The Coca-Cola Company Reports First Quarter 2016 Results

• Reported net revenue declined 4% and organic revenue grew 2% in the quarter, impacted by one less day in our reporting calendar.
• Reported EPS was $0.34 and comparable EPS was $0.45.
• Global volume grew 2%.
• Global price/mix was a positive 1%, as solid underlying pricing was partially offset by segment mix.

• Comparable currency neutral operating margin expanded.
• Gained global value share in nonalcoholic ready-to-drink beverages.
• Full-year comparable currency neutral earnings outlook remains unchanged.

ATLANTA--(BUSINESS WIRE)-- The Coca-Cola Company today reported first quarter 2016 operating results. “We continue to transform The Coca-Cola Company into a company that is focused on our core value creation model of building strong brands, enhancing customer value and leading our franchise system,” said Muhtar Kent, Chairman and Chief Executive Officer of The Coca-Cola Company. “Amidst a challenging global macro environment, the continued focus on our five strategic initiatives enabled us to gain global value share in the first quarter and deliver positive top-line growth and strong underlying margin expansion. Our operating results are driven by our commitment to sustainable growth, and we are confident that we have the right strategies in place to achieve our full-year outlook and drive long-term value for our system and shareowners.”

FIRST QUARTER 2016 OPERATING REVIEW

TOTAL COMPANY

^{* Organic revenue 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.}

• Organic revenue growth of 2% in the quarter was driven by concentrate sales growth and 1 point of positive price/mix. Concentrate sales growth was negatively impacted by one less day in the quarter. After adjusting for the one less day in the quarter, concentrate sales were in line with unit case sales. Price/mix was driven by solid underlying pricing partially offset by 1 point of segment and geographic mix. Acquisitions, divestitures and structural items primarily include the impact of refranchised territories, as well as the net impact of the brand transfer agreement associated with the closing of the transaction with Monster Beverage Corporation (“Monster”) in 2015 and the expanded distribution of Monster's beverage products.
• We gained global volume and value share in sparkling beverages in a challenging macro environment. Value share grew ahead of volume share, emphasizing our focus on accelerating our revenue growth management strategies. Sparkling beverage volume was even in the quarter.
• In still beverages we gained global volume and value share. Solid volume growth was realized across all key still beverage categories, except juice and juice drinks which registered a small decline in the quarter.
• Comparable currency neutral income before taxes (structurally adjusted) growth outpaced organic revenue growth in the quarter primarily due to the impact of our productivity initiatives, timing of expenses and an increase in equity income. The benefit of these items was partially offset by increased marketing investments in line with our objectives.
• The reported effective tax rate for the quarter was 21.2%. 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 $0.34 and comparable EPS was $0.45 in the quarter. Items impacting comparability decreased reported EPS by a net $0.11 and were primarily related to noncash charges related to refranchising certain territories in North America and costs associated with our previously announced productivity, integration and restructuring initiatives.
• Fluctuations in foreign currency exchange rates resulted in a 10 point headwind on comparable operating income and a 12 point headwind on both comparable income before taxes and EPS in the quarter.
• First quarter cash from operations was $604 million, negatively impacted by contributions to our U.S. pension plans of $471 million, fluctuations in foreign currency exchange rates, and one less day in the quarter.
• Net share repurchases totaled $155 million in the quarter.

EURASIA AND AFRICA

^{* Organic revenue 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.}

• Organic revenue growth in the quarter was due to solid price/mix, partially offset by the impact of one less day in the quarter and the timing of concentrate shipments in key markets across the segment. The positive price/mix was primarily attributable to favorable product and geographic mix across several markets. Acquisitions, divestitures and structural items primarily reflect the unfavorable impact from the brand transfer agreement associated with the closing of the transaction with Monster in 2015.
• Comparable currency neutral income before taxes lagged organic revenue growth in the quarter due to timing of expenses and the unfavorable structural impact of the brand transfer agreement with Monster.
• We gained value share in total nonalcoholic ready-to-drink ("NARTD") beverages in the quarter. The sparkling beverage volume decline in the quarter was primarily driven by a decline in Trademark Coca-Cola. Still beverage volume growth in the quarter was driven by double-digit growth in packaged water, 7% growth in sports drinks and 2% growth in ready-to-drink tea, partially offset by a 1% decline in juice and juice drinks. Unit case volume growth in the quarter included mid single-digit growth in our Central, East & West Africa business unit and 2% growth in our Southern Africa business unit, partially offset by a high single-digit decline in our Russia, Ukraine & Belarus business unit and a low single-digit decline in both our Middle East & North Africa and Turkey, Caucasus & Central Asia business units.

EUROPE

^{* Organic revenue 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.}

• Organic revenue was even reflecting positive price/mix of 2 points, offset by lower concentrate sales which were impacted by one less day in the quarter. The positive price/mix reflects an increase in pricing and favorable product mix in key markets. Acquisitions, divestitures and structural items reflect the unfavorable impact from the brand transfer agreement associated with the closing of the transaction with Monster in 2015.
• Comparable currency neutral income before taxes lagged organic revenue in the quarter primarily due to timing of expenses and the unfavorable structural impact of the brand transfer agreement with Monster.
• We gained value share in total NARTD beverages in the quarter. The sparkling beverage volume decline in the quarter was driven by a 3% decline in Trademark Coca-Cola, partially offset by 3% growth in Fanta and double-digit growth in energy drinks. Still beverage volume growth in the quarter was driven by 7% growth in packaged water and 5% growth in both sports drinks and ready-to-drink tea, partially offset by a mid single-digit decline in juice and juice drinks.

LATIN AMERICA

^{* Organic revenue 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.}

• Organic revenue growth in the quarter was driven by strong positive price/mix reflecting an increase in pricing and product mix. Positive price/mix was realized in each of our four business units, particularly in the higher inflationary markets within our South Latin and Latin Center business units.
• Comparable currency neutral income before taxes grew in line with organic revenues in the quarter primarily due to positive operating leverage resulting from our productivity initiatives and timing of expenses, offset by increased marketing investments.
• We gained value share in still beverages (excluding packaged water) in the quarter. Sparkling beverage volume was even in the quarter as 5% growth in Coca-Cola Zero and 2% growth in Sprite were offset by a 1% decline in brand Coca-Cola. Still beverage volume growth in the quarter was driven by double-digit growth in both sports drinks and juice and juice drinks, high single-digit growth in ready-to-drink tea and 3% growth in packaged water. Unit case volume growth was driven by 5% growth in Mexico and 3% growth in our Latin Center business unit, partially offset by a 6% decline in Brazil.

NORTH AMERICA

^{* Organic revenue 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.}

• Organic revenue growth was driven by 3 points of positive price/mix, partially offset by lower concentrate sales which were impacted by one less day in the quarter. After adjusting for the one less day in the quarter and the impact of acquired volume, concentrate sales growth and unit case sales growth were in line.
• Comparable currency neutral income before taxes growth outpaced organic revenue growth in the quarter primarily due to favorable operating leverage resulting from the impact of our productivity initiatives and timing of expenses, partially offset by a net negative 2 point structural impact from refranchised territories and 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 24^th 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 was even in the quarter. Growth in Sprite, Fanta and energy drinks was offset by a decline in Trademark Coca-Cola. Still beverage volume growth in the quarter was driven by juice and juice drinks, sports drinks, ready-to-drink tea and packaged water.

ASIA PACIFIC

^{* Organic revenue 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.}

• Organic revenue growth was driven by strong concentrate sales growth, partially offset by 5 points of negative price/mix. Concentrate sales growth outpaced unit case sales growth due to timing of shipments. The unfavorable price/mix was primarily driven by negative product and geographic mix. Acquisitions, divestitures and structural items reflect the unfavorable impact from 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.
• Comparable currency neutral income before taxes growth outpaced organic revenue growth in the quarter primarily due to favorable operating leverage resulting 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 growth in the quarter was driven by 3% growth in Trademark Coca-Cola and 2% growth in Fanta, partially offset by a mid single-digit decline in Sprite. Still beverage volume growth in the quarter was driven by double-digit growth in both packaged water and ready-to-drink tea and 8% growth in ready-to-drink coffee, partially offset by a double-digit decline in juice and juice drinks. Unit case volume growth in the quarter reflected double-digit growth in both our India & South West Asia and ASEAN business units and 4% growth in Japan, partially offset by a 2% decline in China.

BOTTLING INVESTMENTS

^{* Organic revenue 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.}

• Organic revenue in the quarter was even, in line with reported volume. The even price/mix reflects positive pricing across several of our bottling operations, offset by geographic mix and unfavorable product mix within our China operations. Acquisitions, divestitures and structural items primarily reflect the unfavorable impact of the refranchised North America bottling territories, partially offset by the benefit from the expanded distribution of Monster's beverage products.
• Comparable currency neutral income before taxes growth outpaced organic revenue in the quarter primarily due to favorable operating leverage resulting from the impact of our productivity initiatives and timing of expenses, as well as an increase in equity income.

2016 OUTLOOK

• The Company continues to expect organic revenue to be up 4% to 5% in 2016, in line with our long-term target. The net impact of acquisitions, divestitures and structural items on comparable net revenues is expected to be a 4 to 5 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 expects comparable currency neutral income before taxes (structurally adjusted) to grow 6% to 8% in 2016, in line with our long-term target, as strong operating profit growth is expected to be partially offset by increased interest expense. The net impact of structural items is expected to be a 3 to 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.
• Given the above, the Company expects full-year comparable currency neutral EPS growth to be 4% to 6% including the impact of 3 to 4 points of structural headwind, primarily due to refranchising, on comparable currency neutral income before taxes. 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.
• 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 second quarter of 2016, we estimate that based on the current spot rates, currency will be a 2 to 3 point headwind on comparable net revenues and an 11 point headwind on comparable income before taxes, including the impact of hedged positions.

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 believes that certain non-GAAP financial measures provide users with additional meaningful financial information that should be considered when assessing the Company’s ongoing performance. Management also uses these non-GAAP financial measures in making financial, operating and planning decisions and in evaluating the Company's 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.
• "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 revenue" is a non-GAAP financial measure that excludes or otherwise adjusts 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.
• "Sparkling beverages" means NARTD beverages with carbonation, including carbonated energy drinks and waters.
• "Still beverages" means nonalcoholic beverages without carbonation, including non-carbonated 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. "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.
• 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 first quarter 2016 results today, April 20, 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 Company reports its financial results in accordance with accounting principles generally accepted in the United States ("GAAP" or referred to herein as "reported"). However, management believes that certain non-GAAP financial measures provide users with additional meaningful financial information that should be considered when assessing our ongoing performance. Management also uses these non-GAAP financial measures in making financial, operating and planning decisions and in evaluating the Company's 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. Our non-GAAP financial information does not represent a comprehensive basis of accounting.

ITEMS IMPACTING COMPARABILITY

The following information is provided to give qualitative and quantitative information related to items impacting comparability. Items impacting comparability are not defined terms within GAAP. Therefore, our non-GAAP financial information may not be comparable to similarly titled measures reported by other companies. We determine which items to consider as "items impacting comparability" based on how management views our business; makes financial, operating and planning decisions; and evaluates the Company's ongoing performance. Items such as charges, gains and accounting changes which are viewed by management as impacting only the current period or the comparable period, but not both, or as relating to different and unrelated underlying activities or events across comparable periods, are generally considered "items impacting comparability". In addition, we provide the impact that changes in foreign currency exchange rates had on our financial results ("currency neutral").

Asset Impairments and Restructuring

Restructuring

During the three months ended April 1, 2016 and April 3, 2015, the Company recorded charges of $199 million and $35 million, respectively. These charges were related to the integration of our German bottling and distribution operations.

Productivity and Reinvestment

During the three months ended April 1, 2016 and April 3, 2015, the Company recorded charges of $63 million and $90 million, respectively, related to our productivity and reinvestment program. These productivity and reinvestment initiatives are focused on four key areas: restructuring the Company's global supply chain; implementing zero-based work, an evolution of zero-based budget principles across the organization; streamlining and simplifying the Company's operating model; and further driving increased discipline and efficiency in direct marketing investments. The savings realized from the program will enable the Company to fund marketing initiatives and innovation required to deliver sustainable net revenue growth. The savings will also support margin expansion and increased returns on invested capital over time.

Equity Investees

During the three months ended April 1, 2016 and April 3, 2015, the Company recorded net charges of $3 million and $73 million, respectively. These amounts represent the Company’s proportionate share of unusual or infrequent items recorded by certain of our equity method investees.

Transaction Gains/Losses

During the three months ended April 1, 2016 and April 3, 2015, the Company incurred noncash losses of $369 million and $21 million, respectively. These losses were primarily due to the derecognition of intangible assets relating to the refranchising of territories in North America to certain of our unconsolidated bottling partners and were recorded in the line item other income (loss) — net in our condensed consolidated statements of income.

During the three months ended April 1, 2016, the Company recorded charges of $45 million related to costs incurred to refranchise our North America bottling territories. These costs include, among other items, internal and external costs for individuals directly working on the refranchising efforts, severance, and costs associated with the implementation of information technology systems to facilitate consistent data standards and availability throughout the North America bottling system.

During the three months ended April 1, 2016, the Company recorded a charge of $1 million related to noncapitalizable transaction costs associated with pending transactions.

During the three months ended April 1, 2016, the Company recorded a gain of $18 million, net of transaction costs, as a result of the disposal of our shares in Keurig Green Mountain, Inc.

In the fourth quarter of 2014, the owners of the majority interest of a Brazilian bottler exercised their option to acquire from us a 10 percent interest in the entity's outstanding shares resulting in our recognizing an estimated loss of $32 million due to the exercise price being lower than our carrying value. The transaction closed in January 2015, and the Company recorded an additional loss of $6 million during the three months ended April 3, 2015, calculated based on the final option price. Also during the three months ended April 3, 2015, the Company recorded a loss of $19 million on our previously held investment in a South African bottler, which had been accounted for under the equity method of accounting prior to our acquisition of the bottler in February 2015.

Other Items

Economic (Nondesignated) Hedges

The Company uses derivatives as economic hedges primarily to mitigate the price risk associated with the purchase of materials used in the manufacturing process as well as the purchase of vehicle fuel. Although these derivatives were not designated and/or did not qualify for hedge accounting, they are effective economic hedges. The changes in fair values of these economic hedges are immediately recognized into earnings.

The Company excludes the net impact of mark-to-market adjustments for outstanding hedges and realized gains/losses for settled hedges from our non-GAAP financial information until the period in which the underlying exposure being hedged impacts our condensed consolidated statement of income. We believe this adjustment provides meaningful information related to the impact of our economic hedging activities. During the three months ended April 1, 2016 and April 3, 2015, the impact of the Company's adjustment related to our economic hedging activities resulted in increases of $24 million and $45 million, respectively, to our non-GAAP income before income taxes.

Early Extinguishment of Long-Term Debt

During the three months ended April 3, 2015, the Company recorded charges of $320 million due to the early extinguishment of certain long-term debt, which were recorded in the line item interest expense in our condensed consolidated statement of income.

Hyperinflationary Economies

During the three months ended April 3, 2015, the Company recorded net charges of $135 million related to our Venezuelan operations. These charges were primarily a result of the remeasurement of the net monetary assets of our Venezuelan subsidiary using the SIMADI exchange rate, an impairment of a Venezuelan trademark due to higher exchange rates, and a write-down of receivables from our bottling partner in Venezuela. The write-down was recorded primarily as a result of the continued lack of liquidity and our revised assessment of the U.S. dollar value we expect to realize upon the conversion of the Venezuelan bolivar into U.S. dollars by our bottling partner to pay our receivables.

Other

During the three months ended April 1, 2016 and April 3, 2015, the Company recorded other charges of $3 million and $1 million, respectively. These charges were related to tax litigation expense, charges associated with certain fixed assets and costs associated with restructuring and transitioning the Company's Russian juice operations to an existing joint venture with an unconsolidated bottling partner.

Certain Tax Matters

During the three months ended April 1, 2016 and April 3, 2015, the Company recorded net tax benefits of $6 million and $16 million, respectively, related to amounts required to be recorded for changes to our uncertain tax positions, including interest and penalties.

CURRENCY NEUTRAL

Management evaluates the operating performance of our Company and our international subsidiaries on a currency neutral basis. We determine our currency neutral operating results by dividing or multiplying, as appropriate, our current period actual U.S. dollar operating results, normalizing for certain structural items in hyperinflationary economies, by the current period actual exchange rates (that include the impact of current period currency hedging activities), to derive our current period local currency operating results. We then multiply or divide, as appropriate, the derived current period local currency operating results by the foreign currency exchange rates (that also include the impact of the comparable prior period currency hedging activities) used to translate the Company's financial statements in the comparable prior year period to determine what the current period U.S. dollar operating results would have been if the foreign currency exchange rates had not changed from the comparable prior year period.

ORGANIC REVENUE

Organic revenue is a non-GAAP financial measure that excludes or otherwise adjusts for the impact of changes in foreign currency exchange rates and acquisitions, divestitures and structural items, as applicable. The adjustments related to acquisitions, divestitures and structural items for the three months ended April 1, 2016 and April 3, 2015 consisted entirely of the structural changes discussed below.

STRUCTURAL CHANGES

Structural changes generally refer to acquisitions or dispositions of bottling, distribution or canning operations and consolidation or deconsolidation of bottling and distribution entities for accounting purposes. In 2016, the Company changed our funding arrangement with our bottling partners in China, which resulted in a reduction in net revenues with an offsetting reduction in direct marketing expense. In 2016 and 2015, the Company refranchised additional territories in North America to certain of its unconsolidated bottling partners. Additionally, in 2015, the Company sold its global energy drink business to Monster Beverage Corporation ("Monster"); acquired Monster's non-energy drink business; acquired an equity interest in Monster; amended its current distribution coordination agreements with Monster to expand into additional territories; and acquired a South African bottler. Accordingly, these activities have been included as structural items in our analysis of the impact of these changes on certain line items in our condensed consolidated statements of income.

2016 OUTLOOK

Our 2016 organic revenue outlook, comparable currency neutral income before taxes (structurally adjusted) outlook, and comparable currency neutral EPS outlook are non-GAAP financial measures that exclude or otherwise adjust 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 our full-year 2016 projected organic revenue to our full-year 2016 projected reported net revenue, our full-year 2016 projected comparable currency neutral income before taxes (structurally adjusted) to our full-year 2016 projected reported income before taxes, or our full-year 2016 projected comparable currency neutral EPS to our full-year 2016 projected reported EPS because we are unable to predict the actual impact of changes in foreign currency exchange rates and the exact timing of acquisitions and divestitures and/or structural adjustments throughout 2016.

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^{Note: Certain columns may not add due to rounding. Certain growth rates may not recalculate using the rounded dollar amounts provided.}