The Coca‑Cola Company Reports Second Quarter 2017 Results


Net Revenues Declined 16%, Impacted by Bottling Divestitures and Currency Exchange; Organic Revenues (Non-GAAP) Grew 3%, Driven by Price/Mix of 3%

Operating Margin Contracted Over 335 Basis Points; Comparable Operating Margin (Non-GAAP) Expanded Over 375 Basis Points

EPS of $0.32 and Comparable EPS (Non-GAAP) of $0.59

Company Accelerates the Global Expansion of Low- and No-Sugar Sparkling Soft Drinks Full Year Underlying Performance Outlook Remains Unchanged;

Full Year Comparable EPS (Non-GAAP) Target Raised on Diminished Currency Headwinds

ATLANTA, July 26, 2017 – The Coca‑Cola Company today reported second quarter 2017 operating results.

James Quincey, President and Chief Executive Officer of The Coca‑Cola Company, said, "Our second quarter results demonstrate continued progress against the strategic priorities we have laid out to accelerate the transformation of our business into a total beverage company with balanced growth across a consumer-centric portfolio. Not only did we see strong performance during the quarter in rapidly expanding areas of our Company, such as our innocent juice and smoothie business in Europe, our organic revenue growth in sparkling soft drinks was led by innovation in and marketing support for our low- and no-sugar options like Coca‑Cola Zero Sugar, which continues to roll out around the world. Our performance gives us confidence that we will achieve our full year financial objectives even in the face of challenging conditions, and also demonstrates further success in evolving our portfolio to meet changing  consumer tastes and preferences. While we are in a period of substantial transformation and change that is never easy, I am encouraged by the spirit of our people and partners as we reinvent the Company for the future."


Quarterly Performance

- Revenue: Net revenues declined 16% to $9.7 billion. Net revenues were impacted by a 17% headwind from the ongoing refranchising of bottling territories and a foreign currency exchange headwind of 2%. Organic revenues (non-GAAP) grew 3% on price/mix growth of 3% and even concentrate sales. Core business organic revenues (non-GAAP) grew 4%, and core business price/mix grew 3%. Our organic revenue (non-GAAP) growth was driven by sparkling soft drinks with balanced performance across the other category clusters.

- Volume: Total unit case volume was even, with positive performance in four of the five category clusters. Unit case volume performance continued to be impacted by macroeconomic challenges in certain Latin American markets, with Brazil and Venezuela accounting for more than a 1 point drag on consolidated unit case volume growth. Outperformance continued in our developed markets, with unit case volume growth 1 point ahead of the consolidated results, led by Mexico and Spain.

- Margin: Our operating margin declined more than 335 basis points while our comparable operating margin (non-GAAP) expanded more than 375 basis points. The reported operating margin included items impacting comparability. The improvement in comparable operating margin (non-GAAP) was driven by divestitures of lower-margin bottling businesses through our ongoing refranchising initiative, effective operating expense management through our productivity program, and the timing of expenses, partially offset by the impact of changes in foreign currency exchange rates.

- Market Share: Our value share growth outpaced volume share in the total nonalcoholic ready-to-drink ("NARTD") beverage industry, reflecting our shift in focus from driving volume growth to driving holistic revenue growth. We gained value share in sparkling soft drinks; juice, dairy, and plant-based beverages; and tea and coffee.

- Cash Flow: Year-to-date cash from operations was $3.4 billion, down 11%. Year-to-date free cash flow (non-GAAP) was $2.6 billion, down 6%. This decrease was driven by our ongoing refranchising of North America bottling territories partially offset by the cycling of a pension plan contribution and lower capital expenditures.

- Share Repurchase: Year-to-date purchases of stock for treasury were $2.2 billion. Year-to-date net share repurchases (non-GAAP) totaled $1.3 billion.

Company Updates

During the second quarter of 2017, we achieved substantial progress against our strategic priorities, which include transforming our beverage portfolio, reducing our sugar footprint, and strengthening our global system. Notable progress included:

- Growing sparkling soft drinks without growing sugar:  Low- and no-calorie sparkling soft drinks grew unit case volume mid single digits during the quarter as we accelerated the introduction and expansion of reduced-sugar offerings around the world.  Coca‑Cola Zero Sugar continued to grow double digits in Europe, Middle East & Africa and Latin America, the two operating segments with the broadest availability of the new recipe. Building on the success we have seen for the new recipe in over 25 markets around the world, including Great Britain and Mexico, we plan to introduce Coca‑Cola Zero Sugar to the U.S. market in August. This new zero-calorie cola recipe is a result of our strong in-house innovation capabilities, and also serves as an example of our ongoing efforts to deliver great-tasting drinks that also help consumers moderate their consumption of added sugar.

- Driving holistic revenue growth: Our balanced pursuit of total revenue growth continued, with a keen focus on value-accretive pricing and mix initiatives. Unit case volume of immediate consumption packs, which are typically sold at a higher retail price per ounce, grew 3% in the quarter. Transaction packs in North America, which are relatively smaller packs that help drive revenue through positive mix, grew mid single digits in the quarter with double-digit growth in mini cans. We also maintained our focus on expanding the premium segment of our portfolio in key markets through innovation. In China, we launched new premium-priced products under the Minute Maid Pulpy brand – Minute Maid Triple Pulpy and Flower Flavors. Our innocent brand portfolio in Western Europe, which includes 100% pure fruit smoothies and premium juices, continued to outperform with double-digit revenue growth as a result of expanded distribution and product innovations, such as packaging enhancements and the launch of new varieties of value-added super smoothies.

- Expanding our consumer-centric portfolio: We remain on track with our plan of broadening our portfolio to meet evolving consumer preferences by introducing more than 500 new products this year and also "lifting and shifting" existing brands into new markets. We made progress toward that plan during the quarter with a number of product launches around the world.  For example, in Great Britain  we launched new flavors of sparkling smartwater and new low-sugar sour fruit flavors of Oasis juice drinks. Elsewhere in Western Europe, Honest Tea expanded into France, the Netherlands, and Belgium. In Asia, we completed the nationwide rollout of Sprite Zero in China and launched a new line of  functional Sokenbicha tea in Japan. In Latin America, we saw strong performance in Mexico from Ciel Exprim Fresa, a new flavored water launched during the quarter.

- Implementing a 21st century beverage partnership model in North America: During the quarter, letters of intent were signed with Reyes Holdings LLC for the Coca‑Cola Refreshments ("CCR") West Operating Unit territories in California and Nevada and with Liberty Coca‑Cola Beverages LLC for the territories of the CCR Tri-State Metro Operating Unit, which includes New York City and Philadelphia. With these signings, there are now agreements or letters of intent for 100% of the U.S. territories of  CCR, and we remain on track to complete the refranchising of our CCR bottling operations in the U.S. by the end of the year.

- Giving back: During the quarter, The Coca‑Cola Foundation (the "Foundation") awarded a $1.35 million grant to support the installation of water systems and water treatment equipment, where needed, in 51 Little Red Schoolhouses across the Philippines. As a result, more than 6,000 students will benefit from improved water access. The Little Red Schoolhouse project was launched in 1997 to help improve basic education in impoverished areas. Today, there are more than 100 Little Red Schoolhouses across the Philippines. In addition, the Foundation recently awarded a $1 million grant to fund a pilot program at Atlanta's Hollis Innovation Academy to increase student success by decreasing the student-to-teacher ratio.  The program will provide an additional teacher in each of the 21 classrooms at the Academy,  which serves Atlanta's Westside neighborhood. 


- All references to growth rate percentages and share compare the results of the period to those of the prior year comparable period.

- All references to volume and volume percentage changes indicate unit case volume, unless otherwise noted. All volume percentage changes are computed based on average daily sales, unless otherwise noted. "Unit case" means a unit of measurement equal to 24 eight-ounce servings of finished beverage. "Unit case volume" means the number of unit cases (or unit case equivalents) of Company beverages directly or indirectly sold by the Company and its bottling partners to customers.

- "Core business" represents the combined performance from the Europe, Middle East & Africa; Latin America; North America; Asia Pacific; and Corporate operating segments offset by intersegment eliminations.

- "Concentrate sales" represents the amount of concentrates, syrups, beverage bases, source waters, and powders/minerals (in all instances expressed in equivalent unit cases) sold by, or used in finished beverages sold by, the Company to its bottling partners or other customers. In the reconciliation of reported net revenues, "concentrate sales" represents the percent change in net revenues attributable to the increase (decrease) in concentrate sales volume for our geographic operating segments (expressed in equivalent unit cases) after considering the impact of structural changes. For our Bottling Investments operating segment, this represents the percent change in net revenues attributable to the increase (decrease) in unit case volume after considering the impact of structural changes.  Our Bottling Investments operating segment reflects unit case volume growth for consolidated bottlers only.

- "Price/mix" represents the change in revenues caused by factors such as price changes, the mix of products and packages sold, and the mix of channels and geographic territories where the sales occurred.

- First quarter 2017 financial results were impacted by two fewer days and fourth quarter 2017 financial results will be impacted by one additional day as compared to the same periods in 2016. Unit case volume results are not impacted by variances in days due to the average daily sales computation referenced above.

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