Coke Warns Of Profit Fizz
Coca-Cola Co. said Friday that the economic slump overseas is cutting into soft-drink sales and will dampen second-half earnings.
Sales aren't the only thing slumping. Coke stock, which fell 1 7/16 Thursday, is off another 2 15/16 Friday to 53 3/4 in recent trading. Coke is a component of the Dow Jones Industrial Average.
Coke (KO), which derives three-quarters of its sales from outside the United States, said it expects third-quarter earnings to hover around the 35 cents a share earned in the year-ago period, down from the 39 cents expected by Wall Street analysts.
Fourth-quarter per-share profits, meanwhile, will fall below year-ago results, the company said. Last year, Coke earned 33 cents in the fourth quarter. Analysts had been expecting 37 cents, according to First Call.Coke also said unit case volume will grow around 3 percent to 4 percent in the third quarter, below analyst projections of 7 percent to 8 percent growth and down from 10 percent growth over the past year.
Amid concerns about Coke's overseas business, many analysts have been reducing estimates over the past few weeks. The latest was Salomon Smith Barney analyst Jennifer Solomon. On Tuesday, she cut her 1998 per-share earnings estimate to $1.54 from $1.60 and her 1999 estimate to $1.68 from $1.85.
Coke's announcement comes in the wake of the earnings pressure from trouble overseas that other U.S.-based multinationals have faced. Gillette (G) and Procter & Gamble (PG) are among those that have already warned of weaker third-quarter results.
Coke has said, however, that the trouble overseas isn't all bad. Since Coke tries to buy most raw materials in the countries in which it operates, it pays less for sweeteners, packaging, advertising and the like when local currencies decline against the dollar.
And in the past, Coke has also taken advantage of currency declines to step up investment in many of the more than 200 countries in which it has operations.
"We've had a lot of experience," Coke spokesman Bill Hensel told CBS.MarketWatch.com earlier this month. "We'e got a pretty good handle on how to do this."
Indeed, after the Mexican peso crisis in 1994-95, which led to a sharp devaluation, Coke took a series of steps aimed at reducing the cost of its drinks with the goal of retaining the loyalty of Mexican consumers whose incomes had fallen. Since then, the company has boosted its share of the Mexican market to 68 percent from 57 percent, Henzel said.
With much of the world in the doldrums, however, it'll be more difficult for Coke to rebound as easily this time around.
Written By Jeffry Bartash