This summary is based on the Third quarter fiscal 2007 earnings call conducted by Coca-Cola Company (KO) on October 17, 2007.
Key Investors Issues
- The earnings per share rose to 71 cents from 62 cents in the prior year.
- Quarterly revenue of $7.69 billion was an increase of 19% over last year.
- Year to date, the firm has repurchased $1.6 billion of its stock.
Third Quarter Fiscal 2007 Financial Highlights
The firm reported earnings per share of 71 cents on a diluted basis for the third quarter, an increase of 15%.
This included a net charge of 3 cents per share, primarily related to restructuring charges, which was offset by a 3 cent per share gain, primarily related to the sale of a portion of the investment in Coca-Cola Amatil. Therefore, after considering items impacting comparability in both the current and prior year, adjusted EPS for the quarter and year-to-date increased 15%. In addition, the firm lowered its expected underlying effective tax rate on operations for 2007 to 22% from the previous estimate of 22.5% to bring the effective tax rate for the year in line with the current estimate. The firm recorded income tax expense at a rate of approximately 21.7% in the third quarter, which resulted in a tax benefit of 1 cent for the quarter.
Net revenue in the quarter increased 19%, which included an 8% benefit from structural changes related to acquisition of bottlers.
Excluding the impact of these bottler acquisitions, revenue growth was 11%, driven by 6% increase in concentrate sales, a 1% benefit from price mix and a 4% increase from currency.
Price mix benefit on the core concentrate business was positive in the low single-digits. However, this was partially offset by bottling investments, primarily due to the volume decline in Germany.
Coca Cola grew operating income by 10% on a reported basis.
After considering factors impacting comparability in the current and prior years, operating income increased 12%, which includes a 3% benefit from currency. On an ongoing currency neutral basis, the firm grew operating income 9%.
SG&A increased 16% in the quarter.
About 12 points of the increase were due to currency bottler acquisitions and increased selling and service expenses in the firm’s onsolidated bottling operations, and behind acquired brands as it invested for growth. The remaining 4 points reflect continued solid investment behind the brands. Similar to our year-to-date results, G&A expenses increased low single-digits, reflecting the early results of our productivity initiatives and disciplined expense management.
While the quarter''s reported operating margins are 23.8%, this includes a significant impact due to the lower margin bottling operations, including the recent bottler acquisitions. Underlying margins on the core business remain healthy as the firm drives top line growth and deliver operating expense leverage.
- The firm repurchased $1.6 billion of its stock year-to-date and it still expects to repurchase a total of $1.75 billion to $2 billion for the full year 2007.
- Cash from operations year-to-date increased 18% on strong underlying business performance and a decrease in working capital, primarily as a result of cycling the higher net taxes paid in 2006 related to the repatriation of foreign earnings from 2005.
In 2007, the firm has seen headwinds across several key input costs.
Globally, the company has seen significant increases in orange juice cost, which it has effectively managed. The result has been year-to-date, mid single-digit unit case volume growth in juice and juice drink brands, while driving volume and value share globally.
The other significant commodity cost increases in 2007 have been in corn sweetener and aluminum, which was primarily impacting the North America bottling system and has been reflected in retail pricing. However, the firm is starting to see a moderation in commodity cost impacting beverage companies, both globally and in North America.
Performance Analysis by Geography
International Operations
