Exhibit 99.1
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Media Relations Department |
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P.O.
Box 1734, Atlanta, GA 30301 |
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FOR IMMEDIATE RELEASE |
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CONTACT: |
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Media: |
Ben Deutsch |
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(404) 676-2683 |
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Investors: |
Ann Taylor |
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(404) 676-5383 |
THE COCA-COLA COMPANY REPORTS
THIRD QUARTER AND YEAR-TO-DATE 2006 RESULTS
· Worldwide unit case volume up 5 percent for the third quarter, led by 7 percent growth in International.
· Carbonated beverages grew 5 percent in the quarter – highest growth since 2000.
· Third quarter EPS of $0.62 up 15 percent; 9 percent after considering items impacting comparability.
ATLANTA, Oct. 19, 2006 — The Coca-Cola Company today reported third quarter earnings per share growth of 15 percent on a reported basis and 9 percent after considering items impacting comparability. Earnings per share for the third quarter were $0.62 and included a charge primarily related to asset impairment and restructuring charges, offset by a benefit primarily related to the reversal of a tax valuation allowance. In addition, the Company has lowered its expected underlying effective tax rate on operations for 2006 and 2007 to 23.5 percent from 24.0 percent, providing a $0.01 per share benefit in the quarter. Earnings per share for the third quarter of 2005 were $0.54 and included a net reduction of $0.03 per share for items impacting comparability.
Chairman and CEO Neville Isdell said, “I am pleased with our performance in the quarter and year-to-date, with most key markets making a positive contribution. Once again we produced solid results and cycled 5 percent volume
- more -
growth in the prior year quarter by successfully balancing performance across our global markets as well as our product portfolio.
“The effective execution of our strategy and investments in key marketing and innovation initiatives were instrumental in the 5 percent unit case volume growth with 5 percent in carbonated beverages and 5 percent in noncarbonated beverages. We continue to achieve strong growth in emerging markets, including Brazil, China and Russia, as well as in other important markets across Latin America. Europe had a strong quarter following successful World Cup promotions and generally favorable summer weather. At the same time, we have started the recovery in Japan and are addressing the softness in North America. We remain committed to achieving acceptable, long-term performance in these key markets.”
“I remain confident that we are taking the necessary actions to create long-term sustainable growth and value for shareowners.”
(All references to growth rate percentages and share compare the results of the period to those of the prior year comparable period.)
Financial Highlights
· Third quarter revenues increased 7 percent. This reflects a 4 percent increase in gallon sales, 1 percent currency benefit and 4 percent favorable impact from pricing and mix, offset by a 2 percent decrease from structural changes, primarily from the change in the business model in Spain. Net operating revenues increased 9 percent, excluding the impact of structural changes.
· Operating income in the quarter increased 11 percent; 8 percent excluding items impacting comparability. Items impacting comparability negatively affected operating income for the third quarter by $39 million in 2006 and by $85 million in 2005. Currency had a slight positive impact on operating income in the quarter.
· The Company repurchased $1.2 billion of its stock year-to-date and currently intends to repurchase a total of $2.0 to $2.5 billion of its stock for the full year.
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Operational Highlights
(All references to unit case volume percentage changes in this section are computed based on average daily sales. Group operational highlights are reported in line with the Company’s operating structure as described in the Company’s Form 8-K filing dated April 10, 2006.)
Total Company
· Unit case volume increased 5 percent in the third quarter, cycling 5 percent in the prior year quarter, and increased 4 percent year-to-date.
· The unit case volume increase in the quarter was led by 7 percent growth in the International Operations, reflecting double-digit growth in key emerging markets, including Brazil, Argentina, east and central Africa, central and eastern Europe, China, Russia, Turkey and the Middle East. Western Europe delivered solid unit case volume growth as performance continued to improve. Offsetting these results were unit case volume declines in Japan, North America, and the Philippines. Brand acquisitions benefited international unit case volume growth by 1 percent in the quarter.
· The Company continued to deliver growth in carbonated beverages, which increased unit case volume 5 percent in the quarter - the highest growth since 2000. Key brands drove the results with Trademarks Coca-Cola, Sprite and Fanta growing unit case volume 3, 6 and 7 percent, respectively, in the quarter.
· In noncarbonated beverages, Trademarks POWERade and Dasani continued their strong performance in the quarter. Trademark POWERade increased unit case volume 7 percent, cycling 28 percent growth in the prior year quarter, and Trademark Dasani increased unit case volume 18 percent, cycling 37 percent growth in the prior year quarter. Additionally, high single-digit growth in Trademark Minute Maid also contributed to noncarbonated beverage growth.
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North America
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Percent Change |
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From Prior Year |
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Third |
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Year- |
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Quarter |
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To-Date |
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Unit Case Volume |
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(1 |
)% |
1 |
% |
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Net Revenues |
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4 |
% |
6 |
% |
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Operating Income |
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(7 |
)% |
6 |
% |
· Unit case volume in the North America operating group declined 1 percent in the quarter, primarily due to the unit case volume decline in warehouse-delivered water resulting from the strategic decision to refocus resources behind the more profitable Dasani business. Net revenues for the quarter increased 4 percent, reflecting a 2 percent decrease in gallon sales, offset by positive pricing and growth of finished goods businesses. Operating income decreased 7 percent for the quarter, reflecting the lower gallons sales, higher input costs on the finished goods businesses and unfavorable product mix.
· North America’s and the Retail division’s unit case volume growth rates in the quarter were impacted by the warehouse-delivered water unit case volume decline. Excluding this impact, both North America and Retail unit case volume growth were even in the quarter, cycling 3 percent and 4 percent growth, respectively, in the prior year quarter. Foodservice and Hospitality unit case volume increased 1 percent in the quarter.
· Carbonated beverages unit case volume declined 1 percent in the quarter while gaining category share. Coca-Cola Zero unit case volume increased in excess of 30 percent and successfully cycled its launch in the summer of 2005. Vault and Vault Zero continued to perform well particularly in immediate consumption, and energy drinks gained category share as distribution and display activity increased across the portfolio.
· Unit case volume for noncarbonated beverages excluding warehouse-delivered water increased 3 percent in the quarter led by double-digit growth in Trademark Dasani, which continued to gain share, and by mid-single digit growth in
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Trademark POWERade, which cycled in excess of 30 percent growth in the prior year. Total juice unit case volume declined mid-single digits in the quarter. Warehouse-delivered juice unit case volume was negatively impacted by price increases on Minute Maid to cover higher ingredient costs. This decline was partially offset by continued unit case volume growth in Odwalla and Trademark Simply juices.
European Union
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Percent Change |
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From Prior Year |
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Third |
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Year- |
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Quarter |
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To-Date |
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Unit Case Volume |
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10 |
% |
5 |
% |
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Net Revenues |
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(7 |
)% |
(13 |
)% |
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Operating Income |
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12 |
% |
1 |
% |
· Unit case volume in the European Union operating group increased 10 percent in the quarter reflecting an improving trend for Germany and Northwest Europe, solid growth for Central Europe and Spain, and generally favorable summer weather. In addition, the acquisitions of the Apollinaris and Traficante brands, in Germany and Italy respectively, contributed 3 points of unit case volume growth in the quarter. Net revenues declined 7 percent, reflecting a 13 percent increase in gallon sales, positive pricing and currency benefit, offset by an 18 percent negative impact from structural changes due to the change in the business model in Spain. As noted in the Company’s 2005 Form 10-K, the Company transferred its canning rights to the Company’s bottlers in Spain at the beginning of 2006. This change did not materially impact operating income for the group but did reduce net revenues and cost of goods sold by similar amounts. Operating income increased 12 percent in the quarter, primarily reflecting the growth in gallon sales, positive pricing and currency benefits and the continued investment in key marketing initiatives.
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· Unit case volume in Northwest Europe for the quarter increased mid-single digits as performance continued to improve. The results reflected mid-single digit unit case volume growth in carbonated beverages, led by growth of Trademark Coca-Cola, and double-digit growth in noncarbonated beverages. In addition, the successful launch of Coca-Cola Zero in Great Britain, which has driven significant share gains, and generally favorable summer weather contributed to the performance.
· Unit case volume in Germany increased 15 percent in the quarter and was led by growth of 11 percent in Trademark Coca-Cola. The results reflected continued benefits from World Cup marketing programs, the launch of Coca-Cola Zero in July, the acquisition of Apollinaris, a premium source water brand, which contributed 6 points of growth, and generally favorable summer weather. For the full year, the Company expects the stabilizing trends in Germany to continue.
North Asia, Eurasia and Middle East
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Percent Change |
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From Prior Year |
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Third |
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Year- |
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Quarter |
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To-Date |
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Unit Case Volume |
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9 |
% |
11 |
% |
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Net Revenues |
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5 |
% |
(2 |
)% |
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Operating Income |
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9 |
% |
(7 |
)% |
· The North Asia, Eurasia and Middle East operating group increased unit case volume 9 percent for the quarter, with double-digit growth in China, Russia, and Turkey, partially offset by a 4 percent decline in Japan. Net revenues for the quarter increased 5 percent, reflecting an 8 percent increase in gallon sales and favorable pricing and product mix partially offset by an unfavorable currency impact and negative country mix. Operating income increased 9 percent for the quarter, primarily driven by the increase in net revenues and investment in key marketing initiatives.
· In Japan, unit case volume decreased 4 percent in the quarter, a sequential improvement from the second quarter of 2006. Weakness in core brands and softness in the soft drink category continued in the quarter. However, Diet
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Coke, Fanta, and Sokenbicha delivered solid unit case volume growth and increased share in their categories. The Georgia Coffee relaunch continued on track resulting in a slight unit case volume improvement versus the second quarter and a gain in category share. Unit case volume performance in Japan for the remainder of the year is expected to remain weak, but reflect an improving trend.
· In China, third quarter unit case volume grew double-digits led by double-digit growth in carbonated soft drinks which continued to gain share.
Latin America
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Percent Change |
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From Prior Year |
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Third |
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Year- |
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Quarter |
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To-Date |
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Unit Case Volume |
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7 |
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7 |
% |
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Net Revenues |
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20 |
% |
20 |
% |
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Operating Income |
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19 |
% |
20 |
% |
· The Latin America operating group delivered strong unit case volume growth of 7 percent in the quarter, cycling 5 percent growth in the prior year quarter, as solid growth in all key markets drove results. Net revenues increased 20 percent, reflecting a 7 percent increase in gallon sales, positive pricing and mix as well as slight currency benefits. Operating income increased 19 percent reflecting the net revenue increase, and the continued investment in key marketing initiatives.
· In Mexico, unit case volume increased 4 percent in the quarter. Carbonated soft drinks gained share in the quarter driven by mid-single digit growth in Trademark Coca-Cola.
· In Brazil, unit case volume growth for the quarter was 11 percent, cycling 7 percent growth in the prior year quarter. Solid unit case volume growth in carbonated soft drinks drove the results, as strong marketing and execution led to share results reaching their highest levels in over a decade.
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· In Argentina, solid carbonated beverage growth across the core brands contributed to unit case volume growth of 14 percent in the quarter and reflected strong consumer marketing activities and bottler execution.
East, South Asia and Pacific Rim
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Percent Change |
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From Prior Year |
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Third |
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Year- |
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Quarter |
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To-Date |
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Unit Case Volume |
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(3 |
)% |
(5 |
)% |
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Net Revenues |
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(1 |
)% |
7 |
% |
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Operating Income |
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625 |
% |
35 |
% |
· The East, South Asia and Pacific Rim operating group’s unit case volume decreased 3 percent in the quarter, primarily reflecting unit case volume declines in the Philippines. Net revenues for the quarter were down 1 percent, as positive pricing, currency benefits and strong product and country mix offset an 8 percent decrease in gallon sales. The operating income increase is due to the cycling of a non-cash charge in the prior year for asset write-downs in the Philippines.
· In India, unit case volume increased 4 percent in the quarter, cycling a decline of 22 percent in the prior year quarter. Continued investment in marketing initiatives around the quality and safety of our products and focus on execution in the consolidated bottling operations delivered solid results even with the renewed, unfounded allegations in the quarter of unsafe pesticide levels in the Company’s products. The Company will continue to aggressively address these allegations, but remains cautious on its outlook for the remainder of the year.
· In the Philippines, unit case volume declined low double digits in the quarter as affordability and availability issues continued to negatively impact performance. The Company expects performance to remain weak during 2006 as the Company and its bottling partner work together to address the issues.
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Africa
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Percent Change |
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From Prior Year |
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Third |
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Year- |
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Quarter |
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To-Date |
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Unit Case Volume |
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5 |
% |
3 |
% |
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Net Revenues |
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10 |
% |
7 |
% |
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Operating Income |
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1 |
% |
10 |
% |
· The Africa operating group’s unit case volume increased 5 percent in the quarter. Net revenues for the quarter increased 10 percent, primarily reflecting a 6 percent increase in gallon sales and positive pricing and mix partially offset by a negative currency impact. Operating income growth of 1 percent primarily reflects the increase in net revenues and investments in key business initiatives.
· South Africa grew unit case volume 1 percent in the quarter, cycling 14 percent growth in the prior year quarter, while Nigeria unit case volume declined 8 percent reflecting the continued impact of the price increase implemented late in 2005. Strong double digit unit case volume growth in east and central Africa and solid unit case volume growth in north and west Africa drove the overall results.
Bottling Investments
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Percent Change |
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From Prior Year |
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Third |
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Year- |
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Quarter |
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To-Date |
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Unit Case Volume |
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25 |
% |
12 |
% |
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Net Revenues |
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33 |
% |
17 |
% |
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Operating Income |
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840 |
% |
n/a |
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· The Bottling Investments operating group’s unit case volume increased 25 percent in the quarter reflecting acquisitions of certain bottlers and unit case volume growth across the bottling group. Net revenues increased 33 percent in the quarter due to
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the unit case volume increase, acquisitions, favorable pricing and mix, and positive currency benefits. Operating income increased in the quarter reflecting the focus on driving sustained financial growth through revenue increases and expense leverage.
Financial Review
Operating Results
Net operating revenues for the quarter increased 7 percent driven by a 4 percent increase in gallon sales, a 4 percent favorable impact from price and mix and a 1 percent currency benefit. The benefits were offset by a 2 percent negative impact from structural change, primarily related to the change of the business model in Spain. Excluding the impact of structural changes, net operating revenues increased 9 percent.
Cost of goods sold increased 1 percent for the quarter. This reflects a 4 percent increase in gallon sales along with increases in commodity-based input and freight costs and a 1 percent increase from currency, partially offset by an 8 percent decrease due to structural changes, primarily related to the change of the business model in Spain.
Selling, general and administrative expenses for the quarter increased 12 percent, reflecting continued investments in marketing, increased costs in the consolidated bottling operations, including acquisitions, a 2 percent increase from currency and the cycling of lower stock-based compensation expense and various small gains on land sales in the prior year quarter.
The Company had other operating charges in the third quarter amounting to $39 million pre-tax ($27 million after tax), primarily related to asset impairment and restructuring charges.
Operating income for the quarter increased 11 percent, reflecting the growth in gross profit offset by the investments in marketing and increased costs in the consolidated bottling operations. Excluding the items impacting comparability, operating income increased 8 percent for the quarter, including a slight currency benefit. Based on current spot rates and the anticipated benefits of hedging coverage in place, the Company currently expects currencies to provide a slightly negative
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impact in the fourth quarter and a negative 1 percent impact for the full year 2006.
Effective Tax Rate
The reported effective tax rate for the quarter was 20.0 percent. The rate was benefited primarily by the reversal of a tax valuation allowance and the impact of a lower estimated full year underlying effective tax rate than previously expected. The Company is required to record income tax expense for the first nine months of the year based on the estimated effective tax rate for the year. As discussed in the second quarter earnings release, the Company had previously estimated that its underlying effective tax rate on operations would be approximately 24 percent for the full year. The Company now anticipates that its underlying effective tax rate on operations for the full year 2006 and 2007 will be approximately 23.5 percent. To bring the effective tax rate for the first nine months of 2006 in line with the Company’s currently estimated full year underlying effective tax rate, the Company recorded income tax expense at an underlying effective tax rate of approximately 22.5 percent in the third quarter. The Company’s estimated underlying effective tax rate does not reflect the impact of discrete events, which, if and when they occur, are separately recognized in the appropriate period.
New Operating Structure
As previously announced, effective January 1, 2006, the Company made certain changes to its operating structure to establish a new, separate internal organization for its consolidated bottling operations and its unconsolidated bottling investments. This new structure resulted in the reporting of a separate Bottling Investments operating segment, along with the six existing geographic operating segments and Corporate, beginning with the first quarter of 2006. Reclassified operating segment information can be found in the Company’s Form 8-K filing dated April 10, 2006.
Transfer of Spain Canning Rights
Effective January 1, 2006, the Company granted its bottling partners in Spain the rights to manufacture and distribute Company trademarked products in can packages. The Company will also reduce future marketing support payments to the bottlers. As a result, a portion of the Company’s business has essentially been converted from a finished product business model to a concentrate business model. This shift of certain products to a concentrate business model resulted in a reduction of revenues. This change did not materially impact gross profit. Had the change occurred as of January 1, 2005, revenues for the nine months ended September 30, 2005, would have been reduced by approximately $608 million, with no material impact to gross profit. This change will continue to affect the comparison of certain line items of the Company’s statements of income over the remainder of 2006, but will not impact the Company’s operating income.
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Items Impacting Prior Year Results
In 2005, third quarter reported earnings per share included a net charge of $0.03 per share due primarily to a $0.04 per share non-cash charge related to asset write-downs in the Philippines, partially offset by a $0.01 per share benefit related to the favorable resolution of tax matters. The 2005 second quarter results included a net benefit of $0.04 per share due to a gain from the favorable high fructose corn syrup lawsuit settlement, the favorable resolution of tax matters, a reduction of the tax accrual related to the repatriation of foreign earnings, and a benefit from certain items impacting an equity investee. In the first quarter of 2005, results included a net reduction of $0.05 per share due to a charge for accelerated amortization of stock-based compensation expenses and a tax charge related to the repatriation of foreign earnings, partially offset by a benefit related to the favorable resolution of tax matters and a gain on the issuance of stock by an equity investee.
Conference Call
The Company will host a
conference call with investors and analysts to discuss the third quarter 2006
results today at 8:00 a.m. (EDT). The
Company invites investors to listen to the live audiocast of the conference
call at the Company’s website,
www.thecoca-colacompany.com in the “Investors” section. Further, the “Investors” section of the Company’s
website includes a disclosure and reconciliation of non-GAAP financial measures
that may be used periodically by management when discussing the Company’s
financial results with investors and analysts.
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