The Coca-Cola Company Reports Third Quarter and Year-to-Date 2011 Results

Strong worldwide volume growth of 5% in Q3, 6% volume growth YTD and volume growth across all five geographic operating groups

North America organic volume growth of 1% in Q3 and YTD

Q3 reported EPS of $0.95, up 8%, and YTD reported EPS of $2.97, up 15%.
Q3 comparable EPS of $1.03, up 12%, and YTD comparable EPS of $3.05,
up 10%, both ahead of our long-term growth target

Third Quarter and Year-to-Date Highlights

• International volume growth was 5% in the quarter and 6% year-to-date. Worldwide volume growth was led by brand Coca-Cola, up 3% in both the quarter and year-to-date.
• Third quarter reported net revenue and comparable net revenue were both $12.2 billion, up 45%, reflecting solid growth in concentrate sales, a 5% currency benefit, positive price/mix and the acquisition of Coca-Cola Enterprises’ (CCE) former North America operations in the fourth quarter of 2010. Year-to-date reported net revenue and comparable net revenue were both $35.5 billion, up 44%.
• Third quarter reported operating income was $2.7 billion, up 17%, with comparable operating income of $3.0 billion, up 21%, reflecting strong top-line performance, a 6% currency benefit and the acquisition of CCE’s former North America operations, partially offset by commodity costs. Year-to-date reported operating income was $8.2 billion, up 13%, with comparable operating income of $8.8 billion, up 17%, including a 5% benefit from currency.
• Coca-Cola Refreshments (CCR) integration efforts are on plan, with expected 2011 net cost synergies of $140 to $150 million.
• Company-wide productivity initiatives are well on track to exceed the upper end of the original target range of $400 to $500 million in annualized savings by year-end 2011, the final year of the four-year program.

ATLANTA--(BUSINESS WIRE)-- The Coca-Cola Company today reports strong third quarter and year-to-date 2011 operating results, once again meeting or exceeding our long-term growth targets and gaining volume and value share in total nonalcoholic ready-to-drink (NARTD) beverages as well as in both the sparkling and still beverage categories. The Company continues to advance its global momentum from a position of strength, realizing growth across each of its five geographic operating groups during a time of mixed economic recovery around the world.

Muhtar Kent, Chairman and Chief Executive Officer of The Coca-Cola Company, said, “We are pleased with our third quarter results. For a sixth consecutive quarter, we delivered performance results in line with or ahead of our long-term growth targets. Importantly, we accomplished these results during a time of ongoing global market volatility, which is a testament to our clear and focused system vision, strong brands and solid execution. As we said when we launched our 2020 Vision, we are a growing business that is continually adapting to ever-changing economic circumstances and consumer preferences, underscoring the strength and resilience of our business.

“In 2009, when the world’s financial markets were in turmoil, our global system made a commitment to invest through the crisis. Today, as we execute our 2020 Vision, we continue to strategically invest in consumer marketing and sales execution, all with a single-minded goal of becoming the beverage leader in every market and in every category of value to us. As a result of that commitment, our global system has never been stronger.

“In short, we believe that our 2020 Vision is working. Yet every one of us here at The Coca-Cola Company knows that we are really just getting started. We remain constructively discontent and resolutely focused on our future – a future filled with abundant opportunities.

“Our job, as stewards of this great business and as caretakers for our shareowners’ investment, is to ensure that we keep advancing our global system’s strong momentum. With our 2020 Vision as our roadmap, we are confident that we can sustainably achieve our long-term growth targets and enhance the value of The Coca-Cola Company.”

PERFORMANCE HIGHLIGHTS

The Coca-Cola Company reported worldwide volume growth of 5% in the quarter and 6% year-to-date. Excluding new cross-licensed brands in North America, primarily Dr Pepper brands, worldwide volume grew 4% in the quarter and 5% year-to-date. In the quarter and year-to-date, we grew global volume and value share in NARTD beverages, with volume and value share gains across most beverage categories and continued growth in immediate consumption beverages, up 5% year-to-date.

We continued to see growth in sparkling beverages, with worldwide brand Coca-Cola volume growth of 3% in the quarter driven by a number of markets around the world, including 17% in India, 11% in Argentina, 7% in China, 6% in both Mexico and 5% each in France, Germany and Great Britain. Worldwide sparkling beverage volume grew 4% in the quarter, with international sparkling beverage volume up 3%. New cross-licensed brands in North America, primarily Dr Pepper brands, contributed 1 percentage point of growth to worldwide sparkling beverages in the quarter.

Worldwide still beverage volume grew 9% in the quarter, led by growth across the portfolio, including juices and juice drinks, ready-to-drink teas and water brands. Still beverage volume in the quarter grew 10% internationally and 4% in North America. Minute Maid Pulpy continues to expand globally and achieved 20% growth in the quarter. Water volume grew 11% in the quarter as we continue to focus on innovative and sustainable immediate consumption packaging such as our PlantBottle™ in North America, which is driving new customer listings, and our lightweight crushable bottle for water brands in Asia and Latin America.

OPERATING REVIEW

Eurasia & Africa

• Our Eurasia and Africa Group’s volume increased 6% in the quarter and 7% year-to-date, led by strong results in India (+19%) and the Middle East and North Africa (+9%). Reported net revenue for the quarter increased 15%, reflecting a 5% increase in concentrate sales, positive price/mix of 8% and a currency benefit of 2%. Concentrate sales in the quarter and year-to-date lagged unit case volume due to the timing of shipments. Reported operating income increased 20% in the quarter. Comparable currency neutral operating income increased 17% in the quarter driven by the increase in revenue and improved gross margin due to favorable pricing and positive geographic mix, partially offset by increased investments in the business.
• In Eurasia and Africa, sparkling beverages grew 4% in the quarter, led by brand Coca-Cola which grew 7%. Still beverages grew 14% in the quarter. Eurasia and Africa grew volume and value share in total NARTD beverages as well as in both the sparkling and still beverage categories. Excluding the acquired Nidan juice volume, still beverages grew 10% in the quarter. India volume grew 19% in the quarter, our 21^st consecutive quarter of growth, with strong 19% growth in sparkling beverages led by integrated marketing programs across music, sports and reality media programming. Despite geopolitical challenges in the region, volume in our Middle East and North Africa business unit grew 9% in the quarter. Although volume in Russia was down 5% in the quarter (down 11% excluding the acquired Nidan juice volume) as we cycled strong 30% growth from the prior year quarter, we gained volume and value share in total NARTD beverages and in both sparkling and still beverages. Year-to-date volume in Russia grew 7% (down 1% excluding the acquired Nidan juice volume).

Europe

• Our Europe Group’s volume growth in the quarter was slightly positive, rounding to even, despite an unseasonably cold and rainy summer selling season and a moderating consumer confidence index. Year-to-date volume growth was 2%. Reported net revenue for the quarter grew 5%, reflecting a 2% decline in concentrate sales, offset by a 6% currency benefit and positive 1% price/mix. Concentrate sales in the quarter lagged unit case volume due to the timing of shipments. Year-to-date concentrate sales and unit case volume are broadly in line. A change in the system value split with our wholly owned bottler in Germany, implemented late in third quarter 2010, continued to affect revenue and the group’s positive price/mix in the quarter. This quarter’s 1% positive price/mix includes a 1% unfavorable effect of the change in value split. Reported operating income was up 9% in the quarter. Comparable currency neutral operating income grew 3% in the quarter, reflecting the favorable timing of marketing expenses and pricing in Northwest Europe and the Nordics, partially offset by the change in the system value split and lower concentrate shipments.
• Volume growth in the quarter was driven by 4% growth in Germany and 2% growth in Spain. Northwest Europe and Nordics grew volume slightly, rounding to even, with gains in NARTD volume and value share. Central and Southern Europe volume declined 2% as that region experiences an ongoing volatile economic environment. Sparkling beverage volume for the group grew 1% in the quarter with volume and value share gains across most markets. Brand Coca-Cola grew 1% and Coca-Cola Zero grew 14% in the quarter as we leveraged integrated marketing campaigns centered on summer and music programs as well as our continued focus on segmenting occasion-based package and price points to drive revenue growth. Our portfolio of energy brands grew double digits, supported by line extensions and new distribution gains, with strong volume and value share gains in the quarter. We realized NARTD volume and value share gains across Europe including France, Germany and Great Britain. We also grew sparkling volume and value share and maintained still volume share for the overall group.

Latin America

• Our Latin America Group’s volume grew 7% in both the quarter and year-to-date. Reported net revenue for the quarter increased 17%, reflecting concentrate sales growth of 5%, a 5% currency benefit and positive price/mix of 8%. Concentrate sales in the quarter and year-to-date lagged unit case volume due to the timing of shipments. This growth in reported net revenue was partially offset by the effect of structural changes as a result of the sale of our 50% ownership in Leao Junior, resulting in its deconsolidation effective September 2010. Reported operating income was up 25% in the quarter, with comparable currency neutral operating income up 19%, primarily reflecting volume growth across all Latin America business units, favorable pricing and timing of marketing expenses, partially offset by continued investments in the business.
• Strong volume growth in the quarter was led by 8% growth in Mexico, 11% growth in the Latin Center Region (7% excluding acquired brands) and 10% growth in the South Latin Region, all driven by a strong focus on immediate consumption transactions through continued investments in cold drink equipment and refillable packaging. Brazil volume growth was 1% in the quarter, cycling 13% growth in the prior year quarter, reflecting an environment of moderating economic growth coupled with rising food inflation. Latin America sparkling beverages grew 5% overall in both the quarter and year-to-date, driven by continued growth of brand Coca-Cola, up 5% in the quarter and led by 6% growth in Mexico and 11% growth in Argentina. Trademark Sprite was up 7% in both the quarter and year-to-date. Still beverages grew 16% in both the quarter and year-to-date. Excluding acquired brands, still beverages grew 13% in the quarter and 14% year-to-date.
• During the quarter, the Latin America Group gained volume and value share in total NARTD beverages, driven by volume and value share gains in both sparkling and still beverages. Brazil’s focus on single-serve and returnable packaging resulted in share gains in both total NARTD and sparkling beverages, and volume and value share gains in still beverages, including strong gains in juices and juice drinks and sports drinks. Mexico posted strong volume and value share growth in the quarter in total NARTD, sparkling and still beverages. Argentina also gained volume and value share in total NARTD and across all beverage categories as the business benefited from strong integrated marketing campaigns across beverage categories as well as the sponsorship of the Copa America soccer tournament in July.

North America

• Our North America Group’s volume grew 5% in both the quarter and year-to-date. Excluding new cross-licensed brands, primarily Dr Pepper brands, North America’s organic volume grew 1% in both the quarter and year-to-date, with continued volume and value share gains across total NARTD beverages. Reported net revenue for the quarter increased 148%, primarily reflecting the acquisition of CCE’s former North America operations. We achieved 2% positive pricing to retailers in the quarter, driven by 3% positive pricing on sparkling beverages. Third quarter reported operating income grew 23%. Comparable currency neutral operating income grew 56% in the quarter, primarily reflecting the acquisition of CCE’s former North America operations and growth in the underlying business, partially offset by commodity costs.
• Sparkling volume was up 6% in both the quarter and year-to-date. Excluding new cross-licensed brands, principally Dr Pepper brands, organic sparkling beverage volume declined 1% in the quarter and year-to-date, as pricing to retailers on sparkling beverages increased 3% in the quarter. Importantly, we gained sparkling beverage volume and value share in the quarter, driven by a fully integrated 125 Days of Summer Fun marketing campaign and a strong focus on occasion-based brand, package, price and channel strategies. Coca-Cola Zero volume grew 12% in the quarter, delivering double-digit volume growth for the 22^nd consecutive quarter, driven by strong marketing and continuing growth in the foodservice channel. Fanta volume grew for the fifth consecutive quarter, up 2%, with strong retail activation.
• North America still beverage volume grew 4% in the quarter and 4% year-to-date, led by Powerade growth of 9% and Gold Peak tea growth of 39% in the quarter. During the quarter, we gained volume and value share in total still beverages, with volume and value share gains across multiple still beverage categories, including sports drinks, energy drinks, ready-to-drink teas and coffees, and packaged water. Glacéau trademark volume was up 4% in the quarter with both vitaminwater zero and smartwater volume continuing to grow double digits in the quarter.

Pacific

• Our Pacific Group’s volume grew 5% in the quarter, with year-to-date volume up 6%. Third quarter results were primarily driven by 11% volume growth in China, partially offset by a 3% volume decline in Japan, cycling strong growth of 11% in Japan in the prior year quarter. Concentrate sales growth lagged unit case volume growth in the quarter due to timing of shipments, primarily in Japan. Year-to-date concentrate sales are in line with unit case sales. Reported net revenue for the quarter grew 8%, primarily reflecting 3% concentrate sales growth and a 9% currency benefit, partially offset by unfavorable 4% price/mix, primarily geographic mix. This also includes the positive effect of the transition to new package sizes in China to drive immediate consumption transactions and profitable growth. Reported operating income increased 4% in the quarter, reflecting a 7% currency benefit partially offset by the lower concentrate sales growth, commodity costs and continued investments in our brands. Comparable currency neutral operating income declined 5% in the quarter.
• Japan volume declined 3% in the quarter, reflecting the continued progress our Japan business has made in recovering from the earthquake, tsunami and nuclear plant crisis, and cycling strong 11% growth in the prior year quarter as a result of the record summer heat wave in 2010. Sparkling beverage volume growth was 2% in the quarter, driven by new product launches including the Sprite “retro-cool” bottle as well as new Fanta and Canada Dry offerings. Single-serve I LOHAS water has become the overall value leader in packaged water, growing volume 8% and driving value share gains in the quarter. Ayataka green tea volume growth was 58% in the quarter, continuing to benefit from the brand’s relaunch in March 2011. We still anticipate a few challenges in the remainder of the year as Japanese customer and consumer needs continue to evolve in the wake of the disasters earlier this year.
• China volume grew 11% in the third quarter, driven by a renewed focus on core brands, continued distribution gains and the expansion of cooler facings. Sparkling beverages achieved volume growth of 4%, with brand Coca-Cola up 7%. Importantly, we realized 12% growth in sparkling beverage transactions and 15% growth in total transactions in China this quarter, reflecting our strategy to introduce a wider variety of single-serve packages in our sparkling beverage portfolio. Juices and juice drinks volume grew 19% in the quarter, driven by the continued strength of Minute Maid Pulpy. As a result, we gained volume and value share in sparkling beverages and juices and juice drinks. As our business and the industry in China continue to evolve, we are introducing a wider variety of packages to promote affordability and enhance the consumer experience with our brands, all with a focus toward driving increased transactions and profitable growth while building stronger brand equity with our consumers.

Bottling Investments

• Our Bottling Investments Group’s volume grew 4% in the quarter on a comparable basis after adjusting for the effect of structural changes, principally the sale of the Norway and Sweden bottlers. Reported volume was even in the quarter. The growth in comparable volume was primarily driven by China, India and Germany. Reported net revenue for the quarter grew 5%. This reflects the 4% growth in comparable unit case volume, positive price/mix of 3% and a currency benefit of 9%, partially offset by the effect of structural changes. Reported operating income in the quarter declined 4%. Comparable currency neutral operating income declined 10% in the quarter. After adjusting for the effect of structural changes, comparable currency neutral operating income increased 22%. This reflects the increase in comparable volume and the change in the system value split in Germany as well as the benefits of disciplined capital investments and expense management, offset by commodity costs and continued investments in our in-market capabilities.

FINANCIAL REVIEW

Third quarter reported net revenue was up 45%, with comparable net revenue also up 45%. This reflects a 5% increase in concentrate sales, a 5% currency benefit, positive price/mix and the acquisition of CCE’s former North America operations, partially offset by the effect of structural changes. Concentrate sales in the quarter were in line with unit case sales and were slightly ahead of unit case sales year-to-date. The positive price/mix in the quarter reflects international and Bottling Investments Group price/mix of 2%. In North America, we achieved 2% positive pricing to retailers in the quarter, driven by 3% positive pricing on sparkling beverages. This reflects our fundamental belief in executing pricing within a disciplined commercial framework that considers rate increases in concert with occasion-based package mix levers, balancing overall category health with volume, value and pricing growth. As a result, we grew global NARTD value share for the 17^th consecutive quarter, driven by global share growth across sparkling and still beverages.

Reported cost of goods sold was up 67% in the quarter. Comparable cost of goods sold was up 64% in the quarter, driven by a 5% increase in concentrate sales, a 6% currency impact and the acquisition of CCE’s former North America operations, partially offset by the effect of structural changes, principally the sale of the Norway and Sweden bottlers. Higher commodity costs, particularly in our finished goods businesses in the Bottling Investments Group and Coca-Cola Refreshments, continue to impact cost of goods sold as well. Items affecting comparability primarily included gains and losses on commodities hedging.

Reported SG&A expenses increased 48% in the quarter. Comparable SG&A expenses increased 47% in the quarter. This increase reflects a 5% currency impact and was primarily driven by the acquisition of CCE’s former North America operations, including the timing of marketing expenses, which will primarily reverse in the fourth quarter, as a result of conforming the newly acquired North America business to our accounting policies. Although Latin America and Europe benefited from timing of marketing expenses in the quarter, this was offset by an increase in marketing expenses at the Corporate level. The increase in SG&A also reflects our continued investments behind our bottling operations. Structural changes, principally the sale of the Norway and Sweden bottlers, reduced comparable currency neutral SG&A expenses by 4%.

In the fourth quarter of 2010, the Company expanded certain commodity hedging programs as a result of our acquisition of CCE’s former North America business. Many of the derivatives included in these expanded programs do not qualify for hedge accounting treatment under the applicable accounting guidance. The Company uses these derivatives as economic hedges to mitigate the risks associated with commodities and currency exposure. As a result of the expansion of our hedging programs, in the fourth quarter of 2010 we began to exclude the net impact of the mark-to-market adjustments related to these economic hedges from our non-GAAP financial information until the period in which the underlying exposure being hedged impacts our consolidated statement of income. This quarter we included $5 million of previously excluded net gains and excluded $108 million of net losses resulting from mark-to-market adjustments, primarily related to commodities hedging. These adjustments are reflected in the Reconciliation of GAAP and Non-GAAP Financial Measures schedule.

Third quarter reported operating income increased 17%, with comparable operating income up 21%. Items affecting comparability reduced third quarter operating income by $212 million in 2011 and by $100 million in 2010. In both years, these items included restructuring charges and costs related to global productivity initiatives as well as costs related to the acquisition of CCE’s former North America business. Currency had a 6% benefit on comparable operating income in the quarter partially offsetting the impact of increased commodity costs. Including our hedge positions and the cycling of our prior year rates, we estimate currencies will adversely impact our fourth quarter operating income by low to mid single digits while still providing a low to mid single-digit positive impact for the full year.

On a year-to-date basis, our net share repurchases stand at $2.2 billion. We are now planning to increase our share repurchase program with a plan to purchase at least $2.5 billion to $3.0 billion in net shares by year end.

Third quarter reported EPS was $0.95, an increase of 8%, with comparable EPS at $1.03, up 12% and ahead of our long-term growth target. Items affecting comparability decreased third quarter 2011 reported EPS by $0.08 and decreased third quarter 2010 reported EPS by $0.04. In both years, these items included restructuring charges and costs related to global productivity initiatives as well as costs related to our acquisition of CCE’s former North America business. In third quarter 2011, these items also included net losses resulting from mark-to-market adjustments related to economic hedges, primarily commodities.

Cash from operations was $6.8 billion for the first nine months of the year as compared to $7.2 billion in the prior year, a decrease of 6%. This difference primarily reflects additional pension funding made in the first quarter as well as the effect of the acquisition of CCE’s former North America operations. After adjusting for the impact of the additional pension contribution in the first quarter, cash from operations would have increased 5%.

Effective Tax Rate

The reported effective tax rate for the quarter was 23.3%. The underlying effective tax rate on operations for the quarter was 24.0%. The variance between the reported tax rate and the underlying tax rate was due to the tax effect of various items affecting comparability, separately presented in this document in the Reconciliation of GAAP and Non-GAAP Financial Measures schedule.

Our underlying effective tax rate does not reflect the impact of significant or unusual items and discrete events, which, if and when they occur, are separately recognized in the appropriate period.

For 2011, we expect our underlying effective tax rate on operations to be 24.0%.

Items Impacting Prior Year Results

First quarter 2010 results included a net charge of $0.11 per share primarily related to restructuring charges and costs related to global productivity initiatives as well as the impact of the Venezuela currency devaluation.

Second quarter 2010 results included a net charge of $0.04 per share primarily related to restructuring charges and costs related to global productivity initiatives as well as costs related to our acquisition of CCE’s former North America business.

Third quarter 2010 results included a net charge of $0.04 per share primarily related to restructuring charges and costs related to global productivity initiatives as well as costs related to our acquisition of CCE’s former North America business.

NOTES

• All references to growth rate percentages, share and cycling of growth rates compare the results of the period to those of the prior year comparable period.
• “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.
• “Sparkling beverages” means NARTD beverages with carbonation, including energy drinks and carbonated waters and flavored waters.
• “Still beverages” means nonalcoholic beverages without carbonation, including noncarbonated waters, flavored waters and enhanced waters, juices and juice drinks, teas, coffees, sports drinks and noncarbonated energy drinks.

• “Organic” when used with reference to North America volume performance means volume excluding new cross-licensed brands, principally Dr Pepper brands.
• “Transactions” refers to purchase transactions, or retail purchases of individual package configurations by consumers.
• All references to volume and volume percentage changes indicate unit case volume. All volume percentage changes are computed based on average daily sales. “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.
• Year-to-date 2011 financial results were impacted by one fewer selling day, which will be offset by the impact of one additional selling day in fourth quarter 2011 results. Unit case volume results are not impacted by the variance in selling days due to the average daily sales computation referenced above.
• 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 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.
• Our long-term revenue and operating income growth targets are on a comparable currency neutral basis and exclude structural changes. Our long-term volume growth target is on a comparable basis, excluding the effect of structural changes. Our long-term EPS growth target is on a comparable basis.

CONFERENCE CALL

We are hosting a conference call with investors and analysts to discuss our third quarter and year-to-date 2011 results today, October 18, 2011 at 9:30 a.m. EDT. We invite investors to listen to a live audiocast of the conference call at our website, http://www.thecoca-colacompany.com in the “Investors” section. A replay in downloadable MP3 format will also be available within 24 hours after the audiocast on our website. Further, the “Investors” section of our website includes a reconciliation of non-GAAP financial measures that may be used periodically by management when discussing our financial results with investors and analysts to our results as reported under GAAP.