The Coca-Cola Company Reports Third Quarter 2016 Results

Flagship North America Market Maintains Positive Momentum

  • Net Revenues Declined 7%, Impacted by Foreign Currency and
    Structural Changes
  • Organic Revenues (Non-GAAP) Grew 3%
  • Operating Margin Expanded More than 50 Basis Points
  • EPS of $0.24 and Comparable EPS (Non-GAAP) of $0.49
  • Full Year Organic Revenue and Comparable EPS Outlook (Both
    Non-GAAP) Remain Unchanged

ATLANTA–(BUSINESS WIRE)–The Coca-Cola Company today reported third quarter 2016 operating
results. “I am pleased to report that we delivered results in line with
our expectations,” said Muhtar Kent, Chairman and Chief Executive
Officer of The Coca-Cola Company. “We continued to see solid revenue
results in our developed markets with 2% unit case volume growth and a
continued focus on price realization. The United States, Japan and
Western Europe delivered standout performance underpinned by innovation
and world-class marketing. Globally, we gained nonalcoholic
ready-to-drink value share for the 37th consecutive quarter
and are on track to deliver our financial commitments for the full year.”

“While our year-to-date reported net revenues declined 5%, our core
business organic revenues* have grown 4% despite continued global
economic and political volatility. We believe this core business
reflects the ultimate destination of our transformed company – an
enterprise positioned to capture sustainable growth through a laser
focus on innovating across our portfolio, building strong brands, and
leveraging unparalleled customer service through aligned bottlers. As we
continue on our path to transform the global system, we remain committed
to our strategic actions for growth that will create long-term
shareowner and stakeholder value.”

Highlights

Quarterly Performance

  • Net revenues were $10.6 billion, a 7% decline from prior year,
    impacted by a foreign currency exchange headwind of 2% and a headwind
    from acquisitions, divestitures and structural items of 8%. Organic
    revenues (non-GAAP) grew 3%, evenly split between volume and price/mix
    growth.
  • We gained global volume and value share in total nonalcoholic
    ready-to-drink (“NARTD”) beverages. Value share grew ahead of volume
    share, as a result of our focus on accelerating our revenue growth
    management strategies, including segmented market roles.
  • Sparkling beverage unit case volume was even as growth in three of the
    four geographic operating segments was offset by a 2% decline in Latin
    America.
  • Still beverage unit case volume grew 3%, primarily driven by water and
    sports drinks.
  • Our operating margin expanded more than 50 basis points, which
    included items impacting comparability, the impact of changes in
    foreign currency exchange rates and structural impacts. Our comparable
    currency neutral operating margin (non-GAAP) also expanded more than
    50 basis points, driven by solid pricing initiatives, a slightly
    favorable cost environment, continued productivity and segment mix.

Company Updates

The Company continued to make substantial progress in transforming its
business to one that is strategically focused on building great brands
and leading a strong global franchise system. Key developments this
quarter include:

  • Disciplined brand and growth investments: Year to date, we have
    introduced more than 500 new products across our system. For example,
    we successfully launched Coca-Cola Zero Sugar in Great Britain,
    a new and improved sugar-free product replacing Coca-Cola Zero in that
    market. With significant media investment behind this launch, we saw
    strong double-digit unit case volume growth in the quarter compared to
    the prior year Great Britain Coca-Cola Zero base. We continued the
    rollout of our new “Taste the Feeling” marketing campaign,
    which has now been activated in more than 200 markets. The recently
    announced “One Brand” strategy, which unites all four
    Trademark Coca-Cola brands under a common visual identity, has now
    been strategically rolled out in 12 of our top markets. We announced
    the expansion of our coffee portfolio in the United States with the
    anticipated launch in early 2017 of Gold Peak ready-to-drink
    (“RTD”) cold brew coffees and a partnership with Dunkin’ Brands Group
    to launch Dunkin’ Donuts branded RTD coffee beverages.
  • Revenue growth through segmented market roles: In North
    America
    , both reported net revenues and organic revenues
    (non-GAAP) grew 3%, reflecting ongoing pricing initiatives in our
    sparkling business as well as continued growth in our stills
    portfolio. In Japan, recent innovations such as extensions of
    the Ayataka tea trademark and Olympic activations behind brand
    Coca-Cola contributed to 4% unit case volume growth.
  • Core business model focus: We continued to make progress
    against our refranchising plans and remain on track to meet our goal
    by the end of 2017. In North America, we announced today six
    definitive agreements and four transaction closings. In Africa, Coca-Cola
    Beverages Africa
    began operations during the quarter, and we
    recently laid the groundwork to acquire Anheuser-Busch InBev’s
    majority stake in that entity in order to implement our long-term
    strategic plans in these territories with other partners. And in Latin
    America, we reached a comprehensive agreement with Arca Continental
    regarding concentrate prices on sparkling soft drinks in Mexico and
    other initiatives to keep jointly capturing value in Arca
    Continental’s Mexican territories. This agreement follows our new
    understanding with Coca-Cola FEMSA regarding joint value
    creation in Mexico and territorial expansion opportunities through the
    refranchising of Company-owned bottling operations.
  • Drive efficiency through productivity: We remain on track to
    deliver more than $600 million of productivity in 2016 by
    scaling initiatives and embedding zero-based work into daily routines.
    We continue to use productivity to prudently fund marketing while
    delivering operating margin expansion.
  • Sustainable business practices: We reached an important
    milestone recently with respect to water stewardship
    initiatives. The Company and its global bottling partners announced
    during the quarter that we met our goal to replenish the equivalent
    amount of water used in global sales volume back to nature and
    communities. The Company is the first Fortune 500 company to publicly
    claim achieving such a water replenishment target.
                                           

Operating Review – Three Months Ended September 30, 2016

 

Revenue and Volume

                                         
Percent Change    

Concentrate

Sales 1

    Price/Mix     Currency Impact    

Acquisitions,

Divestitures and

Structural Items, Net

    Reported Net Revenues    

Organic

Revenues 2

    Unit Case Volume
Consolidated     1     1     (2)     (8)     (7)     3     1
Europe, Middle East & Africa 3     (1)     3     (2)     (3)     (4)     2     2
Latin America 0 11 (16) 0 (4) 11 (2)
North America 1 2 0 0 3 3 1
Asia Pacific 9 (8) 4 (1) 4 0 2
Bottling Investments     (2)     3     (1)     (19)     (19)     2     (22)
                                       

Income Before Taxes and EPS

 
Percent Change      

Reported

Income Before Taxes

     

Items

Impacting

Comparability

      Currency Impact       Comparable Currency Neutral 2       Structural Impact      

Comparable

Currency Neutral

(Structurally

Adjusted) 2

Consolidated       (17)       (13)       (3)       (1)       (2)       2
                                 
Europe, Middle East & Africa 3 (2) 0 (2) 1
Latin America (16) (13) (24) 21
North America 12 5 0 8
Asia Pacific 2 0 3 (1)
Bottling Investments       (34)       (35)       0       1
                               
Percent Change       Reported EPS      

Items

Impacting

Comparability

      Currency Impact       Comparable Currency Neutral 2
Consolidated EPS       (27)       (24)       (3)       0

Note: Certain rows may not add due to rounding.

1 For Bottling Investments, this represents the percent
change in net revenues attributable to the increase (decrease) in unit
case volume after considering the impact of structural changes.

2 Organic revenues, comparable currency neutral income before
taxes, comparable currency neutral income before taxes (structurally
adjusted) and comparable currency neutral EPS are non-GAAP financial
measures. Refer to the Reconciliation of GAAP and Non-GAAP Financial
Measures section.

3 Effective August 1, 2016, the Company formed a new Europe,
Middle East & Africa operating group consisting of business units that
were previously included in the Europe and the Eurasia & Africa
operating groups.

In addition to the preceding data, quarterly (unless otherwise noted)
results were impacted by the following:

Consolidated

  • Positive price/mix included 1 point of negative segment mix. Bottling
    Investments was the primary driver of the negative segment mix.
  • The decline in income before taxes included items impacting
    comparability, the impact of changes in foreign currency exchange
    rates and structural impacts. Comparable currency neutral income
    before taxes (structurally adjusted) (non-GAAP) benefited from the
    impact of our productivity initiatives and an increase in equity
    income, partially offset by net interest expense.
  • The effective tax rate was 26.5%. The underlying effective tax rate
    (non-GAAP) was 22.5%.
  • EPS was $0.24. Items impacting comparability decreased reported EPS by
    a net $0.25 and were primarily related to non-cash charges associated
    with the refranchising of bottling territories in North America.
  • Year-to-date cash from operations was $6.7 billion, down $1.7 billion
    due to the deconsolidation of our German bottling operations, the
    impact of contributions to our pension plans and fluctuations in
    foreign currency exchange rates.
  • Year-to-date purchases of stock for treasury were $2.5 billion. Net
    share repurchases (non-GAAP) totaled $1.2 billion.

Europe, Middle East & Africa

  • Positive price/mix was primarily driven by favorable geographic and
    product mix. Acquisitions, divestitures and structural items reflect
    the impact of bottling transactions in South Africa.
  • The decline in income before taxes included the impact of changes in
    foreign currency exchange rates and structural impacts. Comparable
    currency neutral income before taxes (non-GAAP) included the
    unfavorable impact of bottling transactions in South Africa.
  • We gained volume and value share in total NARTD beverages. Unit case
    volume growth of 2% included 1 point of growth from acquired brands,
    which were primarily brands in Africa. Sparkling beverage volume grew
    1% and still beverage volume grew 4%. Unit case volume growth in our
    Western Europe and Middle East & North Africa business units was
    partially offset by a decline in our Central & Eastern Europe business
    unit, which was driven by poor weather and the cycling of strong third
    quarter 2015 performance.

Latin America

  • Positive price/mix benefited from solid performance in Mexico and
    inflationary markets within our Latin Center and South Latin business
    units.
  • We gained volume and value share in still beverages. Sparkling
    beverage volume declined 2% and still beverage volume declined 1%.
    Unit case volume performance was driven by a high single-digit decline
    in our Latin Center business unit amidst continued macroeconomic
    challenges in Venezuela and a mid single-digit decline in Brazil.
    These declines were partially offset by mid single-digit growth in
    Mexico.

North America

  • Positive price/mix reflects the continued execution of disciplined
    occasion, brand, price and package strategy. Sparkling beverage
    price/mix grew 3%.
  • Income before taxes included items impacting comparability and
    structural impacts. Comparable currency neutral income before taxes
    (non-GAAP) was favorably impacted by our productivity initiatives and
    the ongoing refranchising in North America.
  • We gained value share in total NARTD beverages for the 26th
    consecutive quarter. Sparkling beverage volume growth was slightly
    positive, rounding to even. Growth in Sprite, Fanta and energy drinks
    was offset primarily by a decline in Diet Coke. Coca-Cola Zero grew
    low single digits. Still beverage volume grew 2%, primarily driven by
    water and sports drinks. Volume in the dairy category grew double
    digits and vitaminwater grew high single digits.

Asia Pacific

  • Negative price/mix was driven by unfavorable product and channel mix
    as well as the cycling of items from the prior year.
  • We gained volume and value share in total NARTD beverages. Sparkling
    beverage volume growth was slightly positive, rounding to even. Still
    beverage volume grew 5%. Unit case volume growth included 4% growth in
    Japan and 2% growth in China, partially offset by a 4% decline in
    India.

Bottling Investments

  • Price/mix results reflect strong performance across several of our key
    bottling operations, particularly North America, and positive
    geographic mix. Acquisitions, divestitures and structural items
    reflect the impact of the refranchised North America bottling
    territories and the deconsolidation of our German and South African
    bottling operations.
  • The decline in income before taxes included items impacting
    comparability and structural impacts. Comparable currency neutral
    income before taxes (non-GAAP) was unfavorably impacted by the ongoing
    refranchising of North America bottling territories and the
    deconsolidation of our German and South African bottling operations.
                                                             

Operating Results – Nine Months Ended September 30, 2016

                                           

Revenue and Volume

     
                                                             
Percent Change     Concentrate Sales 1       Price/Mix       Currency Impact      

Acquisitions,

Divestitures and

Structural Items, Net

      Reported Net Revenues       Organic Revenues 2       Unit Case Volume      
Consolidated     1       2       (3)       (5)       (5)       2       1      
Europe, Middle East & Africa 3 (1) 3 (3) (3) (4) 2 0
Latin America 0 12 (20) 0 (7) 13 0
North America 0 3 0 0 3 3 1
Asia Pacific 4 (4) 1 (2) (1) 0 2
Bottling Investments     (1)       1       (2)       (10)       (12)       0       (13)      
                                     

Income Before Taxes and EPS

 
Percent Change    

Reported

Income Before

Taxes

      Items Impacting Comparability       Currency Impact       Comparable Currency Neutral 2       Structural Impact      

Comparable

Currency

Neutral (Structurally Adjusted) 2

     
Consolidated     (6)       (1)       (9)       4       (3)       7      
                                                     
Europe, Middle East & Africa 3 (4) 0 (3) (1)
Latin America (10) (2) (27) 20
North America 6 2 0 4
Asia Pacific 1 0 (1) 1
Bottling Investments     (274)       (284)       (3)       13
                         
Percent Change     Reported EPS      

Items Impacting Comparability

      Currency Impact       Comparable Currency Neutral 2
Consolidated EPS     (1)       3       (9)       5

Note: Certain rows may not add due to rounding.

1 For Bottling Investments, this represents the percent
change in net revenues attributable to the increase (decrease) in unit
case volume after considering the impact of structural changes.

2 Organic revenues, comparable currency neutral income before
taxes, comparable currency neutral income before taxes (structurally
adjusted) and comparable currency neutral EPS are non-GAAP financial
measures. Refer to the Reconciliation of GAAP and Non-GAAP Financial
Measures section.

3 Effective August 1, 2016, the Company formed a new Europe,
Middle East & Africa operating group consisting of business units that
were previously included in the Europe and the Eurasia & Africa
operating groups.

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, divestitures and/or
structural changes throughout 2016. The unavailable information could
have a significant impact on our full year 2016 GAAP financial results.

Full Year Net Revenues:

  • 3% growth in organic revenues (non-GAAP) – No Change
  • 6% to 7% net headwind from acquisitions, divestitures and structural
    items – No Change
  • 2% to 3% currency headwind based on the current spot rates and
    including the impact of hedged positions – No Change

Full Year Income Before Taxes:

  • 6% to 8% growth in comparable currency neutral income before taxes
    (structurally adjusted) (non-GAAP) – No Change
  • 4% structural headwind – No Change
  • 8% to 9% currency headwind based on the current spot rates and
    including the impact of hedged positions – No Change

Full Year EPS: Comparable EPS (non-GAAP) 4% to 7% decline versus
$2.00 in 2015 – No Change

The Company also expects the following:

  • Underlying effective tax rate (non-GAAP): 22.5% – No Change
  • Net capital expenditures: Slightly less than $2.5 billion – Updated
  • Net share repurchases (non-GAAP): $2.0 billion to $2.5 billion – No
    Change

Fourth Quarter Considerations – New:

  • Net revenues: 11% headwind from acquisitions, divestitures and
    structural items; 1% to 2% currency headwind based on the current spot
    rates and including the impact of hedged positions
  • Income before taxes: 6% to 7% structural headwind; 8% to 9% currency
    headwind based on the current spot rates and including the impact of
    hedged positions

Notes

  • All references to growth rate percentages and share compare the
    results of the period to those of the prior year comparable period.
  • 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. “Unit
    case” means a unit of measurement equal to 24 eight-ounce servings of
    finished beverage. “Unit case volume” means the number of unit cases
    (or unit case equivalents) of Company beverages directly or indirectly
    sold by the Company and its bottling partners to customers.
  • “Core business” represents the combined performance from the Europe,
    Middle East & Africa; Latin America; North America; Asia Pacific; and
    Corporate operating segments offset by intersegment eliminations.
  • “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. In the
    reconciliation of reported net revenues, “concentrate sales”
    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.
  • “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.
  • First quarter 2016 financial results were impacted by one less day,
    while fourth quarter financial results will be impacted by two
    additional days. Unit case volume results for the quarters are not
    impacted by the variance in days due to the average daily sales
    computation referenced above.

Conference Call

We are hosting a conference call with investors and analysts to discuss
third quarter 2016 results today, Oct. 26, 2016 at 9 a.m. EDT. We invite
investors to listen to a live audiocast of the conference call on the
Company’s website, http://www.coca-colacompany.com
in the “Investors” section. A replay in downloadable MP3 format and a
transcript of the call will also be available within 24 hours after the
audiocast on the Company’s website. Further, the “Investors” section of
the website includes a reconciliation of non-GAAP financial measures,
which may be used periodically by management when discussing financial
results with investors and analysts, to the Company’s results as
reported under GAAP.

 

THE COCA-COLA COMPANY AND SUBSIDIARIES

Condensed Consolidated Statements of
Income

(UNAUDITED)
(In millions except per share data)
           
Three Months Ended
September 30, 2016 October 2, 2015 % Change1
Net Operating Revenues $ 10,633 $ 11,427 (7 )
Cost of goods sold     4,131       4,577       (10 )
Gross Profit 6,502 6,850 (5 )
Selling, general and administrative expenses 4,009 4,207 (5 )
Other operating charges     222       264       (16 )
Operating Income 2,271 2,379 (5 )
Interest income 164 155 6
Interest expense 182 138 32
Equity income (loss) — net 281 200 40
Other income (loss) — net     (1,106 )     (871 )     (27 )
Income Before Income Taxes 1,428 1,725 (17 )
Income taxes     378       272       39  
Consolidated Net Income 1,050 1,453 (28 )
Less: Net income (loss) attributable to noncontrolling interests     4       4       (9 )
Net Income Attributable to Shareowners of The Coca-Cola Company     $ 1,046       $ 1,449       (28 )
Diluted Net Income Per Share2     $ 0.24       $ 0.33       (27 )
Average Shares Outstanding — Diluted2     4,364       4,399        
 

1 Certain growth rates may not recalculate using the
rounded dollar amounts provided.

2 For the three months ended September 30, 2016 and
October 2, 2015, basic net income per share was $0.24 for 2016 and
$0.33 for 2015 based on average shares outstanding — basic of
4,315 million for 2016 and 4,349 million for 2015. Basic net
income per share and diluted net income per share are calculated
based on net income attributable to shareowners of The Coca-Cola
Company.

 

THE COCA-COLA COMPANY AND SUBSIDIARIES

Condensed Consolidated Statements of
Income

(UNAUDITED)
(In millions except per share data)
           
Nine Months Ended
September 30, 2016 October 2, 2015 % Change1
Net Operating Revenues $ 32,454 $ 34,294 (5 )
Cost of goods sold     12,671       13,428       (6 )
Gross Profit 19,783 20,866 (5 )
Selling, general and administrative expenses 11,682 12,490 (6 )
Other operating charges     830       1,166       (29 )
Operating Income 7,271 7,210 1
Interest income 472 459 3
Interest expense 485 713 (32 )
Equity income (loss) — net 678 402 68
Other income (loss) — net     (315 )     709        
Income Before Income Taxes 7,621 8,067 (6 )
Income taxes     1,618       1,937       (16 )
Consolidated Net Income 6,003 6,130 (2 )
Less: Net income (loss) attributable to noncontrolling interests     26       16       57  
Net Income Attributable to Shareowners of The Coca-Cola Company     $ 5,977       $ 6,114       (2 )
Diluted Net Income Per Share2     $ 1.37       $ 1.39       (1 )
Average Shares Outstanding — Diluted2     4,374       4,410        
 

1 Certain growth rates may not recalculate using the
rounded dollar amounts provided.

2 For the nine months ended September 30, 2016 and
October 2, 2015, basic net income per share was $1.38 for 2016 and
$1.40 for 2015 based on average shares outstanding — basic of
4,322 million for 2016 and 4,357 million for 2015. Basic net
income per share and diluted net income per share are calculated
based on net income attributable to shareowners of The Coca-Cola
Company.

 

THE COCA-COLA COMPANY AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(UNAUDITED)
(In millions except par value)
       
September 30,
2016
December 31,
2015

ASSETS

Current Assets
Cash and cash equivalents $ 11,147 $ 7,309
Short-term investments     11,265       8,322  
Total Cash, Cash Equivalents and Short-Term Investments     22,412       15,631  
Marketable securities 3,157 4,269
Trade accounts receivable, less allowances of $472 and $352,
respectively
4,082 3,941
Inventories 2,751 2,902
Prepaid expenses and other assets 3,091 2,752
Assets held for sale     2,463       3,900  
Total Current Assets     37,956       33,395  
Equity Method Investments 16,917 12,318
Other Investments 1,110 3,470
Other Assets 4,526 4,110
Property, Plant and Equipment — net 11,172 12,571
Trademarks With Indefinite Lives 6,183 5,989
Bottlers’ Franchise Rights With Indefinite Lives 4,438 6,000
Goodwill 10,865 11,289
Other Intangible Assets     760       854  
Total Assets     $ 93,927       $ 89,996  
 

LIABILITIES AND EQUITY

Current Liabilities
Accounts payable and accrued expenses $ 11,153 $ 9,660
Loans and notes payable 12,088 13,129
Current maturities of long-term debt 3,473 2,676
Accrued income taxes 396 331
Liabilities held for sale     682       1,133  
Total Current Liabilities     27,792       26,929  
Long-Term Debt 31,663 28,311
Other Liabilities 3,984 4,301
Deferred Income Taxes 4,243 4,691
The Coca-Cola Company Shareowners’ Equity

Common stock, $0.25 par value; Authorized — 11,200 shares; Issued
— 7,040 and 7,040 shares, respectively

1,760 1,760
Capital surplus 14,882 14,016
Reinvested earnings 66,457 65,018
Accumulated other comprehensive income (loss) (10,209 ) (10,174 )
Treasury stock, at cost — 2,727 and 2,716 shares, respectively     (46,814 )     (45,066 )
Equity Attributable to Shareowners of The Coca-Cola Company 26,076 25,554
Equity Attributable to Noncontrolling Interests     169       210  
Total Equity     26,245       25,764  
Total Liabilities and Equity     $ 93,927       $ 89,996  

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