This is a summary of the second quarter fiscal 2008 earnings call conducted by The Coca Cola Co. (KO) on July 17, 2008
Management:
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Chairman of the Board, Chief Executive Officer: Neville Isdell
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President, Chief Operating Officer: Muhtar Kent
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Vice President and Director of Investor Relations: Ann Taylor
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Chief Financial Officer, Executive Vice President: Gary P. Fayard
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North America Group President: Sandy Douglas
Key Investor Issues:
- Net operating revenues increased 17% to $9 billion.
- Earnings amounted to $1.4 billion or 61 cents a share, down 23%.
-The Company repurchased $1.0 billion of its stock.
Half Year Highlights:
- Revenues rose 19% to $16.4 billion from $13.8 billion in 2007.
- Net income was down 6% to $2.9 billion or $1.24 a share.
Second Quarter Highlights:
Net operating revenues increased 17% to $9 billion reflecting a 3% increase in concentrate sales, a 2% increase resulting from acquisitions of certain bottlers, a 3% benefit from pricing and mix and a 9% positive currency impact.
- Unit case volume increased 3% and 4% year-to-date, successfully cycling 6% growth in the prior year quarter and year-to-date periods.
- Acquisitions contributed 1 point of unit case volume growth for both the quarter and year-to-date.
- International operations delivered 5% unit case volume growth successfully cycling 9% growth from the prior year quarter.
Cost of goods sold increased 16% reflecting a 3% increase in concentrate sales and a 2% increase from structural changes resulting primarily from acquisitions of certain bottlers.
- Selling, general and administrative expenses increased 16%, with structural changes related to bottler acquisitions, increased costs from brand acquisitions and currency increasing selling, general and administrative expenses by 14%.
- The company continued to achieve expense leverage through investing in marketing to support brand growth while managing general and administrative expenses through productivity initiatives.
The company continued to achieve growth in sparkling beverages, which increased unit case volume 1% in the quarter.
- Trademark Coca-Cola unit case volume was slightly positive and Trademarks Fanta and Sprite increased unit case volume 1% and 3%, respectively.
- Still beverage unit case volume increased 13% led by strong growth across the Company’s still brand portfolio, including juice and juice drink brands, tea brands and water brands.
- Globally, the Company gained volume and value share in nonalcoholic ready-to-drink beverages as well as in sparkling beverages and key still beverage categories including bottled water and juice and juice drinks.
Operating income increased 18% to $2.6 billion as currency benefited income by 11%.
- Items impacting comparability negatively affected second quarter pre-tax operating income by $97 million in 2008 and by $48 million in 2007.
- Equity income declined primarily as a result of the proportionate share of the non-cash impairment charge recorded by CCE.
- The Company recorded gains on the sales of assets of $102 million primarily related to the sale of a Brazilian bottler to Coca-Cola FEMSA, S.A.B.de C.V.
Geographic Segment Analysis:
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The Africa Group’s unit case volume increased 5% with south Africa’s unit case volume growing 12% growth from the prior year reflecting the effects of carbon dioxide shortages.
- Nigeria unit case volume increased 4% and net revenues increased 6%, reflecting a 2% increase in concentrate sales, positive pricing and mix and a slight negative currency impact.
- Operating income increased 61% reflecting the increase in net revenues, effective management of operating expenses and the cycling of restructuring charges in the prior year quarter, partially offset by the continued investment in key marketing initiatives.
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The Eurasia Group’s unit case volume increased 7% with solid unit case volume growth in India, Turkey, the Middle East, Eastern Europe and Southern Eurasia drove the results.
- Russia’s unit case volume increased 2% primarily reflecting the impact from adverse weather conditions late in the quarter, and resulted in volume and value share gains in nonalcoholic ready-to-drink beverages.
- Net revenues increased 30%, benefiting from a 13% increase in concentrate sales, positive pricing and mix and a high single-digit currency benefit.
- Operating income growth of 21% reflected the benefit of the net revenue increase and the continued investment in key business initiatives.
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In Europe unit case volume declined 1% as the group gained volume and value share in nonalcoholic ready-to-drink beverages as well as in sparkling beverages and key still beverage categories.
- Unit case volume results were negatively impacted by labor strikes in several key markets, the shift of Easter into the first quarter as well as unfavorable weather.
- Net revenues increased 13%, reflecting a 2% decrease in concentrate sales, positive pricing and mix and a low double-digit currency benefit.
- Operating income increased 16% reflecting the higher net revenues while continuing to invest behind key marketing initiatives across the group.
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The Latin America Group continued to deliver strong unit case volume growth of 7% with solid unit case volume growth across the group and the benefit of acquisitions drove the results and led to volume and value share gains in both sparkling and still beverages.
- Net revenues increased 23%, reflecting a 5% increase in concentrate sales, positive pricing and mix and a low double-digit currency benefit.
- Operating income increased 29%, reflecting the net revenue increase while continuing to invest in key marketing initiatives.
In Mexico, unit case volume increased 10% led by brand Coca-Cola, which increased unit case volume 3%.
- In Brazil, unit case volume growth was 1%, successfully cycling 22% growth in the prior year as performance was impacted by a volume decline in April resulting from a slowdown in industry growth.
- In Argentina, strong sparkling beverage growth, led by Trademark Coca-Cola, contributed to unit case volume growth of 7%, successfully cycling 7% growth in the prior year quarter and driving sparkling beverage share gains.
