Coca-Cola today reported Q3 2016 financial results. We caught up with President and COO James Quincey for his take on the company's performance in the quarter and the opportunities ahead. Take a look:

As you look at the third quarter results and company performance year to date, what are your main takeaways?

The main takeaway is that we are delivering results in line with what we expected in a time of significant challenge and change. We are in the midst of one of the biggest transformations of our company as we go from being an integrated global bottling and brand company to one strategically focused on leading a strong global franchise system and building great brands. 

We have a strong team that is doing great work in implementing this transformation to build our business for the future. Once we’ve completed refranchising nearly all of our company-owned bottling operations, what will remain is largely what we call a concentrate operation. So when you consider the performance of this part of our business today, it offers a window to the future. While consolidated reported net revenues are down 5% year-to-date in part due to the ongoing structural change in our business as well as macroeconomic headwinds, the organic revenue performance of our core business (non-GAAP) has grown 4% year to date*. This growth demonstrates the overall strength and long-term growth potential of our company.

2016 Q3 - Top-Line Results

Speaking of the future, how are you working to not just re-architect your bottling system but also your portfolio given changing consumer tastes?

The success of our business has always been about ensuring our products meet consumers’ current needs and anticipating where consumers are going. There’s a lot of innovative work under way in our business around the world to reshape our portfolio to address changing consumer preferences. So far this year, we have launched more than 500 new products across our system. 

We know that consumers are looking for less sugar and also looking for more choice in both beverages and packages sizes. We are expanding the selection of low- and no-calorie products. And we are reformulating products to reduce added sugars. 

Additionally, our new "one brand" marketing approach, which extends the appeal of original Coca-Cola across Diet, Zero and Life, helped deliver strong results in Europe – especially in Great Britain, where Coca-Cola Zero Sugar saw strong double-digit unit case volume growth in the quarter compared to Coca-Cola Zero from the prior year quarter. 

We’ve still got a lot of work to do, but we are addressing these challenges head on.

'We are in the midst of one of the biggest transformations of our company as we go from being an integrated global bottling and brand company to one strategically focused on leading a strong global franchise system and building great brands.' 

How important is growing our still beverage portfolio to our growth strategy?

Our portfolio is driven, quite simply, by consumer preferences and the trends that those are generating. Of the 20 brands in our portfolio that generate more than $1 billion in retail sales each year, 14 are still brands. And our momentum in still beverage performance is accelerating. Year-to-date, we have sold nearly 6 billion incremental servings of still brands compared to last year. That is about 25% of the industry’s overall still beverage growth globally.

We have leading brands across the largest still categories, including juice, coffee, water, tea and sports drinks. And innovation is driving growth. For example, in Japan, year-to-date growth has been driven by new premium packaging for the popular Georgia coffee brand, the introduction of a second flavor profile to the popular Ayataka tea brand and new flavors of our premium I LOHAS water brand. In the United States, we’ve expanded smartwater into sparkling water and stretched the Honest Tea trademark into juice drinks. And in Europe, we have expanded innocent, our premium juice and smoothie business, as well as Vio Bio organic. 

Global volume grew 1 percent while sparkling beverage volume was even in the quarter. Do you need volume to grow faster?

Volume growth is just one component that drives revenue growth. Our focus remains to ensure we have a balanced approach to growing volume while also growing price/mix. That, along with our segmented revenue growth strategies, is how we will grow revenue. In the third quarter, we achieved 3% organic revenue growth supported by solid growth in both sparkling and stills, so we see a broad-based opportunity to grow. 

'Our momentum in still beverage performance is accelerating. Year-to-date, we have sold nearly 6 billion incremental servings of still brands compared to last year. That is about 25% of the industry’s overall still beverage growth globally.'

As you look around the world, which markets performed well this quarter and which markets face challenges?

In the quarter, we continued to see solid revenue results in our developed markets including the United States, Japan and Western Europe. For example, in North America, we gained value share in total NARTD beverages for the 26th consecutive quarter. We also grew organic revenue 3% with continued disciplined pricing and diversification of our product, package and portfolio mix. 

The developing and emerging markets were more of a mixed bag. On the one hand, Brazil and Venezuela all remain difficult operating environments for consumer product companies. 

On the other hand, China returned to growth, driven by our Olympic campaign, improved execution and good weather – although the economy remains challenged there.

In the end, I am confident we will achieve our full-year revenue and profit outlook based on where we are year-to-date.

Listen to Chairman and CEO Muhtar Kent, Chief Financial Officer Kathy Waller and Quincey discuss The Coca-Cola Company's Q3 2016 results with analysts.

 

*Note

This Q&A includes certain "non-GAAP financial measures" as defined under U.S. federal securities laws. Refer to our third quarter 2016 earnings release issued on Oct. 26, 2016, available on the Company's website at www.coca-colacompany.com (in the “Investors” section), for full financial results and a reconciliation of non-GAAP financial measures.

Forward-Looking Statements

This press release may contain statements, estimates or projections that constitute “forward-looking statements” as defined under U.S. federal securities laws. Generally, the words “believe,” “expect,” “intend,” “estimate,” “anticipate,” “project,” “will” and similar expressions identify forward-looking statements, which generally are not historical in nature. Forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from The Coca-Cola Company’s historical experience and our present expectations or projections. These risks include, but are not limited to, obesity concerns; water scarcity and poor quality; evolving consumer preferences; increased competition and capabilities in the marketplace; product safety and quality concerns; perceived negative health consequences of certain ingredients, such as non-nutritive sweeteners and biotechnology-derived substances, and of other substances present in our beverage products or packaging materials; an inability to be successful in our innovation activities; increased demand for food products and decreased agricultural productivity; changes in the retail landscape or the loss of key retail or foodservice customers; an inability to expand operations in emerging and developing markets; fluctuations in foreign currency exchange rates; interest rate increases; an inability to maintain good relationships with our bottling  partners; a deterioration in our bottling partners' financial condition; increases in income tax rates, changes in income tax laws or unfavorable resolution of tax matters; increased or new indirect taxes in the United States or in one or more other major markets; increased cost, disruption of supply or shortage of energy or fuels; increased cost, disruption of supply or shortage of ingredients, other raw materials or packaging materials; changes in laws and regulations relating to beverage containers and packaging; significant additional labeling or warning requirements or limitations on the marketing or sale of our products; an inability to protect our information systems against service interruption, misappropriation of data or breaches of security; unfavorable general economic conditions in the United States; unfavorable economic and political conditions in international markets; litigation or legal proceedings; failure to adequately protect, or disputes relating to, trademarks, formulae and other intellectual property rights; adverse weather conditions; climate change; damage to our brand image and corporate reputation from negative publicity, even if unwarranted, related to product safety or quality, human and workplace rights, obesity or other issues; changes in, or failure to comply with, the laws and regulations applicable to our products or our business operations; changes in accounting standards; an inability to achieve our overall long-term growth objectives; deterioration of global credit market conditions; default by or failure of one or  more of our counterparty financial institutions; an inability to timely implement our previously announced actions to reinvigorate growth, or to realize the economic benefits we anticipate from these actions; failure to realize a significant portion of the anticipated benefits of our strategic relationship with Monster Beverage Corporation; an inability to renew collective bargaining agreements on satisfactory terms, or we or our bottling partners experience strikes, work stoppages or labor unrest; future impairment charges; multi-employer plan withdrawal liabilities in the future; an inability to successfully integrate and manage our Company-owned or -controlled bottling operations; an inability to successfully manage our refranchising activities; an inability to successfully manage the possible negative consequences of our productivity initiatives; an inability to attract or retain a highly skilled workforce; global or regional catastrophic events; and other risks discussed in our Company’s filings with the Securities and Exchange Commission (SEC), including our Annual Report on Form 10-K for the year ended December 31, 2015 and our subsequently filed Quarterly Reports on Form 10-Q, which filings are available from the SEC. You should not place undue reliance on forward-looking statements, which speak only as of the date they are made. The Coca-Cola Company undertakes no obligation to publicly update or revise any forward-looking statements.