The Coca-Cola Company Reports Second Quarter and Year-to-Date 2013 Results

18 Jul 2013 --- The Coca-Cola Company reported second quarter and year-to-date 2013 results. Muhtar Kent, Chairman and Chief Executive Officer of The Coca-Cola Company said, “Our second quarter volume results came in below our expectations, reflecting an ongoing challenging global macroeconomic environment and unusually poor weather conditions in the quarter.

While we are not happy with our performance, we did gain global volume and value share in total nonalcoholic ready-to-drink beverages as well as in sparkling and still beverages in the quarter. Despite the headwinds in the quarter, we are committed to improving upon our results, with current dynamics leading us to believe that our performance will be better in the second half of the year. We remain confident in our 2020 Vision and our system's ability to execute with precision around the world. In this context, we remain firmly focused on investing alongside our global bottling partners to strengthen our system for the future, to deliver the brands and beverages that consumers love and to achieve our long-term performance goals.”

PERFORMANCE HIGHLIGHTS

The Coca-Cola Company reported worldwide volume growth of 1% in the second quarter and 3% year to date, and grew global volume and value share in the quarter in total NARTD beverages as well as in both sparkling and still beverages. Volume growth in the quarter was below the Company's expectations due to a confluence of factors that collectively made for a challenging second quarter. Slow economies in Europe, Asia and Latin America, and historically wet and cold weather conditions across multiple regions impacted consumer spending and, consequently, overall NARTD beverage industry performance. Coca-Cola Americas grew volume 1% in the quarter and 2% year to date, with North America volume down 1% and Latin America volume up 2% in the quarter. Coca-Cola International grew volume 2% in the quarter and 4% year to date, with second quarter Eurasia and Africa volume up 9%, Pacific volume up 2% and Europe volume down 4%.

Worldwide sparkling beverage volume was even in the quarter and up 2% year to date. Despite unseasonably cold and wet weather and continued volatile macroeconomic conditions in many markets around the world, we grew global volume and value share in sparkling beverages in the quarter, led by marketing campaigns such as “Share a Coke” in Europe and “Coca-Cola Open Summer” in North America. Worldwide brand Coca-Cola volume grew 1% in the quarter and 2% year to date, with growth in the quarter across diverse markets, including Thailand (+24%), India (+18%), Nigeria (+15%), Russia (+11%), Argentina (+7%) and the Philippines (+7%). The Coca-Cola Company was recognized during the quarter with the 2013 Creative Marketer of the Year Award at the Cannes Lions International Festival of Creativity, widely considered to be the world's foremost celebration of creative excellence in brand communications.

Worldwide still beverage volume grew 6% in both the quarter and year to date, with solid volume and value share growth across beverage categories, including packaged water, juices and juice drinks and ready-to-drink tea. Excluding the impact of acquired volume, primarily the Aujan partnership in the Eurasia and Africa Group, still beverage volume grew 4% in the quarter. Ready-to-drink tea volume grew 10% in the quarter, with continued strong performance of key brands such as Gold Peak and Honest Tea in North America, Ayataka green tea in Japan and Fuze Tea across multiple markets worldwide. Packaged water volume grew 6% in the quarter, as we continue to focus on innovative and sustainable packaging and immediate consumption occasions that help drive value share growth ahead of volume share growth. Energy drinks volume grew 5% in the quarter driven by growth across our global portfolio of energy brands. Juices and juice drinks volume grew 4% in the quarter, with growth across all geographic operating groups.

FINANCIAL REVIEW

Second quarter reported net revenues declined 3%, with comparable net revenues also down 3%. This reflects a 1% increase in concentrate sales, offset by a 2% impact from structural changes and a 2% currency headwind. The structural changes in the quarter primarily reflect the deconsolidation of the Philippine bottling operations in 2013. We achieved solid pricing across key markets around the world leading to global NARTD value share growth for the 24th consecutive quarter. Price/mix in the quarter was even, as the benefit of positive pricing was offset by geographic mix, and as we cycled positive 3% price/mix in the prior year quarter. Excluding the impact of structural changes, comparable currency neutral net revenues grew 2% in both the quarter and year to date. We anticipate that the Philippine bottling transaction, together with the bottling transaction in Brazil which closed earlier this month, will reduce our full-year 2013 net revenues by 3%.

Reported and comparable cost of goods sold decreased 5% in the quarter, reflecting a 1% increase in concentrate sales offset by the impact of structural changes, primarily the deconsolidation of the Philippine bottling operations in 2013. Currency reduced comparable cost of goods sold in the quarter by 2%. Excluding the impact of structural changes, comparable currency neutral cost of goods sold was even in the quarter. Items impacting comparability in the quarter primarily included net gains/losses on commodities hedging.

Reported SG&A expenses declined 3% in the quarter and comparable SG&A expenses declined 2%. Currency reduced comparable SG&A expenses by 1% in the quarter. Excluding the impact of structural changes, comparable currency neutral SG&A expenses grew 1% in the quarter, including a strong increase in direct marketing expenses, and we captured two points of operating expense leverage. The structural changes in the quarter primarily reflect the deconsolidation of the Philippine bottling operations in 2013. Operating expense leverage in the quarter was impacted by the reversal of certain expenses related to our long-term incentive plans. A portion of our stock-based compensation is based on multi-year performance periods and includes the impact of currency, which we now estimate will be a headwind of 4% on operating income for the full year versus our expectation at the end of the first quarter of a 2% headwind. We now expect to achieve low single-digit operating expense leverage for the full year after excluding the impact of structural changes.

Second quarter reported operating income decreased 2%. Excluding the impact of structural changes, primarily the deconsolidation of the Philippine bottling operations in 2013, comparable currency neutral operating income grew 4% in the quarter and 5% year to date. Items impacting comparability reduced second quarter 2013 operating income by $175 million and reduced second quarter 2012 operating income by $119 million. Currency reduced comparable operating income by 3% in the quarter. Including our hedge positions, current spot rates and the cycling of our prior year rates, we estimate currency will have a 4% unfavorable impact on comparable operating income for both the third quarter and the full year. Further, we anticipate that the Philippine bottling transaction, together with the bottling transaction in Brazil that closed earlier this month, will have a 1% structural impact on our full-year 2013 operating income, with this decline offset by a corresponding improvement in equity income.

Year-to-date net share repurchases totaled $2.0 billion. We are targeting net share repurchases of $3.0 to $3.5 billion for the full year.

Second quarter reported EPS was $0.59 and comparable EPS was $0.63. Items impacting comparability reduced second quarter 2013 reported EPS by a net $0.04 and had no net impact on second quarter 2012 reported EPS. In both periods, these items included restructuring charges, costs related to global productivity initiatives, transaction gains/losses, net gains/losses related to our economic hedges, primarily commodities, and certain tax matters. Items impacting comparability in second quarter 2012 also included charges related to changes in the structure of Beverage Partners Worldwide (BPW) and charges related to the supply of Brazilian orange juice.

Year-to-date cash from operations was $3,956 million, down 5% versus the prior year, primarily due to the impact of two fewer selling days in the period, an unfavorable impact from currency, and an increase in the use of working capital in preparation for the peak season of our growing global business.