Coca-Cola sales miss estimates on flat North America growth

By Anjali Athavaley

(Reuters) - Coca-Cola Co (KO.N) is still grappling with a problem even as sales of traditional Coke rise in North America: U.S. consumers are drinking less diet soda.

The world's largest soda maker said on Tuesday that global sales volume rose 3 percent in its second quarter, boosted by growth in sparkling beverages. Sales were helped in part by the fact that Easter fell in the second quarter this year.

But Coke reported lower-than-expected quarterly revenue as sales volume in North America, its biggest market, was flat

partly because of a decline in diet Coke sales. JP Morgan analysts had expected volume to be up 1 percent to 2 percent in North America, which accounted for 45 percent of total revenue in the second quarter.

Coke's Chairman and Chief Executive Officer Muhtar Kent said that while the drop in diet Coke sales had improved from the first quarter, "we recognise we have more work to do here."

Coke, like rival PepsiCo Inc (PEP.N), has been struggling with declining soda sales in developed markets like the United States as consumers become more health conscious.

In a conference call on Tuesday, the company attributed the slipping diet Coke sales to insufficient marketing, a shift towards natural sweeteners and consumer scepticism about the safety and quality of artificial sweeteners.

One bright spot in the quarter: Sales volume of regular Coke rose 1 percent in North America. Kent cited demand for smaller packages of the product, which Coke has found to have generated more "brand love."

The company said that its still beverage volume in North America - which includes flavoured water - grew 1 percent, although juices and juice drinks drew lower volume as Coke raised prices to cover higher commodity costs.

Shares of Coca-Cola, which also makes Sprite, Minute Maid and Powerade, fell as much as 4.2 percent to $40.61 (23.8 pounds) in early trading and recovered to $41.17 by early afternoon. The stock, a Dow component, has slipped 0.3 percent this year. The Dow Jones industrial average (.DJI) has climbed about 3.3 percent so far this year.

Stephen Powers, a beverage analyst at UBS in New York, called the results “mildly disappointing” in a research note, pointing out that global volumes slightly missed expectations and North American margins were not up as much as hoped.

The company's net income attributable to shareholders fell to $2.60 billion (1.52 billion pounds), or 58 cents per share, in the second quarter, from $2.68 billion, or 59 cents per share, a year earlier.

Excluding items, Coke earned 64 cents per share.

Revenue fell 1 percent to $12.57 billion.

Analysts on average had expected earnings of 63 cents per share, on revenue of $12.83 billion, according to Thomson Reuters I/B/E/S.

Coke also said its adjusted earnings per share would be hurt by 2 cents in the second half of the year due to the restructuring of its juice operations in Russia and the separation of its Brazilian bottling operations last year.

(Reporting by Anjali Athavaley in New York and Siddharth Cavale in Bangalore; Editing by Maju Samuel, Savio D'Souza, Jilian Mincer and Jan Paschal)