Focus on Coca-coca
Interview: Crowell, Weedon & Co.---Stender, Todd---Analyst (slow)
>> big number ahead tomorrow with coca-cola set to release third quarter earnings before the opening bell. wall street is expecting the world’s largest soft drink company to say net income came in at 52 cents a share compared to 44 cents a share a year earlier. revenues forecast to be up 8% to 5.73 billion. shares of the 117-year-old company are down more than 11% in the past 12 months here. an analyst at crowell we’den and company joins us from our los angeles bureau with more. thanks for joining us.
>> thanks for having me, lane.
>> as we noted, coca-cola has not been performing as well certainly, as the nasdaq or s&p here. is anything they are going to have to say tomorrow going to turn around?
>> we think it will be. certainly coca-cola shares have lagged the dow and s&p 500. tomorrow really our eyes are primarily on europe, specifically germany. we want to see if things primarily in the bottling operations have turned around.
>> europe, go ahead.
>> no, go ahead. what about the european expansion and their operations is so important in coke’s numbers this time around? is it because north america is half done at this point.
>> we look for north america to grow 1% to 2%. the growth is really going to be in asia, europe, and that’s what we saw today. we were on the coca-cola enterprises conference call. it’s the company―it’s the largest bottler, it bottles coca-cola products. europe’s numbers were up 10%. that was surprising. but not surprising --
>> what is the reason for that? why do they have those gains in europe. what were they selling more in europe than last quarter.
>> we were looking for numbers in the 7% to 8% growth range. actually numbers came in 10% primarily due to a very hot summer. and surprising, but the numbers were up, like i said, 2% to 3 percentage points. more, you know, vanilla diet, the diet vanilla front, sprit remix, they’ve been very innovative in the carbonated soft drinks. also in desani, it’s coke’s bottled water product.
>> the water brand has been pure profit. coca-cola shares up 55 cents relatedded to the fact of what coca-cola enterprises had to say is anything coke has to say tomorrow in their earnings is priced into the stock today.
>> think there will be more to it. coca-cola enterprises really only represents about a quarter of the parent companies’ volume. so we are going to look deeper into that. we want to see what asia has to offer. we want to see what the problems in japan, how they’ve panned out in the quarter.
>> very important is what the bottlers are faced with the shelf prices and ability to compete and the battles that they’ve seen between bottlers. will improving financial results among the bottlers allow coca-cola to raise prices next year substantially to its bottlers?
>> that’s a good point. raise prices not substantially. they’ll raise them probably 1% to 2%, a little above inflation, the cost of goods. what coke doesn’t want to do is raise them substantially and potentially have the consumer substitute away from a coca-cola product, into, say, a pepsi product or even a local international product. that’s pretty much the gist of it, but, yes, prices will continue to go up as they have this year, into 2004. we look again. 2% on the pricing issue.
>> you mention pepsi. now, pepsi, there is no better way to tell vanilla coke was a big hit than to see the vanilla pepsi almost immediately got on the shelves after the first vanilla coke results came out. sprit remix also hit. is that a summer fad? is that something that’s directly directed at the younger set? is that going to add sales over a period of years or was that a fad.
>> i think sprit remix is here to stay. i say that, they did release it in summer, they are not stupid about that. they do release it in their peak growing season. but really it’s an extension of the sprit platform. there is diet sprit. but the remix is definitely geared toward a younger consumer. we think there is definitely growth opportunities in that segment without really competing head to head with, say, pepsi’s mountain dew, which is a very strong product.
>> though they have tried to do that and do have drinks that would be considered direct competitors to mountain dew though they haven’t been as strong. let’s move from carbonated stringts to what has been the growth in beverage. sports drinks, water, taez, is coca-cola getting whipped by pepsi?
>> three years ago i would say they were getting whipped. pepsi was definitely the frontrunner when it came to the noncarbonated drinks. coke has really rebounded. they saw the growth. pepsi certainly has the aquafina the number one bottled water product. coke has desani water, we saw 40% growth in that product alone. power aid on the sports front is really an international product. gator aid typically is domestic. it’s really a u.s. product. so we see a lot of growth potential definitely in the teas sports drinks, to really go after that international consumer.
>> you have 30 seconds left if you want to expand on that a little bit. where is the next big thing in the beverage industry? what are they going to be turning to to continue the growth they’ve seen in some of these nontraditional beverages?
>> i really believe on the coke front, the opportunity to bring in the independent bottlers around the world ip to the coca-cola system. it’s integrating the u.s. capitalism many into foreign markets, and frankly, coke has had their hands full integrating the german bottlers. we are seeing it right now in the japan bottlers.
>> looking internationally for growth to the future. analyst at crowell, we den and company joining us to look ahead.
