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The Coca-Cola Company Reports First Quarter 2012 Results

Stocks in this article: KO

We continued to see growth in sparkling beverages, with global volume up 4% in the quarter, sparkling beverage volume growth across every geographic operating group and gains in global volume and value share. This growth was driven by ongoing investments in our brands and innovation with globally scaled marketing campaigns, starting with brand Coca-Cola. Brand Coca-Cola volume grew 4% in the quarter, with quality growth in many developed markets around the world, including Germany (+4%), the United States (+1%), Italy (+5%) and Spain (+3%) as well as in many emerging markets, including Brazil (+1%), Russia (+20%), India (+27%) and China (+5%). In addition, global Fanta and Sprite volume each grew 4% in the quarter, reflecting a balanced portfolio approach to growth in the important sparkling beverage category.

Worldwide still beverage volume grew 9% in the quarter, with growth across most beverage categories, including packaged water, ready-to-drink tea and coffee, energy drinks and sports drinks. We grew global volume and value share in total still beverages as well as across all still beverage categories in which we compete. Packaged water volume grew 15% in the quarter, with strong growth across all geographic operating groups as we continue to focus on innovative and sustainable packaging and immediate consumption occasions. Ready-to-drink tea volume grew 10%, with continued strong performance of key brands such as Gold Peak and Honest Tea in North America, Ayataka green tea in Japan and Nestea in Europe. Energy drinks volume grew 25% in the quarter driven by growth across our global portfolio of energy brands.

OPERATING REVIEW

  Three Months Ended March 30, 2012
% Favorable / (Unfavorable)

Unit CaseVolume

 

NetRevenues

 

OperatingIncome

     

ComparableCurrency NeutralOperating Income

           
Total Company 5   6   10 5
           
Eurasia & Africa 9   4   12 19
Europe 1   (2)   (3) (2)
Latin America 5   3   4 11
North America 2   5   (3) (9)
Pacific 8   12   29 5
Bottling Investments 11   10   351
 

Eurasia & Africa

  • Our Eurasia and Africa Group's volume grew 9% in the quarter, cycling 8% growth in the prior year quarter, led by strong volume growth in India, up 20%, the Middle East and North Africa, up 14%, South Africa, up 10% and Russia, up 3%. Reported net revenues for the quarter increased 4%, reflecting an 11% increase in concentrate sales and positive price/mix of 1%, partially offset by an 8% currency impact. Concentrate sales in the quarter were slightly ahead of unit case volume as we cycled lower shipments in the prior year quarter. Reported operating income increased 12% in the quarter. Comparable currency neutral operating income increased 19% in the quarter, driven by the increase in net revenues and favorable operating expense leverage, despite the impact of higher cost of goods sold and increased investments in the business.
  • In Eurasia and Africa, sparkling beverage volume grew 8% in the quarter, led by brand Coca-Cola which grew 9%. Still beverage volume grew 12%. Eurasia and Africa grew value share in total NARTD beverages and held volume share, with volume and value share gains in sparkling beverages and value share gains in still beverages. India sparkling beverage volume grew 19%, driven by strong consumer and trade activation and led by brand Coca-Cola, up 27%. Russia volume growth was driven by strong growth in sparkling beverages, including brand Coca-Cola, up 20%, and Fanta, up 31%. We gained volume and value share in total NARTD beverages in Russia as well as in sparkling beverages, with value share gains in still beverages.

Europe

  • Our Europe Group's volume grew 1% in the quarter, cycling 1% growth in the prior year quarter, underscoring our system's ability to manage through mixed macroeconomic conditions across the region. Volume growth in the quarter was driven by 6% growth in Spain, 3% growth in Germany and 1% growth in Central and Southern Europe. Northwest Europe and Nordics volume declined 1% in the quarter, impacted by unseasonably cold weather and competitive activities in the quarter, but with improvement in the second half of the quarter. Reported net revenues declined 2% in the quarter, reflecting a 3% decline in concentrate sales and a 2% unfavorable currency impact, partially offset by positive price/mix of 3%. Comparable currency neutral net revenues were even in the quarter. Concentrate sales in the quarter lagged unit case sales due in part to the effect of one less selling day in the current year quarter. Reported operating income declined 3% in the quarter. Comparable currency neutral operating income declined 2% in the quarter, reflecting even net revenue growth as a result of positive pricing and product mix, offset by incremental investments related to this year's Olympic Games and Euro Cup competition.
  • During the quarter, the Europe Group grew share in total NARTD and sparkling beverages as well as volume and value share in juices and juice drinks, energy drinks and ready-to-drink tea. Sparkling beverage volume for the group grew 1% in the quarter, driven by brand Coca-Cola, up 2%, and Coca-Cola Zero, up 13%. We leveraged integrated marketing campaigns centered on the upcoming 2012 Olympic Games and Torch Relay, brought to market innovations like Sprite sweetened with stevia in France and PlantBottle TM packaging for Coca-Cola, as well as continued our dual focus on recruitment and affordability with entry packs like the mini-can in Germany and the 375ml PET bottle in Great Britain.

Latin America

  • Our Latin America Group's volume grew 5% in the quarter, cycling 7% growth in the prior year quarter. Volume growth in the quarter was broad-based, with 9% growth in both the South Latin and Latin Center Regions (Latin Center up 7% excluding acquired brands), 4% growth in Brazil and 3% growth in Mexico, all driven by the continued dual focus on affordability with refillable packages, and recruitment through growth in immediate consumption and continued placement of new cold drink equipment. Reported net revenues for the quarter increased 3%, reflecting concentrate sales growth of 3% and positive price/mix of 6%, partially offset by a currency impact of 6%. Concentrate sales in the quarter lagged unit case sales primarily as a result of one less selling day in the current year quarter as well as timing of shipments. Reported operating income was up 4% in the quarter, with comparable currency neutral operating income up 11%, primarily reflecting volume growth and favorable pricing across the group as well as favorable timing of marketing expense.
  • Latin America sparkling beverage volume grew 4% in the quarter, driven by continued growth of brand Coca-Cola, up 4% in the quarter and led by 3% growth in Mexico and 11% growth in Argentina. Sprite volume was up 6% and Fanta volume was up 4% in the quarter. Still beverage volume grew 11% in the quarter, driven by packaged water, juices and juice drinks, sports drinks and ready-to-drink tea. Excluding acquired brands, still beverage volume grew 9% in the quarter. During the quarter, the Latin America Group gained volume share in total NARTD beverages, driven by volume and value share gains in still beverages and volume share gains in sparkling beverages. Sparkling beverage value share was even in the quarter. Mexico posted volume and value share growth in the quarter in both total NARTD and still beverages, while maintaining volume share and growing value share in sparkling beverages. Brazil's continued focus on balanced growth in both single-serve and returnable packaging resulted in volume and value share gains in total NARTD beverages as well as in sparkling and still beverages.

North America

  • Our North America Group's volume grew 2% in the quarter, with volume and value share gains in total NARTD beverages. Reported net revenues for the quarter increased 5%, reflecting “as reported” volume growth of 1%, which includes the effect of one less selling day in the current year quarter, as well as positive price/mix of 3% and a 1% benefit from structural change, primarily related to the acquisition of Great Plains Coca-Cola Bottling Company. First quarter reported operating income declined 3%. Comparable currency neutral operating income declined 9% in the quarter due to the cycling of lower commodity costs in the prior year period as well as the effect of one less selling day in the current year quarter, which also unfavorably impacted operating expense leverage in the quarter. These factors merely reflect timing versus the prior year and they were previously contemplated in the Company's internal planning process and were communicated externally throughout the quarter.
  • Sparkling beverage volume grew 1% in the quarter, with brand Coca-Cola volume also positive, driven by strong brand programming around the Super Bowl and American Idol as well as the final phase of our fully integrated Arctic Home program. Coca-Cola Zero volume grew high single digits in the quarter, driven by strong NCAA March Madness activation and continued growth in the foodservice channel. Fanta volume was up 4% in the quarter.
  • North America still beverage volume grew 6% in the quarter, led by continued strong Powerade growth of 13% with the new “Power Through” campaign and NCAA March Madness activation. Still beverage volume in the quarter also benefited from double-digit growth in Dasani water in PlantBottle TM packaging, Gold Peak tea, vitaminwater zero and smartwater. During the quarter, we gained volume and value share in still beverages, with volume and value share gains across multiple still beverage categories, including juices and juice drinks, sports drinks, energy drinks and ready-to-drink tea.

Pacific

  • Our Pacific Group's volume growth of 8% was broad-based in the quarter, with 9% growth in China, 3% growth in Japan, 24% growth in Thailand and 6% growth in the Philippines. The group's volume growth was driven by 6% growth in sparkling beverages, led by 6% growth in brand Coca-Cola, and 11% growth in still beverages. Concentrate sales in the quarter lagged unit case sales as a result of one less selling day in the current year quarter as well as timing of shipments. Reported net revenues for the quarter grew 12%, reflecting 5% concentrate sales growth, a 4% currency benefit, positive price/mix of 1% and the impact of cycling prior year one-time items related to the natural disasters in Japan. Reported operating income increased 29% in the quarter as we cycled the prior year one-time items in Japan. In addition, reported operating income reflects a 6% currency benefit and improved mix as our business in Japan continues to recover from the disruptions in the prior year quarter. Comparable currency neutral operating income increased 5% in the quarter.
  • China volume grew 9% in the quarter as we continued to be impacted by resizing to smaller packages. Importantly, these right-sizing efforts are generating strong incremental transactions, which increased 15% in the quarter. Sparkling beverage volume grew 4% in the quarter, with solid growth of 5% for brand Coca-Cola, 4% for Sprite and 15% for Fanta. Sparkling beverage transactions were up double digits in the quarter, driven by the expansion of our 300ml PET bottle. This led to the realization of both volume and value share gains in the sparkling beverage category. Still beverage volume grew 16% in the quarter, with share gains for juices and juice drinks even as the overall category slowed. Packaged water volume grew strong double digits, driven by the rollout of a new lightweight bottle.
  • During the quarter, the Japan Business Unit was recognized with the Company's highest honor, the 2011 Woodruff Cup, based on the business unit's achievement of key performance metrics as set forth in the Company's 2020 Vision. In the quarter, Japan's sparkling beverage volume grew 3%, with brand Coca-Cola up 2% and Fanta up 6% as we continued to leverage global brand campaigns and integrated promotions like “Coke and Meals”. Single-serve I LOHAS water volume grew 4% in the quarter, driving continued volume and value share gains in the packaged water category while cycling strong water volume sales in the aftermath of the natural disasters in March 2011. Georgia coffee volume grew 3% in the quarter, driving volume and value share gains in ready-to-drink coffee with good performance in the important convenience store and vending machine channels. Ayataka green tea continued its strong performance in the quarter, with positive volume momentum across all channels.

Bottling Investments

  • Our Bottling Investments Group's volume grew 11% in the quarter on an average daily sales basis, reflecting growth in China, India, Germany and the Philippines. Reported net revenue for the quarter grew 10%. This reflects “as reported” volume growth of 8% and positive price/mix of 3%, primarily driven by positive pricing partially offset by geographic mix, and a 1% positive impact due to structural change. Currency had a 2% unfavorable impact on reported net revenues. Reported operating income in the quarter increased 351%, reflecting the cycling of prior year restructuring initiatives, partially offset by the impact of structural change and currency. Comparable currency neutral operating income was even in the quarter, reflecting the increase in revenues resulting from volume growth, positive pricing and product mix, offset by higher commodity costs and continued investments in our in-market capabilities as well as the impact of one less selling day in the current year quarter.

FINANCIAL REVIEW

First quarter reported net revenues grew 6%, with comparable net revenues also up 6%. This reflects a 3% increase in concentrate sales, positive price/mix of 3%, driven primarily by positive pricing, and a 1% positive impact due to structural change. Currency had a 1% unfavorable impact on net revenues in the quarter. Concentrate sales in the quarter lagged unit case sales primarily due to the effect of one less selling day in the current year quarter. However, unit case volume growth on an “as reported” basis only slightly exceeded concentrate sales growth in the quarter. The positive price/mix of 3% in the quarter reflects our fundamental ability to execute global pricing strategies 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 19 th consecutive quarter, with both volume and value share gains in sparkling and still beverages as well as in every beverage category in which we compete.

Reported cost of goods sold increased 10% in the quarter. Comparable cost of goods sold increased 11% in the quarter, as we cycled lower commodity costs from the prior year quarter, primarily in North America and in the Bottling Investments Group. Currency decreased cost of goods sold by 1% in the quarter. Items affecting comparability in the quarter primarily included gains and losses on commodities hedging.

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