Coca-Cola Co. KO -0.99% said its soda business stalled in the fourth quarter, causing it to miss its yearly growth goals as it grappled with a recurring problem that looks as though it’s only getting worse.
The world’s largest beverage company also warned Tuesday that weaker foreign currencies would lower its operating profit 7% this year, heightening investor concerns it won’t soon meet its revenue and profit targets.
Atlanta-based Coke—whose brands include Minute Maid juice, Dasani water and its namesake cola—said its beverage volumes rose 1% in the fourth quarter and 2% last year. That’s below the 4% and 5% growth in 2012 and 2011, respectively, and its long-term target of 3% to 4% annual growth.
Carbonated soft drinks are the biggest drag, particularly in the U.S., where industry volumes have fallen for nine years in a row and declines are accelerating. Worsening matters, sales have slowed in key growth markets like China and Brazil as more consumers turn to still beverages. While Coke has diversified into everything from sports drinks to coconut water, soda still represents 75% of its global volume.
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Chief Executive Muhtar Kent blamed the results on difficult macroeconomic conditions in much of the world, and cold and rainy weather in many countries. He said Coke isn’t retreating from its goal to double revenue this decade.
“We’ve had a speed bump,” Mr. Kent told analysts in a conference call, adding that 2014 will show “steady improvement.”
Coke’s share price on the New York Stock Exchange fell $1.47, or 3.8%, to $37.46 Tuesday, reflecting investor skepticism.
“There’s a feeling that the company isn’t doing enough to change itself, despite that the world around it has clearly changed,” Ali Dibadj, a beverage analyst at Sanford Bernstein, told Coke’s management during Tuesday’s conference call.
“Investors are beginning to fear that 1%-2% might be the new norm” for Coke’s volume growth, Citi beverage analyst Wendy Nicholson wrote in a research note. She trimmed her estimate of 2014 per-share earnings to $2.11 from $2.24.
Coke reported fourth-quarter revenue fell 3.6% to $11.04 billion and net income sank 8.4% to $1.71 billion from a year earlier. Revenue and operating income rose 4% and 6%, respectively, in currency-neutral terms after adjusting for bottling divestments.
The company said its fourth-quarter soda volumes were flat globally and down 3% in North America. Volumes of still beverages, by contrast, rose 6% globally and 4% in North America over the same period.
North American beverage volumes dropped 1% overall in the fourth quarter—the second quarterly decline in the past three quarters after a dozen quarters of growth.
U.S. per-capita soda consumption has been sliding since the late 1990s, weighed down in part by obesity concerns. New York City recently tried to place a cap on soda portions, and last week a California state lawmaker proposed adding warning labels to soda and other sugary drinks, flagging them as a source of diabetes and tooth decay. Meanwhile, U.S. sales of “diet” sodas fell even faster than regular soda sales last year as many drinkers fretted about whether zero-calorie artificial sweeteners like aspartame are safe.
Coke and chief rivals PepsiCo Inc. PEP -1.38% and Dr Pepper Snapple Group Inc. DPS +0.67% say it’s unfair to single out soda as causing obesity because it represents less than 10% of the average American’s calorie intake. They also note that the Food and Drug Administration has found artificial sweeteners to be safe. Meanwhile, though, the companies are ramping up efforts to develop better-tasting diet sodas using natural sweeteners like stevia.
Coke also plans to boost advertising expenditures by a combined $1 billion over the next three years, financed by productivity gains, to try to lift its more than a dozen billion-dollar brands, including Sprite and Fanta soda. It spent $3.3 billion on overall marketing in 2012, and observers say spending has remained flat in recent years.
Coke rolled out a mid-calorie version of its flagship cola called Coca-Cola Life in Argentina and Chile last year that is sweetened with sugar and stevia. It hasn’t ruled out rolling out the drink in other markets, including the U.S., but it declined Tuesday to put a timetable on any such move.
Earlier this month, Coke also signed a 10-year partnership to sell its cold drinks through an at-home beverage system being developed by Green Mountain Coffee Roasters Inc., GMCR -2.01% maker of the Keurig single-serve coffee maker. That represents a radical departure for Coke, which has relied for decades on restaurant fountain systems and bottlers to get its drinks to consumers.
On Tuesday Mr. Kent called Green Mountain’s countertop soda machine “a real game-changing innovation.” It could be available in the U.S. by late 2014 to compete with a version from SodaStream International Ltd. SODA +0.26%
He also didn’t rule out more “bolt-on” acquisitions to boost Coke’s growth. Coke is paying $1.25 billion for a 10% stake in Green Mountain.
Date: Feb. 18, 2014