Coke to renew focus on Diet Coke

ATLANTA — The Coca-Cola Co., the world's largest beverage maker, said Wednesday it will renew its focus on marketing Diet Coke as it reported it isn't satisfied with a 30 percent increase in fourth-quarter earnings because of only modest growth in revenue and volume.

The results beat Wall Street expectations and drove investors to send Coke shares upward. Still, executives said Coke's performance in recent months doesn't meet the standards that the company and the public have come to expect.

"We believe that Coca-Cola still has much work to do, as there are several markets that require attention," UBS analyst Caroline Levy said in a research note.

She added that rival PepsiCo Inc. of Purchase, N.Y., may be building reserves to respond to any potential strategic initiatives by Coke, which could hamper Coke's efforts to retool its business.

"While Coca-Cola appears to be moving in the right direction, we will likely require further visibility on the success of (its) new initiatives before revisiting our view," she said.

For the three months ending Dec. 31, Atlanta-based Coke said it earned $1.20 billion, or 50 cents a share, compared to a profit of $927 million, or 38 cents a share, a year ago.

Excluding one-time items, Coke said it earned $1.12 billion, or 46 cents a share. That beat the 40 cents a share that analysts surveyed by Thomson First Call were expecting.

Revenue in the quarter was $5.26 billion, a 2 percent increase from the $5.18 billion recorded a year ago.

Coke shares rose 65 cents, or 1.5 percent, to close at $43.30 Wednesday on the New York Stock Exchange.

Despite the results, chief executive Neville Isdell said he wasn't happy. He noted the slim revenue growth and worldwide unit case volume growth of only 2 percent for all of 2004. In North America, a key business unit for Coke, unit case volume declined 1 percent in the fourth quarter, while full-year unit case volume in North America was flat.

Donald Knauss, head of Coke's North America unit, said the company plans accelerated marketing in 2005. In particular, he said the company plans a "major re-emphasis" of Diet Coke to deal with an increasingly diet-conscious public.

"We believe there is tremendous opportunity to meet the consumer trends on health and wellness," Knauss said.

Earlier this month, Coca-Cola said it will begin selling Diet Coke sweetened with sugar substitute Splenda in the spring. Rival PepsiCo plans to reformulate its single-calorie drink Pepsi One with the sweetener as well.

Diet Coke with Splenda will have a distinct label with the name of the sweetener on it as well as a yellow streak. Coca-Cola will continue to sell traditional Diet Coke, which is flavored with aspartame, separately.

Chief financial officer Gary Fayard said the increased marketing and weak performance in certain markets will weigh down the company's results in 2005, though he did not provide details on earnings per share guidance, in keeping with company policy.