also noted that shares of other beverage makers including Pepsi (PEP: Research, Estimates) and Adolph Coors (RKY: Research, Estimates) also traded lower Friday.
 Gary Fayard, Coke's chief financial officer, told analysts during a conference call that revenue could take a 3-to-4 percent hit next year if the U.S. dollar remains strong against the euro. Still, he said the company remains comfortable with earlier Wall Street guidance for volume and profit ranges for both 2000 and 2001, though admitted there are risks to next year's profit projections if the euro does not bounce back from current levels.
Coke has long-term exchange contracts in place for the euro for the remainder of this year, and for the yen through next year. But it has no such contracts for the euro next year. Fayard told analysts that even if the euro does not rebound, he believes earnings should be able to stay within $1.68- to $1.84-a-share range of analysts surveyed by First Call.
"The real question with currency is where it would put us within that range," he said. The consensus forecast is for a 2001 profit of $1.75 a share, up from the $1.44 a share forecast for this year.
The euro dipped to another all-time low against the dollar Thursday, touching 83.28 U.S. cents before recovering slightly in the wake of the European Central Bank's decision not to raise interest rates. On Friday, the euro traded at 84.12 U.S. cents.
Restructuring plan going well
Company officials insist that sales and restructuring plans are going well and producing the results anticipated. Last December, newly appointed Chairman Doug Daft fired 5,200 workers and moved executives into local markets to cut costs and boost sales.
For the quarter, sales rose 8 percent to $5.5 billion. Worldwide sales of cases of soft drinks grew 4 percent in the quarter, a bit slower than the first half of the year. North American case volume was flat on a year-over-year basis.
The company said it achieved the expected 1-cent-a-share worth of savings from its restructuring, and continues to expect restructuring savings for all of 2000 to be approximately $150 million on a pretax basis.
"I think we're moving in right direction," Jack Stahl, Coke's president and chief operating officer, told analysts. "Our underlying results ... are strong. We're building a foundation that will serve us very well."
As for future sales, Goldman forecast that the company is on track to produce 4 percent-to-5 percent revenue growth in the United States next year, and 7 percent-to-8 percent internationally.
"They haven't been doing their job right in terms of advertising and marketing their cola business, but I think now they are getting back on track," he said. He has a "buy" rating on the stock and a one-year price target of $68. 
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Coca-Cola
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