What do you see as the key takeaways from this quarter’s results?
At the highest level, we made good progress against our strategic priorities, delivered results in line with our plan and remain on track to deliver our financial targets for the full year.
Performance was balanced across our portfolio, reflecting early success in accelerating our transformation into a total beverage company. Not only did we see strong performance in new and emerging areas of our business, 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 low- and no-sugar options like
Globally, we continued to win in the marketplace as we gained value share in total nonalcoholic beverages. It’s a tribute to our people that we achieved these results in a period of significant organizational change as we implemented our lean corporate center initiative.
What about the fact that reported revenue and profit declined significantly in the quarter? Why are these numbers so drastically different than the organic growth you reported?
Our reported results are significantly impacted by the fact that company-owned bottling operations are being rapidly refranchised to new partners as we return to our core business of building great brands and leading a global franchise system.
Organic results, meanwhile, adjust for structural impacts like bottler refranchising – as well as impacts like currency headwinds – to represent a clearer picture of the underlying performance of our business.
In the second quarter, we delivered 3% organic revenue growth (non-GAAP), with growth driven by sparkling soft drinks and supported by balanced performance across the other areas of our broad beverage portfolio. This is an important distinction in the current stage of our transformation as we are completing the biggest parts of our bottler refranchising program this year, and then cycling those impacts next year. This means we will continue to see these types of differences in our reported and organic results through next year.
Which markets performed particularly well in the quarter? And which ones still need improvement?
Many of our developed markets – like North America, Europe and Mexico – continued to perform well. In North America, improving performance in our refranchised bottling territories, along with strong marketing and a disciplined approach to growing value ahead of volume, led to strong organic revenue growth of 5%. In our Europe, Middle East and Africa Group, solid marketing and innovation, along with improved alignment with our botting partners, resulted in strong 6% organic revenue growth in the quarter. These results represent top-tier revenue performance among our consumer goods peers in both regions.
Meanwhile in some developing markets like Brazil, Argentina and Venezuela, macroeconomic headwinds continued to create a difficult operating environment for consumer products companies like ours. In the largest of these markets – Brazil – we are seeing early signs of improvement with adjustments to our price and package architecture. But overall consumer demand has remained weak in these markets, continuing to pressure our volume growth globally.
In recent interviews, you have talked about the need for a faster, more risk-tolerant culture at Coke. How do you achieve this?
First of all, the tone is set at the top, and management must set the example. We have to be clear and consistent with our people. They rightly expect candor and clarity about what’s going on. We also need to create a culture of curiosity, where we are constantly looking for ways to do things better. And we have to simplify the work, and take out the bureaucracy so we can be faster and more agile. And finally, we need to encourage people to take smart risks. I often say that if we’re not making smart mistakes, we’re not trying hard enough. Now, we have to learn from each mistake and not make them over again – but we should constantly be seeking out new ideas and ideating on version 1.0, 2.0 and so on. This is how 21st century businesses grow, and it is a mentality we are working hard to adopt within the company as we transform our business for growth.
A lot of the organizational changes you’ve announced recently have focused on creating a 'lean' corporate center. Does this mean that the role of headquarters is now less important in driving Coke’s business globally?
Earlier this year, we outlined a new operating model to support our growth strategy. A key component of that model is a corporate center that – in a post-refranchising world – is faster, leaner and more agile, and focused on serving our operating units around the world while maintaining best-in-class corporate governance for the company. That work is on track, and we are rapidly implementing our new corporate structure to support faster growth.
The local business unit is and will remain the heart of our operations. In Japan, that’s in Tokyo. In South and East Africa, that’s in Johannesburg. In Brazil, that’s in Rio de Janeiro. And so on. We produce, market and distribute locally in all of the countries where we sell our beverages, and we firmly believe our business plans are best built close to the consumers and customers they serve.
What about sugar? What strategies are you employing to recruit people to drink your products who may be looking to reduce their overall consumption of sugar?
We’ve been clear for some time that we need to reshape the growth equation to reduce our overall sugar footprint and drive revenue growth ahead of volume. Again this quarter, consistent execution against this strategy resulted in revenue growth for our sparkling soft drink portfolio.
We are taking specific actions to help people consume less sugar from our beverages. We’re doing this by reducing package sizes, innovating and introducing new zero and reduced-sugar drinks, and reducing sugar in existing drinks around the world.
In North America, our work to increase the availability of soft drinks in smaller packages with less sugar resulted in double-digit growth for our popular mini cans in the quarter. Globally, our new and improved
This Q&A includes certain "non-GAAP financial measures" as defined under U.S. federal securities laws. Refer to our second quarter 2017 earnings release issued on July 26, 2017, and related supplemental information, 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.
This Q&A 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