Coca-Cola Reports Solid Operating Results in First Quarter; Remains Confident in Full Year Guidance
April 23 2019 - 6:55AM
Business Wire
Net Revenues Grew 5% in First Quarter; Organic
Revenues (Non-GAAP) Grew 6%, Including a 2% Benefit from Timing
Operating Income Grew 29%; Comparable Currency
Neutral Operating Income (Non-GAAP) Grew 16%
Operating Margin was 29.1%; Comparable
Operating Margin (Non-GAAP) was 30.5%, Including the Impact from
Currency Headwinds and Acquisitions
EPS from Continuing Operations Grew 24% to
$0.38; Comparable EPS from Continuing Operations (Non-GAAP) Grew 2%
to $0.48, Impacted by 11% Currency Headwind and a 2 Cent Benefit
from Timing
The Coca-Cola Company today reported a solid start to 2019, with
continued momentum that included gaining global value share.
Reported net revenues grew 5% in the first quarter, and organic
revenues (non-GAAP) grew 6%, with positive performance across all
operating groups, in addition to a benefit from timing.
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"We're encouraged by our first quarter results as our
disciplined growth strategies continue to deliver strong underlying
performance," said James Quincey, CEO of The Coca-Cola Company. "We
remain confident in our full year guidance as we continue to make
progress on our transformation as a consumer-centric total beverage
company."
Highlights
Quarterly Performance
- Revenues: Net revenues grew 5%
to $8.0 billion. Organic revenues (non-GAAP) grew 6%. An estimated
2 points of revenue growth was attributable to timing, primarily
related to bottler inventory build in order to manage uncertainty
related to Brexit. Additionally, the quarter included one less day,
which resulted in an approximate 1-point headwind to revenue
growth.
- Margin: Operating margin for the
quarter, which included items impacting comparability, was 29.1%
versus 23.7% in the prior year. Comparable operating margin
(non-GAAP) was 30.5% versus 30.7% in the prior year. Strong
underlying margin (non-GAAP) expansion was offset by an approximate
260 basis point negative impact from currency headwinds and net
acquisitions.
- Earnings per share: EPS from
continuing operations grew 24% to $0.38. Comparable EPS from
continuing operations (non-GAAP) grew 2% to $0.48, despite an
11-point currency headwind. EPS included an estimated 2 cent
benefit from timing, primarily from the bottler inventory build
related to Brexit.
- Market share: The company
continued to gain value share in total nonalcoholic ready-to-drink
(NARTD) beverages.
- Cash flow: Cash from operations
was $699 million, up 14%. Free cash flow (non-GAAP) was $335
million, down 1% as strong underlying cash generation was offset by
currency headwinds along with an increase in capital expenditures
and cash tax payments.
- Share repurchases: Purchases of
stock for treasury were $397 million. Net share repurchases
(non-GAAP) totaled $243 million.
Company Updates
- Chairman transition and an evolving
growth culture: Following the company’s annual meeting on April
24, James Quincey will become the 14th chairman of
The Coca-Cola Company, contingent upon his reelection as
a director. Quincey succeeds Muhtar Kent, who is retiring after
a Coca-Cola system career that started in 1978. Kent
served as chairman and CEO from 2009 until 2017 and then as
chairman after Quincey became CEO. Quincey intends to build on the
strong foundation Kent has established within the system, including
a focus on fostering a growth-oriented culture.
- Pursuing the company's World Without
Waste goals: Supporting its commitment to the World Without
Waste initiative and improved transparency, the company issued its
annual progress report, which cited continued progress globally on
design, collect and partner efforts. For example, the company,
along with its bottling partners, now has 100% recycled PET bottles
in multiple markets and will have them in more than a dozen markets
by the end of 2019, driving successful circular solutions for
packaging. Much of the system's Latin America business is engaged
in a multi-country project to significantly increase the use of
refillable packaging, and markets globally are assessing ways to
move toward more diverse business models for product delivery.
- Broadening a consumer-centric
portfolio: During the quarter, the company completed its
acquisition of Costa Ltd., which gives Coca-Cola a
significant entry point into hot beverages and a global platform in
coffee. In the second quarter, the company will begin to leverage
Costa's scalable platform across formats and channels with the
introduction of Costa ready-to-drink products. Coca-Cola also
closed its acquisition of CHI Ltd., an innovative, fast-growing
leader in expanding beverage categories in West Africa, including
juices, value-added dairy and iced tea.
- Driving profitable growth under the
Leader, Challenger, Explorer framework: Strong innovation
within Leader brands included double-digit growth for Coca-Cola
Zero Sugar globally for the sixth consecutive quarter. Within the
U.S., the company showed strong performance for Orange Vanilla Coke
and Orange Vanilla Coke Zero Sugar, which helped drive 6% retail
value growth for brand Coca-Cola. The company also launched Simply
smoothies in the U.S., while innocent, the company's leading juice
brand in Europe, expanded into plant-based beverages. As a
Challenger brand, smartwater continues to innovate through the
successful rollout of smartwater antioxidant and smartwater
alkaline in the U.S. Within Explorer brands, the company continued
to capitalize on brands with edge, including Aquarius GlucoCharge,
which has shown early signs of success in the fast-growing enhanced
hydration category in India.
- Aligned and engaged system investing
for growth: The company has established a sustained platform
for performance that is focused on disciplined portfolio growth
through an aligned and engaged system. Across the bottling system,
the company is seeing the right strategic investments in supply
chain, cold-drink equipment and sales force capabilities to drive
accelerated results. These investments are creating a winning
strategy in the marketplace, centered around improved execution
that is committed to increasing the availability of core products,
in addition to expanding the total portfolio.
Operating Review – Three Months Ended March 29, 2019
Revenues and
Volume
Percent Change
ConcentrateSales1
Price/Mix
CurrencyImpact
Acquisitions,Divestitures andStructural
Items, Net
ReportedNetRevenues
OrganicRevenues2
UnitCaseVolume
Consolidated 1 5
(6) 5
5 6 2 Europe, Middle East & Africa 4 10
(12) 3 5 14 2 Latin America (3) 9 (16) 0 (10) 6 (1) North America
(3) 4 0 0 1 1 (1) Asia Pacific 6 (2) (3) (3) (2) 4 7 Global
Ventures3 (2) 3 (22) 222 201 1 1 Bottling Investments
6 3 (5) (9)
(5) 9 16
Operating Income
and EPS from Continuing Operations
Percent Change
ReportedOperatingIncome
ItemsImpactingComparability
CurrencyImpact
ComparableCurrencyNeutral2
Consolidated 29
24 (11) 16
Europe, Middle East & Africa 7 0 (15) 22 Latin America (13) 0
(20) 7 North America 16 8 0 9 Asia Pacific (4) 0 (3) (1) Global
Ventures 128 0 (8) 136 Bottling Investments
—4
— — —
Percent Change
ReportedEPS fromContinuingOperations
ItemsImpactingComparability
CurrencyImpact
ComparableCurrencyNeutral2
Consolidated 24
22 (11) 13
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 computed on a reported basis after considering the impact of
structural changes. 2 Organic revenues, comparable currency neutral
operating income 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
Costa Ltd. is not included in concentrate sales, price/mix or unit
case volume. 4 Reported operating income for the three months ended
March 29, 2019 was $1 million. Reported operating loss for the
three months ended March 30, 2018 was $461 million.
In addition to the data in the preceding tables, operating
results in the quarter included the following:
Consolidated
- Concentrate sales growth of 1% and
price/mix growth of 5% were driven by consumer-centric innovation
and solid revenue growth management initiatives in the marketplace,
in addition to the 2-point benefit related to timing, primarily
attributable to bottler inventory build related to Brexit.
Additionally, concentrate sales growth of 1% was impacted by one
less day in the quarter, which resulted in an approximate 1-point
headwind.
- Unit case volume grew 2%, driven by
strong growth across key markets within Asia and Europe, partially
offset by a decline in Argentina, the Middle East region and North
America. The timing of Easter also negatively impacted volume
growth in the quarter. Category cluster performance was as follows:
- Sparkling soft drinks grew 1%, driven
by strong global performance in brand Coca-Cola through growth in
original Coca-Cola and continued double-digit growth of Coca-Cola
Zero Sugar.
- Juice, dairy and plant-based beverages
volume was even as strong performance in the Del Valle brand in
Mexico and the Maaza brand in India was offset by a decline in
Rani, the leading juice brand in the Middle East.
- Water, enhanced water and sports drinks
grew 6%, driven by strong growth across a number of key markets.
Growth was driven by strong performance in smaller, immediate
consumption packages, reflecting the company's continued focus on
value over volume.
- Tea and coffee volume was even as
continued growth through innovation and new product launches,
including Georgia Craftsman in Japan and Authentic Tea House in
China, was offset by a decline in the doğadan tea business in
Turkey.
- Operating income grew 29%, which
included items impacting comparability. Comparable currency neutral
operating income (non-GAAP) grew 16%, driven by strong organic
revenue (non-GAAP) growth, a benefit from acquisitions and ongoing
productivity initiatives.
Europe, Middle East &
Africa
- Price/mix grew 10% for the quarter due
to strong pricing in the majority of key markets and the benefit
from bottler inventory build related to Brexit, which contributed
to positive geographic mix and also caused concentrate sales to
grow ahead of unit case volume.
- Unit case volume grew 2%, as growth
across the majority of markets was partially offset by declines in
Zimbabwe and the Middle East. Growth was led by sparkling soft
drinks and the continued growth of Fuze Tea.
- Operating income grew 7%, despite a
15-point currency headwind. Comparable currency neutral operating
income (non-GAAP) grew 22% in the quarter, driven by double-digit
organic revenue (non-GAAP) growth, ongoing productivity initiatives
and the cycling of expenses in the prior year, including increased
marketing investments from the January 2018 Fuze Tea launch.
- The company gained value share in total
NARTD beverages, led by solid share performance across Europe, in
addition to the majority of category clusters. The value share gain
in NARTD beverages was unfavorably impacted by a value share
decline in sparkling soft drinks in Nigeria primarily due to local
value brands.
Latin America
- Price/mix grew 9% for the quarter,
largely driven by strong performance in Brazil and pricing in
Argentina. All business units achieved positive price/mix in the
quarter.
- Unit case volume declined 1% as growth
in Brazil, Peru and Chile was more than offset by a double-digit
decline in Argentina. Mexico volume declined 1% in the quarter,
partially due to pricing and package initiatives executed in the
market to optimize revenue.
- Operating income declined 13% in the
quarter, which included a 20-point currency headwind. Comparable
currency neutral operating income (non-GAAP) grew 7%, largely
driven by the benefit of strong pricing in the marketplace.
- The company gained value share in total
NARTD beverages, driven by solid share performance in Brazil, in
addition to the majority of category clusters.
North America
- Price/mix grew 4% for the quarter,
driven by strong pricing and mix within the sparkling soft drink
portfolio, in addition to a benefit from product mix.
- Unit case volume declined 1%, largely
due to the impact of pricing and package initiatives executed in
the market, in addition to the timing of Easter. For the total
portfolio, transactions outpaced volume performance, reflecting
continued focus on value over volume.
- Operating income grew 16%, which
included items impacting comparability. Comparable currency neutral
operating income (non-GAAP) grew 9% in the quarter, driven by
ongoing productivity initiatives and the timing of expenses.
- The company gained value share in total
NARTD beverages led by strong performance in sparkling soft drinks,
the water, enhanced water and sports drinks category cluster, and
the juice, dairy and plant-based beverages category cluster.
Asia Pacific
- Price/mix declined 2% for the quarter,
largely driven by geographic mix due to growth in emerging and
developing markets outpacing developed markets.
- Unit case volume grew 7% due to
positive performance across all key markets, with the exception of
Australia. Volume growth was led by China, Southeast Asia and
India.
- Operating income declined 4%.
Comparable currency neutral operating income (non-GAAP) declined 1%
in the quarter, largely from a structural headwind related to
intercompany profit elimination from acquiring bottling operations
in the Philippines.
- The company gained value share in total
NARTD beverages, driven by strong performance within China, India
and Southeast Asia.
Global Ventures
- Reported revenue benefited from the
closing of the Costa acquisition during the quarter. The company
has completed a smooth transition of Costa and is working quickly
to leverage the total coffee platform.
- Price/mix grew 3% for the quarter,
largely driven by product mix as a result of strong performance in
the innocent business.
- Unit case volume grew 1% as strong
growth in innocent and the energy category was partially offset by
a double-digit decline in the doğadan tea business in Turkey.
- Operating income growth in the quarter
benefited from the impact of the Costa acquisition.
Bottling Investments
- Price/mix grew 3% for the quarter,
driven by strong price/mix performance in India.
- Operating income was unfavorably
impacted by comparability items related to refranchising in the
prior year and was favorably impacted by the acquisition of
bottling operations in the Philippines.
Outlook
The 2019 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 2019 projected organic revenues (non-GAAP) to full year 2019
projected reported net revenues, full year 2019 projected
comparable currency neutral net revenues (non-GAAP) to full year
2019 projected reported net revenues, full year 2019 projected
comparable currency neutral operating income (non-GAAP) to full
year 2019 projected reported operating income, or full year 2019
projected comparable EPS from continuing operations (non-GAAP) to
full year 2019 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 2019. The
unavailable information could have a significant impact on full
year 2019 GAAP financial results.
Full Year 2019 Revenues:
- Approximately 4% growth in organic
revenues (non-GAAP) – No Change
- 12% to 13% growth in comparable
currency neutral net revenues (non-GAAP), including an 8% to 9%
tailwind from acquisitions, divestitures and structural items – No
Change
- Comparable net revenues (non-GAAP): 3%
to 4% currency headwind based on the current rates and including
the impact of hedged positions – No Change
Full Year 2019 Operating Income:
- 10% to 11% growth in comparable
currency neutral operating income (non-GAAP), including a low
single-digit tailwind from acquisitions, divestitures and
structural items – No Change
- Comparable operating income
(non-GAAP): 6% to 7% currency headwind based on the current rates
and including the impact of hedged positions – No Change
Full Year 2019 EPS:
- -1% to 1% growth versus $2.08 in 2018
in comparable EPS from continuing operations (non-GAAP) – No
Change
Full Year 2019 Other Items:
- Underlying effective tax rate
(non-GAAP): Estimated to be 19.5% – No Change
- Cash from operations: At least $8.0
billion – No Change
- Capital expenditures (excluding
discontinued operations): Approximately $2.0 billion – No
Change
- Net share repurchases (non-GAAP): Share
repurchases to offset dilution from employee
stock-based compensation plans – No Change
Second Quarter 2019 Considerations – New:
- Comparable net revenues (non-GAAP): 6%
tailwind from acquisitions, divestitures and structural items; 4%
to 5% currency headwind based on the current rates and including
the impact of hedged positions
- Comparable operating income (non-GAAP):
7% currency headwind based on the current rates and including the
impact of hedged positions
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, unless otherwise noted. "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.
- "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 and the Global Ventures operating segment (excluding
Costa) (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 computed based on total sales (rather than average daily
sales) in each of the corresponding periods 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
net operating 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 2019 financial results
were impacted by one less day as compared to the same period in
2018, and fourth quarter 2019 financial results will be impacted by
one additional day as compared to the same period in 2018. Unit
case volume results for the quarters are 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 first quarter 2019 operating results today,
April 23, 2019, at 8:30 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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