Net Revenues Declined 20% for the Quarter and
15% for the Full Year, Driven by Structural Headwinds of 26% and
17%, Respectively
Organic Revenues (Non-GAAP) Grew 6% for the
Quarter and 3% for the Full Year
Fourth Quarter Operating Margin Expanded Over
315 Basis Points; Comparable Operating Margin (Non-GAAP) Expanded
More than 530 Basis Points
Fourth Quarter Loss Per Share from Continuing
Operations of $0.66 Driven by Items Impacting Comparability,
Primarily Related to the U.S. Tax Cuts and Jobs Act; Comparable
Earnings Per Share from Continuing Operations (Non-GAAP) of
$0.39
Company Provides 2018 Financial Outlook,
Including Update to Underlying Effective Tax Rate
The Coca-Cola Company delivered strong fourth quarter operating
results and achieved or exceeded the Company's full year guidance
in 2017. While reported net revenues continued to be impacted
primarily by ongoing refranchising initiatives, the Company
delivered broad-based organic revenue (non-GAAP) growth across all
operating segments, as well as profit growth.
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"I am pleased with our accomplishments and results in 2017,"
said James Quincey, President and CEO of The Coca-Cola Company. "We
achieved or exceeded our full year guidance while driving
significant change as we continued to transform into a total
beverage company. While there is still much work to do, I am
encouraged by our momentum as we head into 2018."
Throughout 2017, the Company made progress in transforming the
culture of the organization to be more nimble and entrepreneurial.
The Company’s lean center initiative reshaped the corporate
structure to support faster growth and empower field operations to
act with more speed and independence. In the fourth quarter, the
Company announced changes to its talent and compensation
philosophy, placing a sharper focus on performance and future
potential to drive long-term growth.
The Company also achieved major milestones in strengthening the
system and returning to a capital-light organization, including a
fully refranchised bottling system in the United States. Outside of
the U.S., the Company refranchised previously owned bottling
operations in China to local partners. The system's two largest
bottlers in Japan merged, creating a single bottler covering the
vast majority of volume in that key market. Additionally, the
Company completed the ownership transition of bottling operations
in Africa, temporarily acquiring majority ownership of Coca-Cola
Beverages Africa until it is refranchised.
Highlights
Quarterly / Full Year
Performance
- Revenues: Net revenues declined
20% to $7.5 billion for the quarter and declined 15% to $35.4
billion for the year, impacted by headwinds of 26% and 17%,
respectively, from the ongoing refranchising of bottling
territories. Organic revenues (non-GAAP) grew 6% for the quarter,
driven by price/mix growth of 4% and concentrate sales growth of
1%. The quarter included one additional day, which equated to an
approximate one point benefit to organic revenue (non-GAAP) growth.
For the year, organic revenues (non-GAAP) grew 3%, driven by
price/mix growth of 3%.
- Volume: Total unit case volume
was even for the quarter and full year. Developing and emerging
markets generated positive volume growth for the second consecutive
quarter, including volume growth in Brazil. While volume growth in
developed markets overall was even during the quarter, North
America volume grew 1%.
- Margin: Operating margin, which
included items impacting comparability, grew over 315 and 55 basis
points for the quarter and full year, respectively. Comparable
operating margin (non-GAAP) expanded more than 530 and 350 basis
points for the quarter and full year, respectively. Margin
expansion was driven by divestitures of lower-margin bottling
businesses and the Company's ongoing productivity efforts.
- Market Share: The Company
continued to gain value share in total nonalcoholic ready-to-drink
("NARTD") beverages for the quarter and full year. Value share
growth outpaced volume share performance, reflecting the Company's
continued shift in focus to value growth from volume growth.
- Cash Flow: Cash from operations
for the full year was $7.0 billion, down 20%. Full year free cash
flow (non-GAAP) was $5.3 billion, down 19%. The declines were
primarily driven by comparability items related to the
refranchising of North America bottling territories, including the
establishment of third-party receivables and cash restructuring
charges.
- Share Repurchases: Full year
purchases of stock for treasury were $3.7 billion. Net share
repurchases (non-GAAP) totaled $2.0 billion.
Company Updates
- Impact of U.S. Tax Cuts and Jobs
Act: The Tax Cuts and Jobs Act ("Tax Reform Act") was signed
into law on Dec. 22, 2017. The Company supports the Tax Reform Act
as it enhances the ability of U.S.-headquartered companies to
compete globally on more equal footing including facilitating the
free flow of capital. As a result of the Tax Reform Act, the
Company’s effective tax rate for 2018 is now estimated to be 21%,
reduced from the previously provided estimate of 26%. However,
under the Tax Reform Act, the Company is required to pay a tax on
historical offshore earnings that have not been repatriated to the
United States. The charge related to this tax is partially offset
by the revaluation of the Company’s net deferred tax liability
position at the new federal statutory tax rate of 21%. The impact
of these items resulted in a one-time net charge of $3.6 billion
during the quarter ended Dec. 31, 2017, consisting of a
repatriation charge of $4.6 billion and a deferred tax benefit of
$1.0 billion. Additionally, the Company plans to reduce its gross
debt level by approximately $7 billion with cash currently held
overseas while continuing to maintain a net debt leverage ratio
(non-GAAP) that is within the Company's targeted range of 2.0 to
2.5 times net debt to earnings before interest, taxes,
depreciation, and amortization.
- Expanding the appeal of diets and
lights: In January 2018, the Company announced plans to
rejuvenate Diet Coke in North America with an updated look, new
packaging, and the debut of four new flavors. The Company is
re-energizing and modernizing Diet Coke for a new generation of
drinkers, while also offering millions of current fans a new
experience with a brand they love, without changing its formula and
great taste. The changes to Diet Coke reflect the Company’s
continued focus on innovation within sparkling soft drinks.
- Accelerating a consumer-centric
portfolio: In September 2017, the Company expanded its
Venturing & Emerging Brands ("VEB") model to Central &
Eastern Europe in partnership with Coca-Cola HBC AG. To date,
the joint effort has shown early signs of success of the "lift and
shift" approach through the launch of smartwater, ZICO coconut
water, and Appletiser. This strategy, coupled with world-class
innovation and bolt-on M&A, is expected to accelerate growth of
the Company's expanding consumer-centric portfolio.
- Stronger focus on revenue
growth: During the quarter, the Company continued to pursue
Revenue Growth Management ("RGM") initiatives across key markets,
including the South Latin and Central & Eastern Europe business
units, which led to revenues and transactions growing ahead of
volume. Throughout the year, the Company also continued to make
disciplined decisions around profitable growth by deprioritizing
low-margin water in major markets, including China, Japan, and
Mexico.
- Re-energized system: The U.S.
Coca-Cola system is now fully refranchised after the closing of two
important territories during the quarter. Liberty Coca-Cola
Beverages, a newly formed bottler, began operations in the former
Tri-State Metro Operating Unit, and Reyes Coca-Cola Bottling took
on new bottling territories in the former West Operating Unit. The
refranchised system is working to reinvent the future of the
business, especially in key areas such as portfolio
diversification, packaging innovation, production, procurement, and
technology.
- World Without Waste: In January
2018, the Company announced new sustainable packaging goals to lead
the industry in addressing the issue of packaging waste. One of
these goals is to help collect and recycle a bottle or can for
every one it sells by 2030 – effectively bringing back the
equivalent of 100% of its packaging. With the help of partners, the
Company is focusing on collection and recycling. The Company is
also continuing to focus on the design of its packages to ensure
they are 100% recyclable.
Operating Review –
Three Months Ended December 31, 2017
Revenues and
Volume
Percent Change
ConcentrateSales 1
Price/Mix
CurrencyImpact
Acquisitions,Divestitures, andStructural
Items, Net
ReportedNetRevenues
OrganicRevenues 2
Unit CaseVolume
Consolidated 1 4 0
(26) (20) 6
0 Europe, Middle East & Africa 2 6 3 (4) 6 8 0 Latin
America 2 11 1 0 14 13 0 North America 2 2 0 3 6 3 1 Asia Pacific 4
(2) (4) 2 (1) 1 2 Bottling Investments (2) 15
1 (83) (69) 12 (32)
Income from
Continuing Operations Before Income Taxes and EPS from Continuing
Operations
Percent Change
ReportedIncome
fromContinuingOperationsBefore Income Taxes
ItemsImpactingComparability
CurrencyImpact
ComparableCurrency Neutral 2
StructuralItems
ComparableCurrency
Neutral(StructurallyAdjusted) 2
Consolidated 82 75
2 6 (12) 18
Europe,
Middle East & Africa (6) 0 0 (7) Latin America 21 (1) 0 22
North America 2 (13) 0 15 Asia Pacific (2) (2) (10) 9 Bottling
Investments 40 35 9 (4)
Percent Change
Reported EPS
ItemsImpactingComparability
CurrencyImpact
ComparableCurrency Neutral 2
EPS from Continuing Operations —3
(630)
2 5 Note: Certain rows may not add due
to rounding.
1
For Bottling Investments, this represents
the percent change in net revenues attributable to the increase
(decrease) in unit case volume after considering the impact of
structural changes.
2
Organic revenues, comparable currency
neutral income from continuing operations before income taxes,
comparable currency neutral income from continuing operations
before income taxes (structurally adjusted), and comparable
currency neutral EPS from continuing operations are non-GAAP
financial measures. Refer to the Reconciliation of GAAP and
Non-GAAP Financial Measures section.
3
Reported loss per share from continuing
operations for the three months ended December 31, 2017 was $0.66.
Reported earnings per share from continuing operations for the
three months ended December 31, 2016 was $0.13.
Operating Review –
Year Ended December 31, 2017
Revenues and
Volume
Percent Change
ConcentrateSales 1
Price/Mix
CurrencyImpact
Acquisitions,Divestitures, andStructural
Items, Net
ReportedNetRevenues
OrganicRevenues 2
Unit CaseVolume
Consolidated 0 3
(1) (17) (15) 3
0 Europe, Middle East & Africa 2 3 (2) (2) 1 5 1
Latin America (3) 8 0 0 5 6 (2) North America 0 3 0 2 4 3 0 Asia
Pacific 1 (1) (4) 0 (2) 1 1 Bottling Investments (3)
4 0 (48) (47) 1 (41)
Income from
Continuing Operations Before Income Taxes and EPS from Continuing
Operations
Percent Change
ReportedIncome
fromContinuingOperationsBefore Income Taxes
ItemsImpactingComparability
CurrencyImpact
ComparableCurrency Neutral 2
StructuralItems
ComparableCurrency
Neutral(StructurallyAdjusted) 2
Consolidated (17) (18)
(1) 2 (7) 9
Europe,
Middle East & Africa (1) 0 (2) 1 Latin America 12 4 0 9 North
America (10) (16) (1) 7 Asia Pacific (3) 0 (6) 4 Bottling
Investments (22) (3) 2 (20)
Percent Change
Reported EPS
ItemsImpactingComparability
CurrencyImpact
ComparableCurrency Neutral 2
EPS from Continuing Operations (82)
(82) (1) 1 Note: Certain rows
may not add due to rounding.
1
For Bottling Investments, this represents
the percent change in net revenues attributable to the increase
(decrease) in unit case volume after considering the impact of
structural changes.
2
Organic revenues, comparable currency
neutral income from continuing operations before income taxes,
comparable currency neutral income from continuing operations
before income taxes (structurally adjusted), and comparable
currency neutral EPS from continuing operations are non-GAAP
financial measures. Refer to the Reconciliation of GAAP and
Non-GAAP Financial Measures section.
In addition to the data in the preceding tables, operating
results included the following:
Consolidated
- Price/mix growth of 4% for the quarter
was due to price/mix of 3% in the core business and a one point
benefit of segment mix from Bottling Investments. Price/mix growth
of 3% for the year was driven by balanced contributions from all
operating segments, with the exception of Asia Pacific.
- Unit case volume was even for the
quarter and full year. Category cluster performance for the quarter
and full year, respectively, was as follows:
- Sparkling soft drinks: 0%, -1%
- Juice, dairy, and plant-based
beverages: -2%, 0%
- Water, enhanced water, and sports
drinks: 2%, 1%
- Tea and coffee: 2%, 2%
- Growth in income from continuing
operations before income taxes for the quarter and the decline for
the full year were impacted by comparability items, which were
predominantly charges associated with the refranchising of bottling
territories in North America. Results were also impacted by
structural items, primarily related to the refranchising of
bottling territories. Growth for the quarter and full year in
comparable currency neutral income from continuing operations
before income taxes (structurally adjusted) (non-GAAP) was driven
by organic revenue (non-GAAP) growth, the continued impact of
productivity initiatives, and an increase in equity income. Growth
for the full year was unfavorably impacted by higher interest
expense.
Europe, Middle East &
Africa
- Price/mix growth of 6% for the quarter
was driven by strong price/pack initiatives across Europe and
Southern Africa. Nearly all business units had positive price/mix
for the quarter.
- Unit case volume for the quarter was
even as solid volume growth across the Central & Eastern Europe
business unit and Turkey was offset by declines across Africa and
the Middle East, largely due to macroeconomic challenges and
strategic pack downsizing initiatives.
- Income from continuing operations
before income taxes for the quarter was unfavorably impacted by
intercompany profit eliminations related to the transition of the
majority ownership of Coca-Cola Beverages Africa to the
Company.
- The Company gained value share in total
NARTD beverages for the full year, including sparkling soft drinks
and the juice, dairy, and plant-based beverages cluster.
Latin America
- Price/mix growth of 11% for the quarter
was primarily driven by strong price/mix in Mexico and the South
Latin business unit.
- Unit case volume was even for the
quarter as volume growth in Brazil and the South Latin business
unit was offset by a 1% decline in both Mexico and the Latin Center
business unit. Brazil returned to growth in the quarter as the
Company continued to execute its strategy around returnables and an
adjusted price/pack architecture. The decline in Mexico was
primarily attributable to a softening consumer environment and
deprioritization of low-margin water.
- The Company gained value share in total
NARTD beverages for the full year, including sparkling soft drinks
and the juice, dairy, and plant-based beverages cluster.
North America
- Price/mix growth of 2% for the quarter,
including sparkling price/mix growth of 3%, reflected the continued
execution of the Company's disciplined occasion, brand, price,
package, and channel strategy, as well as strong performance in the
foodservice business. Acquisitions, divestitures, and structural
items reflected the impact of the ongoing refranchising of bottling
territories in North America.
- Unit case volume grew 1% for the
quarter. Sparkling soft drinks volume growth was even. Juice,
dairy, and plant-based beverages declined 1% as mid single-digit
growth in Minute Maid and Simply was offset by a decline in Hi-C.
Tea and coffee grew 8%, while water, enhanced water, and sports
drinks accelerated to 3% growth.
- Income from continuing operations
before income taxes for the quarter included items impacting
comparability. Comparable currency neutral income from continuing
operations before income taxes (non-GAAP) was favorably impacted by
the ongoing refranchising of bottling territories in North
America.
- The Company gained value share in total
NARTD beverages for the full year, including sparkling soft drinks
and the tea and coffee cluster.
Asia Pacific
- Price/mix declined 2% during the
quarter, largely due to pressure from product mix within China and
the ASEAN business unit.
- Unit case volume growth of 2% for the
quarter was driven by high single-digit growth in the ASEAN
business unit, partially offset by a 1% decline in both the Greater
China & Korea business unit and Japan. The decline in China was
largely due to timing of the Chinese New Year.
- Income from continuing operations
before income taxes for the quarter included the impact of changes
in foreign currency exchange rates. Comparable currency neutral
income from continuing operations before income taxes (non-GAAP)
was favorably impacted by the deconsolidation of previously held
bottling operations in China.
- The Company gained or maintained value
share in sparkling soft drinks and juice, dairy, and plant-based
beverages for the full year.
Bottling Investments
- Price/mix growth of 15% for the quarter
was largely driven by the timing of various bottler funding
settlements and positive price/mix within the India bottling
operations.
- Income from continuing operations
before income taxes for the quarter was driven by items impacting
comparability and the impact of changes in foreign currency
exchange rates. Comparable currency neutral income from continuing
operations before income taxes (non-GAAP) was unfavorably impacted
by the refranchising of North America bottling territories.
Outlook
The 2018 outlook information provided below includes
forward-looking non-GAAP financial measures, which management uses
in measuring performance. The Company is not able to reconcile full
year 2018 projected organic revenues (non-GAAP) to full year 2018
projected reported net revenues, full year 2018 projected
comparable currency neutral operating income (structurally
adjusted) (non-GAAP) to full year 2018 projected reported operating
income or full year 2018 projected comparable EPS from continuing
operations (non-GAAP) to full year 2018 projected reported EPS from
continuing operations without unreasonable efforts because it is
not possible to predict with a reasonable degree of certainty the
actual impact of changes in foreign currency exchange rates; the
exact timing and amount of acquisitions, divestitures and/or
structural changes; and the exact timing and amount of
comparability items throughout 2018. The unavailable information
could have a significant impact on full year 2018 GAAP financial
results.
Full Year 2018 Underlying Performance:
- Approximately 4% growth in organic
revenues (non-GAAP)
- 8% to 9% growth in comparable currency
neutral operating income (structurally adjusted) (non-GAAP)
Full Year 2018 Currency Impact:
- Comparable net revenues (non-GAAP): 1%
tailwind based on the current rates and including the impact of
hedged positions
- Comparable operating income (non-GAAP):
0% to 1% headwind based on the current rates and including the
impact of hedged positions
Full Year 2018 Impact from Acquisitions, Divestitures,
Structural Items, and Accounting Changes:
- Comparable net revenues (non-GAAP): 17%
headwind from acquisitions, divestitures, and structural items
- Comparable net revenues (non-GAAP): 1%
to 2% tailwind from Accounting Standards Update 2014-09
- Comparable operating income (non-GAAP):
2% structural headwind
- Comparable operating income (non-GAAP):
0% impact from Accounting Standards Update 2014-09
Full Year 2018 Other Items:
- Underlying effective tax rate
(non-GAAP): Approximately 21%
- Cash from operations of at least $8.5
billion
- Capital expenditures (excluding
discontinued operations): Approximately $1.9 billion
- Net share repurchases (non-GAAP):
Approximately $1.0 billion
Full Year 2018 EPS:
- Comparable EPS from continuing
operations (non-GAAP): 8% to 10% growth versus $1.91 in 2017
First Quarter 2018 Considerations:
- Comparable net revenues (non-GAAP): 26%
headwind from acquisitions, divestitures, and structural items; 2%
currency tailwind based on the current rates and including the
impact of hedged positions; 1% tailwind from Accounting Standards
Update 2014-09
- Comparable operating income (non-GAAP):
6% structural headwind; 1% currency tailwind based on the current
rates and including the impact of hedged positions
- One less day compared to first quarter
2017
Notes
- 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 for the fourth quarter, unless otherwise noted, and are
computed on a reported basis for the full year. "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 the geographic operating
segments (expressed in equivalent unit cases) after considering the
impact of structural changes. For the 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. The
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 were impacted by one additional day as compared to the same
periods in 2016. Unit case volume results for the quarters were not
impacted by the variances in days due to the average daily sales
computation referenced above.
Conference
Call
The Company is hosting a conference call with investors and
analysts to discuss fourth quarter and full year 2017 operating
results today, Feb. 16, 2018, at 9 a.m. ET. The Company invites
participants to listen to a live webcast of the conference call on
the Company’s website, http://www.coca-colacompany.com, in the
"Investors" section. An audio replay in downloadable digital format
and a transcript of the call will be available on the website
within 24 hours following the call. Further, the "Investors"
section of the website includes a reconciliation of non-GAAP
financial measures to the Company’s results as reported under GAAP,
which may be used during the call when discussing financial
results.
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The Coca-Cola CompanyInvestors and
AnalystsTim Leveridge, +1 404-676-7563orMediaScott Leith, +1 404-676-8768
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