(Reuters) - Coca-Cola Co (KO.N) posted higher-than-expected quarterly results after the world’s largest soft drink maker sold more beverages, even in developed markets with economic challenges, fuelling hopes that conditions are improving.
The maker of Sprite, Minute Maid orange juice and vitaminwater, which does business in more than 200 countries, saw volume rise 3 percent in Germany and Japan, 6 percent in Spain and 1 percent in the United States, in a sign that consumers may be opening their wallets again after economic uncertainty curbed demand.
“Despite its struggle with a sustained period of relative high unemployment, we are pleased to see some early signs of a slowly improving macroeconomic environment,” Coke Chief Executive Muhtar Kent said about the United States.
U.S. consumers are eating out and travelling more, Kent said, which bodes well for consumption of bottled drinks. The trend should continue, he added, as long as gasoline prices stay where they are, just under $4 per gallon on average.
At the same time, performance in China may weaken as that country’s economic growth slows from the meteoric rates seen in recent years.
“As we move through 2012, we anticipate that our business in China may not be immune to this cooling economy and therefore, we may also see some of our volume results in China moderate to some extent,” Kent said. He added that results in Brazil should remain steady as that country’s economy recovers.
Emerging markets are still what drives Coca-Cola’s growth, said Sanford Bernstein analyst Ali Dibadj, but he said the pickup in mature markets was a good sign.
“That’s an interesting message for us, not just for Coke but more broadly for consumer packaged goods,” Dibadj said. “I don’t think the U.S. is back to what it used to be, in terms of growth, but this would suggest that things are getting a little bit better.”
Any improvement would also be most welcome to PepsiCo Inc (PEP.N), whose North American drink business has lagged Coke‘s. The maker of Tropicana juice, Frito-Lay chips and Quaker oatmeal, which will report earnings next week, is boosting its marketing budget this year in order to help lift sales.
Coke shares were up $1.98, or 2.7 percent, at $74.42 in early afternoon trade on the New York Stock Exchange.
For a graphic on Coke's results, see link.reuters.com/cat67s.
Coca-Cola’s first-quarter net profit was $2.05 billion (1.28 billion pounds), or 89 cents per share, up from $1.90 billion (1.1 billion pounds), or 82 cents per share, a year earlier.
Revenue rose 6 percent to $11.14 billion (6.99 billion pounds), helped by a 5 percent increase in overall volume and a 3 percent increase in prices and mix of products sold.
Analysts on average expected earnings of 87 cents per share on revenue of $10.82 billion (6.79 billion pounds), according to Thomson Reuters I/B/E/S.
In the key North American market, operating income declined 9 percent, excluding the impact of currency fluctuations, due to higher costs for commodities such as packaging and sweetener and one less selling day. Excluding those factors, profit would have been up, Coke said.
Consumer Edge Research analyst Bill Pecoriello said Coke’s “profit growth was quite strong” considering the impact of those factors.
Coke stood by its 2012 outlook for commodity cost inflation of $350 million (219 million pounds) to $450 million (282 million pounds) and a mid-single-digit percentage rate hit on operating income from foreign exchange rates. But Chief Financial Officer Gary Fayard said the commodity picture could slowly improve in coming months.
For the current second quarter, Fayard said the hit to earnings from foreign exchange rate changes would be at the high end of the mid-single-digit range.
Coca-Cola also said it was on track with a productivity program aiming to save $550 million (345 million pounds) to $650 million (407 million pounds) a year by the end of 2015.
Reporting by Martinne Geller in New York; Editing by Gerald E. McCormick, Lisa Von Ahn, Dave Zimmerman