Weak dollar helps Coke post bigger profit

Coca-Cola Co. reported on Thursday a 16-percent jump in quarterly net profit, boosted by a weak U.S. dollar and strong North American sales of diet Coke and noncarbonated drinks.

But the world's largest soft drink maker, led by newly-minted CEO Neville Isdell and a restructured management team, had its sails trimmed by poor results in Germany, Mexico and the Philippines.

Coca-Cola, which grew its worldwide sales by only 1 percent in the three months ended June 30, 2004, said it expected the environment in these three key markets to remain difficult for the remainder of the year.

"These volume numbers are not good," said Manny Goldman, a U.S.-based beverage industry consultant who has tracked Coca-Cola for more than three decades. "Neville Isdell has his work cut out for him."

Shares of Coca-Cola climbed in after hours to $49.29 on INET from a Big Board close of $48.97.

In the second quarter, Coca-Cola earned $1.58 billion, or 65 cents a share, compared with a profit of $1.36 billion, or 55 cents a share, in the same period last year. Revenue rose to $5.97 billion from $5.70 billion.

Analysts on average had forecast a profit of 64 cents per share on sales of $6.11 billion, according to Reuters Estimates. Nonrecurring items, including a favorable tax settlement, contributed 1.5 cents per share to earnings.

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The company got a bounce from continued weakness in the U.S. dollar and other currency fluctuations, which added 6 percent to the company's operating income in the period. A falling dollar improves financial results when overseas earnings are converted into dollars.

In a conference call with analysts, Coca-Cola Chief Financial Officer Gary Fayard warned that the company expected to benefit substantially less from currency changes in the second half of the year.

North America was one of the bright spots for Coca-Cola, especially when compared to its performance in its European, Eurasian and Middle Eastern markets. European volumes fell 2 percent, sparked by a 15-percent drop in Germany.

The company said bad weather in northern Europe had hurt its sales in the quarter.

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Volume in North America, which accounts for about 30 percent of Coca-Cola's total revenue, rose 2 percent in the period due largely to strong sales of the company's diet soft drinks, Powerade sports drink and Dasani bottled water.

Sales of the diet Coke brands jumped 7 percent.

Reigniting sales of core brands, such as the flagship Coke Classic and diet Coke products, has been a top priority in North America since the company embarked on a sweeping restructuring of its global operations in early 2000.

The quarterly results were the first reported since Isdell took over the reins of Coca-Cola in early June. Since then, the Irishman has shuffled the executive decks of the company, which has suffered an exodus of managers in recent years.

Steve Heyer, Coca-Cola's president and chief operating officer, already has announced that he will leave the company.

Heyer, who was passed over for the CEO job in favor of Isdell, was credited for helping to breathe life into Coca-Cola's media and ad campaigns after joining the company in 2001.

Coca-Cola was criticized in the late 1990s and early part of this decade for failing to develop innovative, creative marketing campaigns to back its flagship Coca-Cola brand and other products in its more than 200 markets around the world.

It has made strides in the past three years to improve what was considered an Achilles Heel, especially when compared to the successful advertising campaigns of rival PepsiCo. Inc.

Shares of PepsiCo dropped 59 cents to end at $50.53 on the NYSE on Thursday.