The Coca-Cola Company Posts Operating Results

The Coca-Cola Company's start to 2018 built on prior momentum, with strong financial performance in the first quarter.

In a release on April 24, the Company noted that while reported net revenues continued to be impacted by refranchising, the company delivered organic revenue (non-GAAP) and volume growth across all geographic operating groups. The company gained value share globally, in addition to seeing improved trends across the beverage industry overall.

"We're encouraged with our first quarter performance as we continue our evolution as a consumer-centric, total beverage company," said James Quincey, President and CEO of The Coca-Cola Company. "We have the right strategies in place and remain confident in our ability to achieve our full year guidance."

During the first quarter, the company expanded its portfolio and continued to drive revenue growth. The company's unit case volume grew 3 percent with an acceleration in smaller, immediate consumption packaging as revenue growth management initiatives were successfully executed in the market. The company's portfolio continued to evolve and expand through innovation, expansion of the lift, shift and scale model and bolt-on M&A, anchored by continued strength in core brands. These disciplined growth strategies, underpinned by a stronger and aligned system along with a winning culture, helped to drive the business forward.

Highlights include:

Quarterly Performance

-Revenues: Net revenues declined 16 percent to $7.6 billion for the quarter, impacted by a 26 percent headwind from refranchising of bottling territories. Organic revenues (non-GAAP) grew 5 percent for the quarter, driven by concentrate sales growth of 4 percent and price/mix growth of 1 percent.

-Volume: Total unit case volume grew 3 percent, with growth across all category clusters and geographic operating groups. Trademark Coca-Cola was the largest contributor, with a clear acceleration in all brands under the trademark.

-Margin: Operating margin, which included items impacting comparability, grew over 220 basis points. Comparable operating margin (non-GAAP) expanded 600 basis points, driven by divestitures of lower-margin bottling businesses and the company's ongoing productivity efforts, partially offset by the adoption of the new revenue recognition accounting standard.

-Market Share: The company continued to gain value share in total nonalcoholic ready-to-drink (NARTD) beverages.

-Cash Flow: Cash from operations for the quarter was $613 million, down 20 percent primarily due to the refranchising of North American bottling territories and the impact of one less day in the quarter. Free cash flow (non-GAAP) was $339 million, up 5 percent driven by reduced capital investment needs.

-Share Repurchases: Purchases of stock for treasury for the quarter were $927 million. Net share repurchases (non-GAAP) totaled $471 million.

Company Updates

-Leveraging the strength of leader brands: The company continued to capitalize on its leadership position in sparkling soft drinks. A consistent focus on the One Brand Strategy for Trademark Coca-Cola led to 4 percent volume growth, fueled by 3 percent growth in brand Coca-Cola and double-digit growth in Coca-Cola Zero Sugar. This performance, along with driving profitability within sparkling through revenue growth management initiatives, led to 6 percent growth in global retail value for Trademark Coca-Cola.

-Expanding presence in on-trend categories: After the recent acquisition of the U.S. rights to Topo Chico premium sparkling mineral water, the company was able to extend the brand's reach through increased distribution, while preserving its strong heritage. The brand grew its U.S. retail value over 30 percent during the quarter and gained value share in the sparkling water category.

-Innovation within iconic brands: Diet Coke returned to volume growth in North America during the quarter, following a full brand restage. The introduction of four bold, new flavors, along with contemporary, sleek packaging and marketing, helped lift the performance of the brand.

-Scaling successful brands rapidly: During the quarter, the company leveraged its strength in distribution to lift, shift and scale leading brands around the world. Fuze Tea, which was already available in 49 countries, was introduced in an additional 37 countries across Europe, featuring new herb and fruit-infused flavors with fewer calories. The single-day launch of Fuze Tea in Europe was executed on a scale that was unprecedented in the company's history.

Consolidated

-Price/mix grew 1 percent in the quarter as solid pricing in the marketplace was partially offset by timing. Concentrate sales grew ahead of unit case volume, largely due to the timing of shipments, particularly in the emerging markets.

-Unit case volume grew 3 percent for the quarter. Category cluster performance was as follows:

-Sparkling soft drinks: 4 percent

-Juice, dairy and plant-based beverages: 3 percent

-Water, enhanced water and sports drinks: 1 percent

-Tea and coffee: 5 percent

-Operating income was impacted by comparability items, predominantly charges associated with the refranchising of bottling territories in North America. Results were also impacted by structural items related to refranchising. Growth in comparable currency neutral operating income (adjusted for structural items and accounting changes) (non-GAAP) was driven by organic revenue (non-GAAP) growth and the benefit from ongoing productivity initiatives.

Europe, Middle East & Africa

-Price/mix declined 1 percent for the quarter, as positive pricing in the marketplace was offset by negative geographic mix due to growth in emerging and developing markets outpacing developed markets. Concentrate sales grew 5 points ahead of unit case volume due to the timing of shipments in the majority of business units.

-Unit case volume grew 4 percent in the quarter, led by strong performance in Turkey and South Africa, partially offset by declines in Nigeria and Western Europe.

-Operating income growth trailed revenue growth, largely due to a less favorable currency impact to operating income compared to revenue in addition to increased marketing investments related to the Fuze Tea launch. Product mix also impacted the quarter due to continued strong growth in innocent, a finished goods business.

-The company gained value share in the juice, dairy and plant-based beverages cluster.

Latin America

-Price/mix growth of 6 percent for the quarter was primarily driven by strong price/mix in Mexico and the South Latin business unit.

-Unit case volume grew 1 percent in the quarter, as low to mid single-digit growth in Brazil, Argentina and Mexico was partially offset by declines in Peru and Chile.

-Operating income growth during the quarter was driven by solid pricing in the marketplace in addition to productivity initiatives.

-The company gained or maintained value share in sparkling soft drinks as well as the juice, dairy and plant-based beverages and water, enhanced water and sports drink clusters.

North America

-Price/mix declined 1 percent for the quarter as low single-digit underlying pricing was offset by the cycling of certain product launches, incremental freight costs, and the timing of the Easter holiday.

-Unit case volume grew 2 percent for the quarter. Sparkling soft drinks growth of 3 percent included double-digit growth in Coca-Cola Zero Sugar, along with positive performance in Diet Coke. Juice, dairy and plant-based beverages declined 2 percent, as growth in dairy and plant-based beverages was offset by a decline in juice, largely due to deprioritizing lower-margin juice drink brands and to package re-sizing across the juice portfolio. Tea and coffee grew 5 percent. Water, enhanced water and sports drinks grew 1 percent, which included strong growth in the sparkling water portfolio driven by double-digit growth in smartwater sparkling and Dasani sparkling, in addition to the strong performance of Topo Chico.

-Operating income for the quarter was unfavorably impacted by a 6-point headwind from cycling the benefit of intercompany profit elimination in the prior year related to the refranchising of North American bottling operations.

-The company gained or maintained value share in total NARTD beverages, along with all category clusters.

Asia Pacific

-Price/mix declined 2 percent for the quarter, largely driven by negative geographic mix as growth in China and India outpaced more developed markets, including Japan and Australia.

-Unit case volume growth of 5 percent for the quarter was driven by strong performance in China and India, partially offset by a low single-digit decline in Southeast Asia.

-Operating income growth outpaced revenue growth for the quarter, largely driven by favorable product mix as sparkling soft drinks grew volume double digits in China and India.

-The company gained or maintained value share in total NARTD beverages along with sparkling soft drinks and the juice, dairy and plant-based beverages cluster.

Bottling Investments

-Price/mix growth of 2 percent for the quarter was largely driven by strong performance in India.

-The operating loss for the quarter was largely driven by items impacting comparability. Comparable currency neutral operating loss (non-GAAP) was unfavorably impacted by the refranchising of North American bottling territories and the deconsolidation of previously held bottling operations in China.

Outlook

The 2018 outlook information provided below includes forward-looking non-GAAP financial measures, which management uses in measuring performance. The company is not able to reconcile full year 2018 projected organic revenues (non-GAAP) to full year 2018 projected reported net revenues, full year 2018 projected comparable currency neutral operating income (adjusted for structural items and accounting changes) (non-GAAP) to full year 2018 projected reported operating income, or full year 2018 projected comparable EPS from continuing operations (non-GAAP) to full year 2018 projected reported EPS from continuing operations without unreasonable efforts because it is not possible to predict with a reasonable degree of certainty the actual impact of changes in foreign currency exchange rates; the exact timing and amount of acquisitions, divestitures and/or structural changes; the exact timing and amount of comparability items throughout 2018; and the actual impact of accounting changes. The unavailable information could have a significant impact on full year 2018 GAAP financial results.

Full Year 2018 Underlying Performance:

-Approximately 4 percent growth in organic revenues (non-GAAP) No Change

-8 percent to 9 percent growth in comparable currency neutral operating income (adjusted for structural items and accounting changes) (non-GAAP) No Change

Full Year 2018 Currency Impact:

-Comparable net revenues (non-GAAP): 1 percent tailwind based on the current rates and including the impact of hedged positions No Change

-Comparable operating income (non-GAAP): 0 percent to 1 percent headwind based on the current rates and including the impact of hedged positions No Change

Full Year 2018 Impact from Acquisitions, Divestitures, Structural Items and Accounting Changes:

-Comparable net revenues (non-GAAP): 17 percent headwind from acquisitions, divestitures and structural items No Change

-Comparable net revenues (non-GAAP): 1 percent to 2 percent tailwind from accounting changes No Change

-Comparable operating income (non-GAAP): 2 percent structural headwind No Change

-Comparable operating income (non-GAAP): 0 percent impact from accounting changes No Change

Full Year 2018 Other Items:

-Underlying effective tax rate (non-GAAP): Estimated to be 21 percent No Change

-Cash from operations of at least $8.5 billion No Change

-Capital expenditures (excluding discontinued operations): Approximately $1.9 billion No Change

-Net share repurchases (non-GAAP): Approximately $1.0 billion No Change

Full Year 2018 EPS:

-Comparable EPS from continuing operations (non-GAAP): 8 percent to 10 percent growth versus $1.91 in 2017 No Change

Second Quarter 2018 Considerations New:

-Comparable net revenues (non-GAAP): 16 percent headwind from acquisitions, divestitures and structural items; 1 percent currency tailwind based on the current rates and including the impact of hedged positions; 1 percent to 2 percent tailwind from accounting changes.

-Comparable operating income (non-GAAP): 4 percent to 5 percent structural headwind; 1 percent currency headwind based on the current rates and including the impact of hedged positions; 2 percent headwind from accounting changes.

More Information:

http://www.coca-colacompany.com

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