The Coca-Cola Company Reports Third Quarter and Year-to-Date 2012 Results

The Coca-Cola Company Reports Third Quarter and Year-to-Date 2012 Results

Strong 4% global volume growth in the third quarter with growth across every geographic operating group

Worldwide brand Coca-Cola growth of 3% year-to-date

Volume and value share gains continued in total nonalcoholic ready-to-drink beverages

Strong cash from operations, up 15% year-to-date

Third Quarter and Year-to-Date 2012 Highlights

• Strong global volume growth of 4% in the quarter and 5% year-to-date, with volume growth across every geographic operating group in the quarter.North America volume grew 2% in the quarter and year-to-date, and international volume grew 5% in the quarter and year-to-date.

• Third quarter reported net revenues grew 1% and comparable currency neutral net revenues grew 6%.Year-to-date reported net revenues grew 3% and comparable currency neutral net revenues grew 6%.

• Third quarter reported operating income and comparable currency neutral operating income both grew 1%, in line with our expectations.Year-to-date reported operating income grew 5% and comparable currency neutral operating income grew 4%.

• Currency represented a 5% headwind on comparable net revenues and a 7% headwind on comparable operating income in the quarter.

• Third quarter reported EPS was $0.50, up 4%, and comparable EPS was $0.51, down 2%.Year-to-date reported and comparable EPS were both $1.56, up 5% and 2%, respectively.

• Year-to-date cash from operations was up a strong 15%.

ATLANTA--(BUSINESS WIRE)-- The Coca-Cola Company today reported strong third quarter and year-to-date 2012 results, with solid volume and revenue growth, and continued volume and value share gains in total nonalcoholic ready-to-drink (NARTD) beverages, as well as across nearly every beverage category in which the Company competes.

Muhtar Kent, Chairman and Chief Executive Officer of The Coca-Cola Company said, "We are pleased with our third quarter and year-to-date results. We continue to deliver consistent and solid performance, with our business growing worldwide volume by 4% in the quarter and 5% year-to-date. Importantly, we realized growth in the quarter across all five of our global geographic operating groups, despite continued volatility in the worldwide economy. We have been able to crack the calculus for growth in this environment. We have done this by consistently investing in our system and our brands to ensure that our global portfolio is more relevant and healthier today than it has ever been. We remain resolutely focused on ensuring that we leverage our wonderful heritage and fuse it with what is expected by our consumers today in order to earn and sustain our place in their daily lives tomorrow."

PERFORMANCE HIGHLIGHTS

The Coca-Cola Company reported strong worldwide volume growth of 4% in the third quarter and 5% year-to-date. Volume growth in the quarter was well-balanced around the world, with growth in all geographic operating groups as well as growth across both developed markets (+2%) and emerging markets (+7%). The Company reported solid growth in key developed markets, including North America (+2%), Japan (+2%) and Europe (+1%), which reported growth across all business units in the quarter. In addition, the Company delivered strong volume growth in key emerging markets such as Thailand (+19%) and India (+15%) in the quarter. Our China business delivered 2% volume growth in the quarter and 6% growth year-to-date.

In the third quarter, we grew global volume and value share in total NARTD beverages, with volume and value share gains across nearly every beverage category in which we compete. Brand health remains consistently strong, with continued improvements in favorite brand scores and growth among consumers who enjoy at least one product from our broad portfolio of beverage brands per week. Through our occasion-based brand, package, price and channel segmentation strategy, we remain closely connected to our consumers with a dual focus on recruitment and affordability. Our immediate consumption beverage volume continues to grow, up 4% globally in the quarter and 5% year-to-date.

Worldwide sparkling beverage volume grew 3% in the quarter and year-to-date. This represents nearly 450 million incremental unit cases year-to-date, or the equivalent of adding another Russia to our global business. We grew volume and value share in global core sparkling beverages in the quarter, led by brand Coca-Cola and reflecting a balanced portfolio approach to growth in the core sparkling beverage category. Worldwide brand Coca-Cola volume grew 2% in the quarter and 3% year-to-date, with growth in the quarter across diverse markets, including India (+34%), Russia (+18%), Brazil (+3%), Mexico (+3%) and South Africa (+2%). In addition, worldwide Fanta volume grew 7% in the quarter and 5% year-to-date, and Sprite volume grew 4% in the quarter and 5% year-to-date, as we leveraged global marketing campaigns in locally relevant ways.

Worldwide still beverage volume grew 10% in the quarter and 9% year-to-date, with solid growth across beverage categories, including packaged water, juices and juice drinks, ready-to-drink tea and coffee, sports drinks and energy drinks. Excluding the impact of acquisitions, still beverage volume grew 8% in the quarter and year-to-date. We grew global volume and value share in total still beverages and delivered share gains across all still beverage categories in which we compete. Ready-to-drink tea volume grew 13% in the quarter, with continued strong performance of key brands such as Gold Peak and Honest Tea in North America, Ayataka green tea in Japan and Fuze Tea, which we continued to expand across markets worldwide during the quarter. Packaged water volume grew 10% in the quarter, driven by our focus on innovative and sustainable packaging and immediate consumption occasions, most recently with our new "PlantBottle with a Twist" campaign, first aired during the summer 2012 Olympic Games. Energy drinks volume grew 19% in the quarter driven by growth across our global portfolio of energy brands.

Eurasia & Africa

• Our Eurasia and Africa Group's volume grew 11% in the quarter and year-to-date (up 8% and 9%, respectively, excluding the benefit of acquired volume), cycling 6% growth in the prior year quarter. Growth in the quarter was led by India, up 15%, Middle East and North Africa, up 22% (up 12% excluding the benefit of acquired volume), Russia, up 7% and South Africa, up 7%. Reported net revenues for the quarter increased 4%, reflecting a 10% increase in concentrate sales and positive price/mix of 5%, partially offset by an 11% currency impact. Concentrate sales in the quarter and year-to-date were slightly ahead of unit case volume (excluding acquired volume) primarily due to timing. For the full year, we expect concentrate sales to be roughly in line with unit case sales. Comparable currency neutral net revenues increased 15% in the quarter. Reported operating income declined 4% in the quarter. Comparable currency neutral operating income increased 11% in the quarter, driven by pricing and product mix, partially offset by increased investments in the business.

• During the quarter, Eurasia and Africa grew volume and value share in total NARTD beverages as well as in core sparkling beverages, juices and juice drinks, sports drinks and ready-to-drink tea. Sparkling beverage volume grew 9% in the quarter, led by brand Coca-Cola, which grew 10%. Sprite volume grew 10% in the quarter and Fanta volume grew 6%. Still beverage volume grew 21% in the quarter, including the benefit of acquired volume which added 12 points of growth. In India, we gained volume and value share in total NARTD beverages as well as in sparkling and still beverages in the quarter, with both sparkling and still beverage volume growth of 15%. India sparkling beverage growth was driven by a strong system focus behind brand Coca-Cola as well as customized integrated marketing campaigns centered on music and sports. During the quarter, brand Coca-Cola volume in India grew 34% and Sprite grew 15%, with balanced growth across our portfolio of package sizes. India still beverage volume growth was driven by strong performance in juices and juice drinks, including Minute Maid Pulpy and Maaza mango juice drink. Russia volume growth in the quarter was led by our sparkling beverage brands, including brand Coca-Cola, up 18%, Fanta, up 15% and Sprite, up 7%. We gained volume and value share in core sparkling and still beverages in Russia, with a strong marketing campaign tied to the 2012 Olympic Games as well as a continued focus on packaging segmentation to drive household penetration.

Europe

• Our Europe Group's volume grew 1% in the quarter, cycling even performance in the prior year quarter, with volume growth in all business units despite ongoing macroeconomic uncertainty across the region and poor weather in the first half of the quarter. Year-to-date volume was even. Reported net revenues declined 8% in the quarter, reflecting a 3% increase in concentrate sales offset by unfavorable price/mix of 4% and a 7% currency impact. Concentrate sales in the quarter were ahead of unit case sales due to timing. Year-to-date concentrate sales were broadly in line with unit case sales. Comparable currency neutral net revenues were even in the quarter. Reported operating income declined 14% in the quarter. Comparable currency neutral operating income declined 8% in the quarter, reflecting shifts in product and channel mix across markets, input cost pressures, incremental investments related to the 2012 Olympic Games, and timing of marketing expenses.

• During the quarter, the Europe Group maintained share in core sparkling and still beverages. Europe sparkling beverage volume grew 1% in the quarter and still beverage volume grew 6%. We continued to leverage integrated marketing campaigns centered on our 2012 Olympic Games partnership, summer activities and Coke and Meals programming. Germany volume grew 3% in the quarter, cycling 4% growth in the prior year quarter, driven by Olympics activation, music-themed integrated marketing campaigns, a continued focus on low-calorie and no-calorie sparkling beverages and packaging segmentation to drive recruitment and household penetration. The Central and Southern Europe region grew volume low single digits, with brand Coca-Cola up mid single digits driven by robust Coke and Meals activation. Volume in both the Northwest Europe & Nordics and Iberia regions was positive, rounding to even in the quarter.

Latin America

• Our Latin America Group's volume grew 5% in the quarter and year-to-date, cycling 7% growth in the prior year quarter. Reported net revenues for the quarter were even, reflecting concentrate sales growth of 8% and positive price/mix of 6%, offset by a currency impact of 13% and a 1% impact related to structural change. Concentrate sales in the quarter were ahead of unit case volume due to timing. Year-to-date concentrate sales were in line with unit case volume. Comparable currency neutral net revenues increased 12% in the quarter. Reported operating income declined 5% in the quarter, with comparable currency neutral operating income up 9%, primarily reflecting solid volume growth and favorable pricing across the group, partially offset by continued investments in the business, including some initial expenses related to the 2014 World Cup.

• During the quarter, the Latin America Group gained volume and value share in total NARTD beverages. All business units in Latin America grew volume in the quarter, with 6% growth in Mexico, Brazil and South Latin, and 3% growth in Latin Center, all driven by a continued focus on affordability using refillable packages, activation of the summer 2012 Olympic Games, and recruitment through investment in immediate consumption and the continued placement of new cold drink equipment. Sparkling beverage volume was up 3%, with a strong focus on developing and growing our portfolio of flavored sparkling brands. Brand Coca-Cola volume grew 3% in the quarter while Fanta was up 7% and Sprite was up 6%. Still beverage volume grew 14% in the quarter, driven by ready-to-drink tea, up strong double digits as a result of the newly launched Fuze Tea, as well as 33% growth in sports drinks, 12% growth in packaged water and 8% growth in juices and juice drinks. Both Mexico and Brazil grew volume and value share in the quarter in total NARTD beverages as well as in sparkling and still beverages, with a continued focus on both single-serve and returnable packaging.

North America

• Our North America Group's volume grew 2% in the quarter and year-to-date, cycling 1% organic growth in the prior year quarter. Reported net revenues for the quarter increased 5%, reflecting volume growth of 2% as well as positive price/mix of 3% and a 1% benefit from structural changes, primarily the acquisition of Great Plains Coca-Cola Bottling Company. Currency unfavorably affected reported net revenues by 1%. Third quarter reported operating income grew 34%, which includes the effect of items impacting comparability, principally net gains/losses related to our economic hedges, primarily commodities, as well as costs related to the integration of the former North America business of Coca-Cola Enterprises (CCE). Comparable currency neutral operating income grew 3% in the quarter, a sequential improvement from the first half of 2012, reflecting positive volume growth and pricing, partially offset by higher commodity costs and ongoing investment in marketplace executional capabilities.

• During the quarter, North America gained volume and value share in total NARTD beverages as we continue to build strong value-creating brands and strengthen customer service. In addition, we gained volume share and maintained value share in sparkling beverages. We gained both volume and value share in still beverages, with volume and value share gains across multiple still beverage categories, including juices and juice drinks, functional hydration, sports drinks, energy drinks and ready-to-drink teas and coffees. Sparkling beverage volume was even in the quarter with sparkling beverage price/mix growth of 3%, as we maintained the price increases put in place over the past year. Coca-Cola Zero volume grew 9% in the quarter. Fanta volume was up 5% in the quarter and Seagram's grew 11% in the quarter driven by the continued expansion of Seagram's Sparkling Seltzer Water. Still beverage volume grew 7% in the quarter, led by Powerade growth of 9% with strong 2012 Olympic Games activation and the new "Power Through" campaign as well as double-digit growth in Gold Peak tea and Fuze tea. Our portfolio of juice and juice drink brands grew 6% in the quarter, driven by growth in juice drinks and the Minute Maid Light portfolio, while our premium chilled orange juice continued to gain value share. Our water business grew 4% as Dasani maintained its premium pricing position in the mainstream water segment, supported by our PlantBottle PET packaging.

Pacific

• Our Pacific Group's volume grew 3% in the quarter and 6% year-to-date, cycling 5% growth in the prior year quarter. Reported net revenues for the quarter declined 4%, reflecting 3% concentrate sales growth, offset by unfavorable price/mix of 6% and a 1% impact due to structural change. Concentrate sales in the quarter were in line with unit case sales. For the full year, we expect concentrate sales to be roughly in line with unit case sales. Comparable currency neutral net revenues decreased 3% in the quarter. Reported operating income decreased 1% in the quarter, reflecting shifts in product, channel and geographic mix. In addition, third quarter reported operating income reflects a 1% currency benefit. Comparable currency neutral operating income decreased 2% in the quarter and increased 5% year-to-date.

• During the quarter, the Pacific Group gained share in core sparkling and still beverages. Volume growth in the quarter was broad-based, with 2% growth in Japan and China, and double-digit growth in both Thailand and South Korea. Philippines volume was even in the quarter as multiple typhoons impacted the overall industry, yet we grew brand Coca-Cola 2% and gained volume and value share in sparkling beverages. Pacific Group sparkling beverage volume grew 1% in the quarter, led by 13% growth in Fanta and 3% growth in Sprite. Still beverage volume grew 6% in the quarter, with double-digit growth in packaged water, 7% growth in ready-to-drink tea and 4% growth in sports drinks. Japan's sparkling beverage volume declined 5% in the quarter, principally due to the cycling of new product launches, and still beverage volume grew 5%. Our Japan business continued to gain share in total NARTD beverages as well as volume and value share in still beverages in the quarter. This positive result was driven by the sustained momentum of our Georgia coffee brand as well as water and sports drink category offerings, which led to consistent volume growth across channels, including convenience retail outlets, drug stores and supermarkets. Our business in China delivered 2% volume growth in the quarter, while cycling 11% growth in the prior year quarter. Year-to-date growth in China is a solid 6%, cycling 15% growth in the prior year. We remain encouraged and excited about our opportunities in this region and continue to believe that China will serve as a long-term growth driver for our business despite a changing competitive landscape and the current softness in the macroeconomy. Importantly, and in alignment with our strategic priorities in China, we are growing transactions ahead of volume through a broad range of package offerings, with total transactions up 10% and sparkling transactions up 7% year-to-date. China sparkling beverages gained volume and value share in the quarter.

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, primarily the acquisition of the Vietnam, Cambodia and Guatemala bottling operations. Reported volume, including the benefit of these acquisitions, grew 8% in the quarter. The growth in comparable volume was primarily driven by India and Germany, with volume growth and share gains in core sparkling beverages across most of the group's markets, led by growth in brand Coca-Cola. Reported net revenues for the quarter declined 2%. This reflects the 4% growth in comparable unit case volume, positive price/mix of 1% and a 4% benefit due to structural changes, offset by a currency impact of 11%. Comparable currency neutral net revenues increased 9% in the quarter. Reported operating income in the quarter decreased 42% due to currency as well as the impact of structural changes. Comparable currency neutral operating income decreased 14% in the quarter, reflecting the increase in revenues resulting from volume growth and positive pricing in select markets, offset by shifts in package and channel mix and continued investments in our in-market capabilities.

FINANCIAL REVIEW

Third quarter reported net revenues grew 1%, with comparable net revenues also up 1%. This reflects a 5% increase in concentrate sales; slightly positive price/mix, rounding to even, driven by the cycling of higher price/mix comparisons from the prior year; and a 1% benefit due to structural changes, principally the acquisition of bottling operations. Currency had a 5% unfavorable effect on net revenues in the quarter. As a result, comparable currency neutral net revenues grew 6% in the quarter, in line with our long-term target. Unit case sales slightly lagged concentrate sales in the quarter. For the full year, we expect unit case sales to be in line with concentrate sales. Our price/mix results in the quarter were in line with our expectations, as the quarter is cycling higher price/mix comparisons from the prior year. Despite the tougher comparisons, we continued to grow global NARTD value share for the 21^st consecutive quarter. We estimate our full-year 2012 consolidated price/mix results to be 1% to 2%, in line with our long-term target range.

Reported cost of goods sold was even in the quarter, with comparable cost of goods sold up 3% in the quarter, reflecting moderately higher commodity costs compared to the prior year quarter, primarily in North America and the Bottling Investments Group. Currency decreased comparable cost of goods sold by 4% in the quarter. Items impacting comparability in the quarter primarily included net gains/losses on commodities hedging. We currently estimate full-year incremental commodity costs of approximately $225 million compared to the prior year.

Reported SG&A expenses grew 2% in the quarter and comparable SG&A expenses increased 3% in the quarter. Currency decreased comparable SG&A expenses by 4% in the quarter. Operating expense leverage in the quarter declined by 4 points, consistent with the outlook we provided in our second quarter 2012 earnings call. On a full-year basis, we expect to achieve slightly positive operating expense leverage, as we will benefit from two additional selling days in the fourth quarter.

Third quarter reported operating income increased 1%, with comparable currency neutral operating income also up 1%. Items impacting comparability increased third quarter operating income by $3 million in 2012 and decreased third quarter operating income by $212 million in 2011. Currency reduced comparable operating income by 7% in the quarter. Including our hedge positions, current spot rates and the cycling of our prior year rates,we estimate currency will have a mid single-digit unfavorable impact on operating income in the fourth quarter and for the full year.

Year-to-date net share repurchases totaled $2.3 billion. These repurchases are in line with the targeted range of $2.5 to $3.0 billion in net share repurchases for the full year. Following shareowner approval, the Company amended its certificate of incorporation on July 27, 2012, to increase the number of authorized shares of common stock from 5.6 billion to 11.2 billion and effect a two-for-one stock split of the common stock. Accordingly, all share and per share data now reflects the impact of the increase in authorized shares and the stock split. The stock split will not affect the targeted net share repurchase range for the full year.

Third quarter reported EPS was $0.50 and comparable EPS was $0.51. Items impacting comparability reduced third quarter 2012 reported EPS by a net $0.01 and reduced third quarter 2011 reported EPS by a net $0.04. In both periods, these items included restructuring charges, costs related to global productivity initiatives, gains/charges related to equity investees, net gains/losses related to our economic hedges, primarily commodities, and certain tax matters. Items impacting comparability in third quarter 2012 also included charges related to changes in the structure of Beverage Partners Worldwide (BPW) and charges related to the supply of Brazilian orange juice. Items impacting comparability in third quarter 2011 also included CCE integration costs.

Year-to-date cash from operations increased 15%. Excluding incremental pension contributions made in first quarter 2012 and 2011, cash from operations also increased 15%.

Effective Tax Rate

The reported effective tax rate for the quarter was 24.5%. The underlying effective tax rate on operations for the quarter was 24.0%. The variance between the reported rate and the underlying rate was due to the tax effect of various items impacting comparability, separately disclosed in this document in the Reconciliation of GAAP and Non-GAAP Financial Measures schedule.

The 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.

Items Impacting Prior Year Results

First quarter 2011 results included a net charge of $0.04 per share due to restructuring charges, costs related to global productivity initiatives and the CCE integration, and charges related to the natural disasters in Japan, partially offset by a gain on the sale of the Company's stake in Chilean bottler Coca-Cola Embonor S.A.

Second quarter 2011 results included a net gain of $0.03 per share due to a noncash gain on the adjustment to fair value of our investment in Mexican bottler Grupo Continental S.A.B., partially offset by restructuring charges, costs related to global productivity initiatives and the CCE integration, and charges related to the natural disasters in Japan.

Third quarter 2011 results included a net charge of $0.04 per share due to restructuring charges and costs related to global productivity initiatives and the CCE integration.

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.

• All references to volume and volume percentage changes indicate unit case volume, except for the reference to volume included in the explanation of net revenue growth for North America. This North America volume represents Coca-Cola Refreshments' unit case sales (which are equivalent to concentrate sales) plus non-Company-owned bottling operations' concentrate sales. All volume percentage changes, unless otherwise noted, 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 2012 financial results were impacted by one less selling day. Fourth quarter 2012 financial results will benefit from two additional selling days. Unit case volume results are not impacted by the variance in selling days due to the average daily sales computation referenced above.

• Due to the refocusing in 2012 of the Beverage Partners Worldwide (BPW) ready-to-drink tea joint venture with Nestlé S.A. (Nestlé), we have eliminated the BPW joint venture volume and associated concentrate sales from our reported results for both 2011 and 2012 in those countries in which the joint venture is being phased out during 2012. In addition, we have eliminated the Nestea licensed volume and associated concentrate sales in the U.S. due to our current U.S. license agreement with Nestlé terminating at the end of 2012. These changes did not materially impact the Company's reported volume results for third quarter or year-to-date 2012 on a consolidated basis or for any individual operating group. However, these changes increased the Company's reported third quarter and year-to-date 2012 volume for still beverages by 2 points and 1 point, respectively, and ready-to-drink tea by 12 points and 8 points, respectively.

• 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.

CONFERENCE CALL

We are hosting a conference call with investors and analysts to discuss third quarter and year-to-date 2012 results today, October 16, 2012 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 and transcript of the call 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.