On 9 Feb 2016, global beverage conglomerate Coca-Cola (NYSE: KO) came out with its Q4 2015 earnings announcement with a Q4 FY 2015 earnings per share (EPS) reading of $0.38, beating estimates of $0.37 per share. It should be noted that these figures represent Non-GAAP amounts, which factor out extraordinary items such as restructurings, reinvestment, gains/losses from divestitures, etc. Coca-Cola’s reported full year 2015 EPS came in at $1.67 per share, representing a 4% YoY increase. However, for Coca-Cola it was definitely a year of transition with more to come.

Leaner and meaner…in sparkling only

As expected, Coca-Cola wasted no time in emphasizing to analysts that it will be “cold-fill” bottler free by the end of 2017, accelerating its time line. Company management touted that this will boost margins and free cash flow over the long-term. Management also indicated that the proceeds from bottler dispositions could go to strengthening its balance sheet. This represents a good thing in the face of increasing long-term debt and corresponding interest costs.

Interestingly, Coca-Cola’s management indicated that its still beverage business, at least in part, will remain integrated with Coca-Cola. Management highlighted the strong growth of its still business as the reason. In 2015, Coca-Cola saw its still unit case volume increase 5% versus 1% for sparkling volume. This is telling of the consumer demand climate, which seems to enjoy sodas but in smaller amounts.

Growth initiatives?

The lack of discussion about product innovation stood out. Coca-Cola’s management only vaguely hinted to increasing research and development in 2016. It’s unclear as to how this extra money will get utilized. Instead, Coca-Cola’s management seems determined to creatively market its current product portfolio. However, Coca-Cola seems to understand that people are still willing to consume sodas, just in lesser amounts. Smaller packaging and aesthetically pleasing aluminum bottles contributed to a 3% increase in North American transactions.