July 17 (Bloomberg) -- Coca-Cola Co., the world's biggest soft-drink maker, fell the most in almost four years in New York trading after its largest bottler posted a loss on a decline in soda and water sales.
The bottler, whose profit is reflected in the sodamaker's earnings, posted a $5.3 billion writedown in franchise licenses and goodwill. That pushed Coca-Cola's second-quarter net income down 23 percent to $1.42 billion, or 61 cents a share.
Chief Executive Officer Muhtar Kent, who took over Atlanta- based Coca-Cola this month, said consumers had less money to spend on Diet Coke, Minute Maid juices and Dasani bottled water because of rising food and energy prices. The amount of Coca-Cola drinks sold worldwide rose 3 percent, less than the 4 percent increase some analysts estimated, an indication that slowing sales in North America may expand elsewhere.
``When the fuel price is sky high at the pump, you really don't want to go into the store and spend another couple of bucks on snacks and pop or soda,'' Mariann Montagne, an analyst with Thrivent Asset Management in Minneapolis, said in a interview on Bloomberg Television. Montagne's firm manages $70 billion in assets, including Coca-Cola shares.
Coca-Cola fell $2, or 3.8 percent, to $50.34 at 4:15 p.m., the biggest drop since Sept. 15, 2004. The shares lost 18 percent this year, compared with a 14 percent decline by PepsiCo Inc.
Writedown
The writedown at Coca-Cola Enterprises Inc., which is 35 percent owned by Coca-Cola, stemmed from a deteriorating outlook for North American sales that led the bottler to decide its assets weren't worth what it once thought. Coca-Cola's profit was reduced by 40 cents a share as a result.
Coca-Cola's second-quarter revenue rose 17 percent to $9.05 billion from $7.73 billion in the three months ended June 27, the company said in a statement.
Coca-Cola peaked at an eight-year high of $65.56 on Jan. 10 before declining on slowing U.S. consumer spending.
Then-CEO Neville Isdell, with Kent at his side as international president and chief operating officer, shepherded the surge in the share price as he boosted soda marketing, added sales of non-carbonated drinks with the $4.1 billion purchase of Glaceau Vitaminwater-maker Energy Brands Inc. and restructured the company's management.
The moves have been unable to turn around falling U.S. sales volume. Kent took over on July 1 from Isdell, who remains chairman.
Investors
SunTrust Banks Inc., the company's second-largest investor with 43.6 million shares, may decide next week what to do with its stake in order to raise cash. Billionaire investor and former Coca-Cola board member Warren Buffett, who controls Berkshire Hathaway Inc., is the sodamaker's largest shareholder with an 8.7 percent stake.
Sales volume increased 5 percent overseas, and was little changed in North America. Bill Pecoriello, an analyst at Morgan Stanley, estimated a global gain of 4 percent.
``We clearly recognize that there are short-term challenges in the marketplace related to economic trends,'' Kent said during a conference call.
Excluding the writedown, Coca-Cola earned $1.01 a share. Thirteen analysts surveyed by Bloomberg estimated average profit of 96 cents a share. Ten predicted sales of $8.83 billion.
A year earlier, Coca-Cola earned $1.85 billion, or 80 cents.
Soft Drinks
Coca-Cola Enterprises CEO John Brock has been unable to halt the decline of Coca-Cola Classic or sell enough non-carbonated drinks such as Vitaminwater to make up for falling soda sales in North America, which accounts for 70 percent of its revenue.
More-profitable convenience-store sales of soda and water have dropped, making Coca-Cola Enterprises' right to distribute Coca-Cola products less valuable, the Atlanta-based bottler said.
The bottler will increase U.S. prices after the Labor Day holiday, Brock said.
``North America is just a tremendous problem,'' Tom Pirko, the president of Bevmark LLC, a consulting firm in Buellton, California, said in a Bloomberg Television interview.
Coca-Cola also said it would repurchase from $1.75 billion to $2 billion of its shares in 2008. Previously, it said it may buy as little as $1.5 billion in stock. The company has bought back $1 billion worth this year.
International Sales
Sales have been rising in China, India, Russia, Brazil, Eastern Europe, Turkey and the Philippines, led by the company's flagship Coca-Cola, then-President Kent said during a conference call in April.
The operating-profit margin in North America, the company's largest market, was 22 percent last year, which compares with 39 percent in the division that includes North Asia and the Middle East and 54 percent in Latin America. Each division accounts for almost a quarter of total operating profit.
Coca-Cola also has purchased a stake in Honest Tea Inc., the maker of low-calorie organic bottled tea, to boost North American revenue as health-conscious consumers seek alternatives.
Morgan Stanley's Pecoriello said last month that U.S. growth in sales of sports drinks, bottled water, vitamin-enhanced water and energy drinks has decelerated. Pecoriello, who spoke at a conference by Beverage Digest, is ranked by Institutional Investor magazine as the top U.S. beverage analyst. He recommends buying Coca-Cola shares.
To contact the reporter on this story: Duane D. Stanford in Atlanta at dstanford2@bloomberg.net
Last Updated: July 17, 2008 16:47 EDT
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