Coca-Cola Co (KO.N) forecast a surprise drop in full-year profit as costs related to refranchising its U.S. bottling operations are expected to be higher than previously anticipated.
The world's largest beverage maker's shares fell 3.1 percent to $40.73 in morning trading on Thursday.
Coca-Cola has been offloading much of its low-margin bottling business to cope with falling demand for carbonated beverages in North America.
It has also been stepping up efforts to reduce sugar in its beverages, amid growing pressure from health experts and governments who have blamed sugary drinks for a rise in obesity.
See the evolution of Coca-Cola through the years:
Coca-Cola through the years, Coke soda
Coca-Cola through the years, Coke soda
UNITED STATES - CIRCA 1950s: Teenaged girl with bottle of Coca-Cola. (Photo by George Marks/Retrofile/Getty Images)
(GERMANY OUT) *23.03.1912-16.06.1977+Physiker, Raketenforscher, D/USA- PortrÃ¤t mit Coca-Cola-Flasche- 1963 (Photo by ullstein bild/ullstein bild via Getty Images)
FRANCE - MAY 01: Centenary of Coca-Cola In France In May, 1986. (Photo by Didier CONTANT/Gamma-Rapho via Getty Images)
BOHOL, PHILIPPINES - 1988/01/01: A lemur clings to a coke bottle. . (Photo by Roland Neveu/LightRocket via Getty Images)
Bottles of Coca-Cola, Tab, and Sprite on the shelf of a grocery store in New York City, USA, September 1988. (Photo by Barbara Alper/Getty Images)
SAN FRANCISCO - JANUARY 16: Bottles of Coca-Cola are seen on the shelf at Tower Market January 16, 2004 in San Francisco, California. Coca-Cola is being investigated by U.S. regulators over allegations raised by a former employee that it had inflated its earnings. (Photo by Justin Sullivan/Getty Images)
SAN FRANCISCO - JANUARY 16: Cans of Coca-Cola are seen on the shelf at Tower Market January 16, 2004 in San Francisco, California. Coca-Cola is being investigated by U.S. regulators over allegations raised by a former employee that it had inflated its earnings. (Photo by Justin Sullivan/Getty Images)
UNITED STATES - OCTOBER 20: Bottles of Coca-Cola and Diet Coke are displayed on a shelf in an Associated Supermarket in New York Thursday, October 20, 2005. Coca-Cola Co. said third-quarter profit surged 37 percent, the biggest gain in more than a year, as sales rebounded in the U.S. and demand for Powerade sports (Photo by Ramin Talaie/Bloomberg via Getty Images)
PARK RIDGE, IL - NOVEMBER 07: 2-Liter bottles of Vanilla Coke as seen in a grocery store November 7, 2005 in Park Ridge, Illinois. Atlanta-based Coca-Cola Co. has said it plans to discontinue its Vanilla Coke in the US by the end of the year. (Photo by Tim Boyle/Getty Images)
NEW YORK - FEBRUARY 19: A general view of the new aluminum Coca-Cola bottle at Mercedes Benz Fashion Week Fall 2009 Collections at Bryant Park on February 19, 2009 in New York City (Photo by Donald Bowers/Getty Images for The Coca Cola Company)
Bottles of Coca-Cola Co.'s Coke brand soda sit on a shelf behind the bar at Smith & Wollensky in New York, U.S., on Monday, Feb. 22, 2010. Coca-Cola Co., the world's biggest soda maker, agreed to buy the North American operations of bottler Coca-Cola Enterprises Inc., more than six months after PepsiCo Inc. moved to bring its bottlers in-house to cut costs. Photographer: Daniel Acker/Bloomberg via Getty Images
LONDON, ENGLAND - MARCH 19: Rita Ora attends photocall to celebrates 100 years of the Coca-Cola Contour Bottle at the Coca-Cola Contour Centenary Bar on March 19, 2015 in London, England. (Photo by Mike Marsland/WireImage)
Discover More Like This
BACK TO SLIDE
Coca-Cola, like rival PepsiCo Inc (PEP.N), has also been building its non-carbonated drinks portfolio. Global volumes of its non-carbonated drinks, which include tea, juices and energy drinks, rose 2 percent in the fourth quarter, while soda volumes fell 2 percent.
Costs related to the refranchising of Coca-Cola's U.S. bottling operations look to be a more meaningful drag on the company's full-year profit than analysts were expecting, brokerage Cowen & Co said in a note to clients.
The company forecast 2017 adjusted earnings to fall 1-4 percent from $1.91 per share in 2016. Analysts on average were expecting earnings of $1.97, according to Thomson Reuters I/B/E/S.
Net income attributable to the company's shareholders more than halved to $550 million, or 13 cents per share, in the fourth quarter ended Dec. 31, from $1.24 billion, or 28 cents per share, a year earlier.
The quarter included a $919 million charge related to the refranchising of its bottling operations.
Excluding items, the company earned 37 cents per share, in line with estimates.
Net operating revenue fell about 6 percent to $9.41 billion, the seventh straight drop, but beat estimates of $9.13 billion, helped by higher sales of its sodas in North America, its biggest market.
Volume sales rose 1 percent in North America, including a 1 percent growth in sales of its carbonated sodas such as Sprite and Fanta.
However, global volume sales for the company fell 1 percent in the fourth quarter, hurt by high levels of inflation in certain Latin American countries.
(Reporting by Sruthi Ramakrishnan in Bengaluru; Editing by Shounak Dasgupta)