Coke: An Overview and Breakdown of Our Earnings
The Coca-Cola Company (NYSE:KO) reports strong fourth quarter 2010 operating results, with reported worldwide volume growth of 6%, cycling 5% growth in the prior year quarter. For the full year, reported worldwide volume grew 5%, ahead of our long-term growth target. Excluding the benefit of new cross-licensed brands in North America, primarily Dr Pepper brands, worldwide volume grew 5% in the quarter and 5% for the full year. We achieved broad-based volume growth in the quarter across each of our five geographic operating groups, with growth of 14% in Eurasia and Africa, 5% in Latin America, 2% in Europe, 1% in Pacific and 8% in North America (3% excluding the benefit of new cross-licensed brands), its third consecutive quarter of organic growth.
In the quarter and for the full year, we gained global volume and value share in NARTD beverages, with share gains across most beverage categories. We continued to see strong growth in sparkling beverages, with worldwide brand Coca-Cola volume up 4% in the quarter driven by a wide array of global markets, including 37% in Russia, 20% in Turkey, 10% in India, 8% in Brazil, 7% in South Africa, 5% in Japan, 5% in Mexico and 2% in France. Worldwide sparkling beverage volume increased 5% in the quarter (3% excluding the benefit of new cross-licensed brands in North America), with international sparkling beverage volume increasing 4%.
Worldwide still beverage volume increased 9% in the quarter, led by growth across the portfolio, including juices and juice drinks, sports drinks, teas and water brands. Still beverage volume in the quarter increased 11% internationally and 7% in North America with the continued strong global performance of sports drinks, driven by Powerade (+12%). Sports drink growth in the quarter was balanced across key geographies, led by North America (+20%), South Korea (+43%), South Africa (+21%) and Mexico (+14%) as we continued to benefit from our powerful FIFA World Cup™ programs and successful innovation like Powerade Zero in the United States. Minute Maid Pulpy, which became our 14th billion dollar brand at the end of 2010, continues to expand globally and achieved 23% growth in the quarter and 31% growth for the full year. We also grew vitaminwater in the quarter, with double-digit growth internationally and 10% growth in North America.
Muhtar Kent, Chairman and Chief Executive Officer of The Coca-Cola Company said, “We once again delivered strong results this quarter, with volume growth realized across all five of our geographic operating groups. Importantly, we achieved solid growth in our developed markets with 3% growth in North America, 2% growth in Europe and 2% growth in Japan. Together with our global bottling partners, we are decisively executing our 2020 Vision, and I am pleased that we met or exceeded all of our long-term growth targets for both the quarter and the year, all while we completed our acquisition of CCE’s North American business, began successfully integratingCoca-Cola Refreshments and operated in a still uncertain global economic environment. Further, as we strategically invest in inspirational marketing as well as sales and marketplace execution, we again gained broad-based worldwide volume and value share. 2010 was the first year in our journey to realize our 2020 Vision and our reported results today underscore the strength of our foundation.
“Now, as we enter 2011, we do so with solid momentum. This year marks the 125th anniversary ofCoca-Cola, and the second year of our 2020 Vision, and we see opportunities as exciting as our predecessors must have seen back in 1886. Our commitment to shape a better future is perhaps the greatest responsibility given to each and every one of us at The Coca-Cola Company. This commitment is the foundation upon which our 2020 Vision is built, and we are confident that our system is well-positioned to build on the legacy of those who came before us. We intend to be the industry leader in every market we serve by continuing to invest in our brands and market execution capabilities, by advancing our sustainability efforts to drive our business, and by embedding ourselves even further into our customers’ growth strategies.
“The fact that we are a thriving business after nearly 125 years is a testament to our youth, not our age. There is something special indeed about an enterprise that is in a state of constant renewal and dynamic growth. And while we recognize that challenges remain in our worldwide marketplace, we are confident that we are advancing our global momentum to deliver long-term sustainable growth and value for our shareowners.”
All references to structural changes impacting comparable currency neutral results include the CCE transaction and elimination of CCE equity income, the sale of the Norway and Sweden bottling operations, other structural items and the benefit of new cross-licensed brands, primarily Dr Pepper brands.
- Fourth quarter comparable currency neutral net revenue increased 45%, reflecting a 6% increase in concentrate sales, 2% positive price/mix and a 37% benefit from structural changes, principally related to the CCE transaction. Concentrate sales growth is in line with unit case volume growth for the full year at 5% after adjusting for the deconsolidation of certain entities as of January 1, 2010 required by a change in accounting guidance. The 2% positive price/mix in the quarter reflects our continued focus on executing our revenue growth management strategies to realize positive pricing that more than offsets the ongoing impact of geographic mix. Full-year comparable currency neutral net revenue increased 14%, reflecting a 5% increase in concentrate sales, 1% positive price/mix and an 8% benefit from structural changes, principally related to the CCE transaction.
- Comparable currency neutral operating income was up 10% in the quarter and 11% for the full year, reflecting a 3% increase in the quarter and a 1% increase for the year as a result of structural changes, principally related to the CCE transaction. This was driven by strong top-line performance as well as a continued focus on cost management and the leveraging of productivity initiatives. Currency had a 1% positive impact on comparable operating income in the quarter and a 3% positive impact for the year.
- Reported full-year cash from operations increased 16% to $9.5 billion.
- Our Company returned $7.2 billion to shareowners in 2010, through $4.1 billion in dividends and $3.1 billion in share repurchases. In 2011, we expect to repurchase $2.0 to $2.5 billion in stock over the course of the year as part of our share repurchase program.
- As required by accounting standards, the Company revalued its 33% ownership of CCE to fair value at the closing date of the transaction to acquire CCE’s North American operations, resulting in a $5.0 billion one-time non-cash gain in the fourth quarter of 2010.
- Our transaction with CCE closed on plan and on schedule, with expected 2011 cost synergies of $140 to $150 million. This is in addition to the $150 million in annual synergies previously identified in North America as part of Coca- Cola Supply.
- Productivity initiatives are well on track and on plan to achieve our target of $500 million in annualized savings by year-end 2011.
- All references to structural changes impacting comparable currency neutral results include the CCE transaction and elimination of CCE equity income, the sale of the Norway and Sweden bottling operations, other structural items and the benefit of new cross-licensed brands, primarily Dr Pepper brands.
- All references to growth rate percentages, share and cycling of growth rates compare the results of the period to those of the prior year comparable period.
- “Concentrate sales” represents the amount of concentrates, syrups, beverage bases and powders sold by, or used in finished beverages sold by, the Company to its bottling partners or other customers.
- “Sparkling beverages” means NARTD beverages with carbonation, including energy drinks and carbonated waters and flavored waters.
- “Still beverages” means nonalcoholic beverages without carbonation, including noncarbonated waters, flavored waters and enhanced waters, juices and juice drinks, teas, coffees and sports drinks.
- All references to volume and volume percentage changes indicate unit case volume. All volume percentage changes are computed based on average daily sales. “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.
- Fourth quarter 2010 results were impacted by one additional selling day, which offset the impact of one fewer selling day in first quarter 2010 results.
- Comparable results for the fourth quarter and full-year 2010 reflect the impact of the deconsolidation of certain entities required by a change in accounting guidance.
- Comparable results for the third quarter and year-to-date 2010 reflect the impact of the deconsolidation of certain entities required by a change in accounting guidance.
- Our long-term revenue and operating income growth targets as referenced in this release are on a comparable currency neutral basis and exclude structural changes. Our long-term volume growth target is on a comparable basis, excluding structural changes. Our long-term EPS growth target is on a comparable basis.
- All references to operating expense leverage indicate currency neutral operating expense leverage. This is calculated by subtracting comparable currency neutral gross profit growth from comparable currency neutral operating income growth.
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