Coca-Cola's Results Hurt by Commodity Costs

The Coca-Cola Co. (NYSE: KO) reported fiscal third-quarter results before markets opened this morning. The soft-drink maker posted adjusted diluted earnings per share (EPS) of $0.51 on revenues of $12.34 billion. In the same period a year ago, the company reported EPS of $0.48 on revenues of $12.25 billion. Third-quarter results compare to the Thomson Reuters consensus estimates for EPS of $0.50 and $12.39 billion in revenues.

Coca-Cola suffered a 5% net negative impact from currency exchange rates. Combined with other excluded items, the company's EPS on a reported (GAAP) basis would have been $0.50 for the quarter.

The company's CEO said:

[W]e realized growth in the quarter across all five of our global geographic operating groups, despite continued volatility in the worldwide economy. We have been able to crack the calculus for growth in this environment. We have done this by consistently investing in our system and our brands to ensure that our global portfolio is more relevant and healthier today than it has ever been.

Operationally, cost of goods was flat with the same period a year ago, on a reported basis, but down 4% on a comparable cost basis, which the company attributed to "net gains/losses on commodities hedging." The company expects to commodity costs to rise by $225 million in the fiscal year, compared with the 2011 fiscal year.

At a conference today in Singapore, the director of Coke's global agricultural commodity risk management said, "In most Coca-Cola products, there's a clear directional shift toward the use of high-fructose corn syrup, which is cheaper than sugar." He also said the company is planning to expand its contract farming portfolio to include commodities like coffee, tea and fruits. Coca-Cola believes it can lower costs and maintain quality by growing more of its own commodities.

Coca-Cola's shares are down about 0.3% in premarket trading at $38.01 in a 52-week range is $32.37 to $40.67. Thomson Reuters had a consensus analyst price target of around $42.30 before today's report.

Paul Ausick