The Coca-Cola Company Reports Second Quarter 2016 Results

  • Reported net revenues declined 5% and organic revenues grew 3% in
    the quarter.
  • Reported EPS was $0.79 and comparable EPS was $0.60 in the quarter.
  • Global volume grew 1% year to date and was even in the quarter.
  • Global price/mix grew 3% in the quarter, reflecting continued
    effective pricing and packaging initiatives across key markets.
  • Reported operating margin expanded more than 390 basis points and
    comparable currency neutral operating margin expanded more than 140
    basis points.
  • Gained global value share in nonalcoholic ready-to-drink beverages.
  • Full-year 2016 organic revenues now expected to grow 3%. Full-year
    comparable currency neutral income before taxes (structurally
    adjusted) outlook remains 6% to 8%.

ATLANTA–(BUSINESS WIRE)–The Coca-Cola Company today reported second quarter 2016 operating
results. Muhtar Kent, Chairman and Chief Executive Officer of The
Coca-Cola Company said, “Despite challenging macroeconomic conditions,
structural changes and foreign exchange headwinds which contributed to a
5% decline in reported revenues, we delivered 3% organic revenue growth,
gained value share in total nonalcoholic ready-to-drink beverages,
expanded our operating margins and grew profits in line with our
expectations. Strong performance in some of our largest and most
developed markets, including the United States, Mexico and Japan, was
offset by difficult external conditions in many of our emerging and
developing markets, including China and Argentina. These factors
combined to put pressure on our volume and top-line performance in the
quarter, especially where we own bottling businesses. In these
international operations where external headwinds have proven to be more
severe than originally forecast, we are taking action by reassessing
local market initiatives where needed and continuing our efforts in
driving productivity.

“As we continue the transformation of our business, I am encouraged by
our core business performance which grew ahead of our consolidated
organic revenues in the quarter. We expect this to continue for the
balance of the year as we remain confident in our segmented revenue
growth strategy, our innovation pipeline, and efforts to increase and
improve our advertising.”

SECOND QUARTER 2016 OPERATING REVIEW

TOTAL COMPANY

      Percent Change
      Second Quarter   YTD
Unit Case Volume     0     1  
Concentrate Sales/Reported Volume     0   0
Price/Mix

3

2
Currency (3 ) (4 )
Acquisitions, Divestitures and Structural Items, Net     (5 )   (3 )
Reported Net Revenues (5 ) (5 )
Organic Revenues *     3     2  
Reported Income Before Taxes (1 ) (2 )
Comparable CN Income Before Taxes (Structurally Adjusted) *     10     10  

* Organic revenues and comparable currency neutral (CN) income
before taxes (structurally adjusted) are non-GAAP financial measures.
Refer to the Notes and Reconciliation of GAAP and Non-GAAP Financial
Measures schedule.

  • Concentrate sales growth was in line with unit case volume growth in
    the quarter and was slightly behind unit case volume growth for the
    year-to-date period. After adjusting for one less day in the first
    quarter, concentrate sales and unit case volume growth were in line
    for the year-to-date period. The positive price/mix in the quarter was
    driven by solid underlying pricing partially offset by 1 point of
    geographic mix. Acquisitions, divestitures and structural items in the
    quarter primarily include the impact of refranchised territories in
    North America, the deconsolidation of our German bottling operations
    as a result of their being merged to create Coca-Cola European
    Partners as well as the impact of the brand transfer agreement
    associated with the closing of the transaction with Monster Beverage
    Corporation (“Monster”) in 2015.
  • We gained global volume and value share in sparkling beverages in the
    quarter. Value share grew ahead of volume share, emphasizing our focus
    on accelerating our revenue growth management strategies. Sparkling
    beverage volume was even year to date and declined 1% in the quarter
    primarily due to weakness in certain emerging markets.
  • We gained global volume and value share in still beverages in the
    quarter. Still beverage volume grew 4% year to date and 2% in the
    quarter. Volume growth in the quarter was driven by strong performance
    in most categories partially offset by a decline in juice and juice
    drinks primarily due to industry weakness in China.
  • The decline in reported income before taxes in the quarter was
    primarily driven by an unfavorable currency impact of 9% and
    structural impacts, partially offset by a 5% favorable impact due to
    comparability items. Also, income before taxes benefited from the
    impact of our productivity initiatives, a slightly favorable commodity
    pricing environment, the timing of expenses and an increase in equity
    income. The structural headwind on comparable currency neutral income
    before taxes was 4%.
  • The reported effective tax rate for the quarter was 19.5%. The
    underlying effective tax rate was 22.5%. The variance between the
    reported rate and the underlying rate was due to the tax effect of
    various items impacting comparability, separately disclosed in the
    Reconciliation of GAAP and Non-GAAP Financial Measures schedule.
  • Reported EPS was $0.79 and comparable EPS was $0.60 in the quarter.
    Items impacting comparability increased reported EPS by a net $0.19
    and were primarily related to a noncash gain recognized in connection
    with the deconsolidation of our German bottling operations as a result
    of their being merged to create Coca-Cola European Partners, partially
    offset by noncash charges related to refranchising territories in
    North America and costs associated with our previously announced
    productivity and restructuring initiatives.
  • Fluctuations in foreign currency exchange rates resulted in a headwind
    of 7 points, 9 points and 10 points on reported operating income,
    reported income before taxes and reported EPS, respectively, in the
    quarter. Fluctuations in foreign currency exchange rates resulted in a
    6 point headwind on comparable operating income and an 11 point
    headwind on both comparable income before taxes and comparable EPS in
    the quarter.
  • Year-to-date cash from operations was $3.8 billion, down $1.3 billion
    primarily due to the impact of contributions to our pension plans,
    fluctuations in foreign currency exchange rates, one less day in the
    first quarter and the deconsolidation of our German bottling
    operations.
  • Year-to-date purchases of stock for treasury were $2.2 billion. Net
    share repurchases totaled $1.1 billion.

EURASIA AND AFRICA

        Percent Change
        Second Quarter     YTD
Unit Case Volume       (1 )     (1 )
Concentrate Sales       0     (1 )
Price/Mix 7 5
Currency (10 ) (11 )
Acquisitions, Divestitures and Structural Items, Net       (3 )     (3 )
Reported Net Revenues (6 ) (10 )
Organic Revenues *       7       5  
Reported Income Before Taxes (11 ) (12 )
Comparable CN Income Before Taxes *       0       (1 )

* Organic revenues and comparable currency neutral (CN) income
before taxes are non-GAAP financial measures. Refer to the Notes and
Reconciliation of GAAP and Non-GAAP Financial Measures schedule.

  • Concentrate sales growth was slightly ahead of unit case volume growth
    in the quarter due to timing of concentrate shipments. For the
    year-to-date period, concentrate sales and unit case volume growth
    were in line. The positive price/mix in the quarter was primarily
    attributable to favorable pricing and product mix across several key
    markets, partially offset by unfavorable geographic mix. Acquisitions,
    divestitures and structural items in the quarter primarily reflect the
    unfavorable impact of the brand transfer agreement associated with the
    closing of the transaction with Monster in 2015.
  • The decline in reported income before taxes in the quarter was
    primarily driven by an unfavorable currency impact of 11% and the
    unfavorable structural impact of the brand transfer agreement with
    Monster. Also, income before taxes benefited in the quarter from the
    impact of our productivity initiatives and timing of expenses.
  • We gained value share in sparkling beverages in the quarter. Sparkling
    beverage volume was even and still beverage volume declined 4% in the
    quarter. Unit case volume performance in the quarter included low
    single-digit growth in both our Central, East & West Africa and Middle
    East & North Africa business units, offset by a high single-digit
    decline in our Russia, Ukraine & Belarus business unit and a mid
    single-digit decline in our Turkey, Caucasus & Central Asia business
    unit.

EUROPE

        Percent Change
        Second Quarter     YTD
Unit Case Volume       0       0  
Concentrate Sales       (1 )     (1 )
Price/Mix 3 2
Currency 0 1
Acquisitions, Divestitures and Structural Items, Net       (4 )     (3 )
Reported Net Revenues (2 ) (1 )
Organic Revenues *       2       1  
Reported Income Before Taxes (3 ) (3 )
Comparable CN Income Before Taxes *       (3 )     (2 )

* Organic revenues and comparable currency neutral (CN) income
before taxes are non-GAAP financial measures. Refer to the Notes and
Reconciliation of GAAP and Non-GAAP Financial Measures schedule.

  • Concentrate sales growth in the quarter was slightly behind unit case
    volume growth due to timing of concentrate shipments. For the
    year-to-date period, concentrate sales and unit case volume growth
    were in line after adjusting for one less day in the first quarter.
    The positive price/mix in the quarter reflects an increase in pricing
    and favorable product mix in key markets. Acquisitions, divestitures
    and structural items in the quarter reflect the unfavorable impact of
    the brand transfer agreement associated with the closing of the
    transaction with Monster in 2015 as well as the impact of the
    deconsolidation of our German bottling operations as a result of their
    being merged to create Coca-Cola European Partners.
  • The decline in reported income before taxes in the quarter was
    primarily driven by the unfavorable structural impact related to the
    brand transfer agreement with Monster and the impact of the
    deconsolidation of our German bottling operations. Also, income before
    taxes benefited in the quarter from the impact of our productivity
    initiatives.
  • We gained value share in total nonalcoholic ready-to-drink (“NARTD”)
    beverages in the quarter. Sparkling beverage volume was even and still
    beverage volume grew 2% in the quarter. Unit case volume growth in key
    markets including Germany, Poland and Romania was offset by volume
    declines in France and Spain primarily driven by poor weather.

LATIN AMERICA

        Percent Change
        Second Quarter     YTD
Unit Case Volume       0       1  
Concentrate Sales       1     1
Price/Mix 15 13
Currency (20 ) (22 )
Acquisitions, Divestitures and Structural Items, Net       0       0  
Reported Net Revenues (4 ) (8 )
Organic Revenues *       16       14  
Reported Income Before Taxes (1 ) (7 )
Comparable CN Income Before Taxes *       27       19  

* Organic revenues and comparable currency neutral (CN) income
before taxes are non-GAAP financial measures. Refer to the Notes and
Reconciliation of GAAP and Non-GAAP Financial Measures schedule.

  • Concentrate sales growth was slightly ahead of unit case volume growth
    in the quarter due to timing of concentrate shipments. For the
    year-to-date period, concentrate sales and unit case volume growth
    were in line. Positive price/mix was realized in each of our four
    business units in the quarter, particularly in Brazil and other higher
    inflationary markets within our South Latin and Latin Center business
    units.
  • The decline in reported income before taxes in the quarter was
    primarily driven by an unfavorable currency impact of 29%. Also,
    income before taxes benefited in the quarter from the impact of our
    productivity initiatives and timing of expenses.
  • We gained value share in still beverages in the quarter. Sparkling
    beverage volume declined 2% in the quarter and still beverage volume
    grew 6%. Unit case volume performance in the quarter was driven by
    high single-digit growth in Mexico, offset by a high single-digit
    decline in both our Latin Center and South Latin business units and a
    low single-digit decline in Brazil.

NORTH AMERICA

        Percent Change
        Second Quarter     YTD
Unit Case Volume       1       1  
Concentrate Sales       1     0
Price/Mix 2 3
Currency 0 0
Acquisitions, Divestitures and Structural Items, Net       (1 )     (1 )
Reported Net Revenues 2 2
Organic Revenues *       4       3  
Reported Income Before Taxes (1 ) 3
Comparable CN Income Before Taxes *       0       2  

* Organic revenues and comparable currency neutral (CN) income
before taxes are non-GAAP financial measures. Refer to the Notes and
Reconciliation of GAAP and Non-GAAP Financial Measures schedule.

  • Concentrate sales growth was in line with unit case volume growth in
    the quarter and was slightly behind unit case volume growth for the
    year-to-date period. After adjusting for one less day in the first
    quarter, concentrate sales and unit case volume growth were in line
    for the year-to-date period. The positive price/mix in the quarter
    reflects the successful continued implementation of our rational
    pricing strategy and our effective revenue management efforts.
    Acquisitions, divestitures and structural items in the quarter
    primarily reflect the unfavorable impact of the brand transfer
    agreement associated with the closing of the transaction with Monster
    in 2015.
  • Reported income before taxes in the quarter includes an unfavorable
    structural impact of 4% primarily related to the brand transfer
    agreement associated with the closing of the transaction with Monster
    in 2015.
  • We gained value share in total NARTD beverages for the 25th
    consecutive quarter driven by the continued increase in the quantity
    and quality of our marketing investments along with our disciplined
    approach to pricing and packaging strategies. Sparkling beverage
    volume declined 1% in the quarter. Growth in Sprite, Fanta and energy
    drinks was offset by a decline in Trademark Coca-Cola. Still beverage
    volume growth of 3% in the quarter was driven by all key categories.

ASIA PACIFIC

        Percent Change
        Second Quarter     YTD
Unit Case Volume       1       3  
Concentrate Sales       (2 )     2
Price/Mix 0 (2 )
Currency 1 (1 )
Acquisitions, Divestitures and Structural Items, Net       (1 )     (2 )
Reported Net Revenues (2 ) (3 )
Organic Revenues *       (2 )     0  
Reported Income Before Taxes (1 ) 0
Comparable CN Income Before Taxes *       0       2  

* Organic revenues and comparable currency neutral (CN) income
before taxes are non-GAAP financial measures. Refer to the Notes and
Reconciliation of GAAP and Non-GAAP Financial Measures schedule.

  • Concentrate sales growth trailed unit case volume growth in the
    quarter due to timing of concentrate shipments and was slightly behind
    unit case volume growth for the year-to-date period. After adjusting
    for one less day in the first quarter, concentrate sales and unit case
    volume growth were in line for the year-to-date period. The even
    price/mix in the quarter was primarily driven by favorable pricing and
    geographic mix, offset by negative product mix. Acquisitions,
    divestitures and structural items in the quarter reflect the
    unfavorable impact of the brand transfer agreement associated with the
    closing of the transaction with Monster in 2015 and a change in the
    funding arrangement with our bottlers in China.
  • The decline in reported income before taxes in the quarter was
    primarily driven by an unfavorable currency impact of 1 point. Also,
    income before taxes benefited in the quarter from the impact of our
    productivity initiatives and timing of expenses.
  • We gained value share in total NARTD beverages in the quarter.
    Sparkling beverage volume was even and still beverage volume grew 2%
    in the quarter. Unit case volume growth in the quarter included high
    single-digit growth in our ASEAN business unit, 4% growth in Japan and
    3% growth in India, partially offset by a high single-digit decline in
    China.

BOTTLING INVESTMENTS

        Percent Change
        Second Quarter     YTD
Unit Case Volume       (13 )     (9 )
Reported Volume       (2 )     (1 )
Price/Mix 2 1
Currency (1 ) (2 )
Acquisitions, Divestitures and Structural Items, Net       (11 )     (6 )
Reported Net Revenues (12 ) (8 )
Organic Revenues *       0       0  
Reported Income Before Taxes (24 )
Comparable CN Income Before Taxes *       11       21  

* Organic revenues and comparable currency neutral (CN) income
before taxes are non-GAAP financial measures. Refer to the Notes and
Reconciliation of GAAP and Non-GAAP Financial Measures schedule.

  • The positive price/mix in the quarter reflects favorable pricing
    across several of our bottling operations and positive geographic mix
    given our China bottling operations’ weaker volume performance.
    Acquisitions, divestitures and structural items in the quarter reflect
    the impact of the refranchised North America bottling territories and
    the deconsolidation of our German bottling operations as a result of
    their being merged to create Coca-Cola European Partners.
  • The decline in reported income before taxes in the quarter was
    primarily driven by an unfavorable currency impact of 6%, an
    unfavorable impact due to comparability items and an unfavorable
    structural impact related to refranchised North America bottling
    territories and the deconsolidation of our German bottling operations.
    Also, income before taxes benefited from the impact of our
    productivity initiatives, a slightly favorable commodity pricing
    environment and increased equity income.

2016 OUTLOOK

Our 2016 outlook for organic revenues, comparable currency neutral
income before taxes (structurally adjusted) and comparable EPS are
non-GAAP financial measures that exclude or have otherwise been adjusted
for items impacting comparability, the impact of changes in foreign
currency exchange rates, acquisitions and divestitures, and the impact
of structural items, as applicable. We are not able to reconcile these
forward-looking non-GAAP financial measures to their most directly
comparable forward-looking GAAP financial measures without unreasonable
efforts because we are unable to predict with a reasonable degree of
certainty the actual impact of changes in foreign currency exchange
rates and the exact timing of acquisitions and divestitures and/or
structural changes throughout 2016. The unavailable information could
have a significant impact on our full-year 2016 GAAP financial results.

  • The Company now expects organic revenues to be up 3% in 2016. The net
    impact of acquisitions, divestitures and structural items on net
    revenues is expected to be a 6 to 7 point headwind, and based on the
    current spot rates, currency is expected to be a 2 to 3 point
    headwind, including the impact of hedged positions for the full year.
  • The Company continues to expect comparable currency neutral income
    before taxes (structurally adjusted) to grow 6% to 8% in 2016, in line
    with our long-term target. The net impact of structural items is
    expected to be a 4 point headwind, and based on the current spot
    rates, currency is expected to be an 8 to 9 point headwind, including
    the impact of hedged positions for the full year.
  • Based on the above, the Company expects full-year comparable EPS to be
    down 4% to 7% versus prior year’s comparable EPS of $2.00.
  • In addition to the above, the Company expects the following:
  • The underlying effective annual tax rate in 2016 is expected to be
    22.5%.
  • We are targeting full-year 2016 net share repurchases of $2.0 to $2.5
    billion.
  • For the third quarter of 2016, we estimate that based on the current
    spot rates, currency will be a 2 point headwind on comparable net
    revenues and a 2 to 3 point headwind on comparable income before
    taxes, including the impact of hedged positions. The net impact of
    structural items is expected to be a 3 point headwind on comparable
    income before taxes.

ITEMS IMPACTING COMPARABILITY

  • For details on items impacting comparability in the quarter, refer to
    the Reconciliation of GAAP and Non-GAAP Financial Measures schedule.

NOTES

  • All references to growth rate percentages and share compare the
    results of the period to those of the prior year comparable period.
  • The Company reports its financial results in accordance with
    accounting principles generally accepted in the United States (GAAP).
    However, management uses non-GAAP financial measures, including, but
    not limited to, organic revenues, comparable currency neutral income
    before taxes and comparable currency neutral earnings per share, in
    making financial, operating, compensation and planning decisions and
    in evaluating the Company’s performance. Management believes that
    these non-GAAP financial measures provide users with additional
    meaningful financial information that should be considered when
    assessing our ongoing performance. Non-GAAP financial measures should
    be viewed in addition to, and not as an alternative for, the Company’s
    reported results prepared in accordance with GAAP. The Company’s
    non-GAAP financial information does not represent a comprehensive
    basis of accounting. Refer to the Reconciliation of GAAP and Non-GAAP
    Financial Measures schedule.
  • “Comparable currency neutral income before taxes” is a non-GAAP
    financial measure that excludes or otherwise adjusts for items
    impacting comparability and the impact of changes in foreign currency
    exchange rates. For details on these adjustments, refer to the
    Reconciliation of GAAP and Non-GAAP Financial Measures schedule.
  • “Comparable currency neutral income before taxes (structurally
    adjusted)” is a non-GAAP financial measure that excludes or otherwise
    adjusts for items impacting comparability, the impact of changes in
    foreign currency exchange rates and the impact of structural items.
    For details on these adjustments, refer to the Reconciliation of GAAP
    and Non-GAAP Financial Measures schedule.
  • “Concentrate sales” represents the amount of concentrates, syrups,
    beverage bases and powders sold by, or used in finished beverages sold
    by, the Company to its bottling partners or other customers.
  • “Concentrate sales/reported volume” represents the percent change in
    net revenues attributable to the increase (decrease) in concentrate
    sales volume for our geographic operating segments (expressed in
    equivalent unit cases) after considering the impact of structural
    changes. For our Bottling Investments operating segment, this
    represents the percent change in net revenues attributable to the
    increase (decrease) in unit case volume after considering the impact
    of structural changes. Our Bottling Investments operating segment
    reflects unit case volume growth for consolidated bottlers only, which
    is computed on a reported basis.
  • “Organic revenues” is a non-GAAP financial measure that excludes or
    has otherwise been adjusted for the impact of changes in foreign
    currency exchange rates and acquisitions, divestitures and structural
    items, as applicable. For details on these adjustments, refer to the
    Reconciliation of GAAP and Non-GAAP Financial Measures schedule.
  • “Core business” represents the combined performance from the Eurasia
    and Africa, Europe, Latin America, North America, Asia Pacific and
    Corporate operating segments offset by intersegment eliminations.
  • “Sparkling beverages” means NARTD beverages with carbonation,
    including carbonated energy drinks and waters.
  • “Still beverages” means nonalcoholic beverages without carbonation,
    including noncarbonated waters, flavored waters and enhanced waters,
    juices and juice drinks, teas, coffees, sports drinks, dairy and
    noncarbonated energy drinks.
  • All references to volume and volume percentage changes indicate unit
    case volume, unless otherwise noted. All volume percentage changes are
    computed based on average daily sales, unless otherwise noted.

Contacts

The Coca-Cola Company
Investors and Analysts:
Tim
Leveridge,
+01-404-676-7563
or
Media:
Petro
Kacur,
+01-404-676-2683

Read full story here