The Coca-Cola Company continued to execute on its key strategies in the second quarter of 2018. The company delivered a strong organic revenue [non-generally-accepted accounting principles (GAAP)] growth of five per cent through balanced volume and price/mix, while gaining value share globally. It also reported the net revenues for the quarter declined by eight per cent due to bottler refranchising.

“We’re encouraged with our performance year-to-date as we continue our evolution as a consumer-centric, total beverage company,” said James Quincey, president and chief executive officer, The Coca-Cola Company.

He added, “We have the right strategies in place and remain focused on achieving our full year guidance.”

During the quarter, the company continued to accelerate its evolution as a total beverage company, from testing new products locally to lifting and shifting successful brands globally. The company is also driving an acceleration in the sparkling soft drinks category through investment and innovation, with five per cent retail value growth in its sparkling portfolio during the quarter. These efforts, balanced with disciplined growth, have resulted in transaction growth of four per cent year-to-date, outpacing unit case volume growth of three per cent.

Highlights
Quarterly performance
• Revenues: Net revenues declined eight per cent to $8.9 billion, impacted by a 15 per cent headwind from the refranchising of company-owned bottling operations. Organic revenues (non-GAAP) grew five per cent, driven by concentrate sales growth of more than two per cent and price/mix growth of more than two per cent
• Volume: Unit case volume grew two per cent. Growth was led by Trademark Coca-Cola, including continued double-digit growth for Coca-Cola Zero Sugar, and also reflects the continued strong performance of Fuze Tea
• Margin: Operating margin, which included items impacting comparability, grew more than 950 basis points. Comparable operating margin (non-GAAP) expanded more than 300 basis points, driven by divestitures of lower-margin bottling operations and the company’s ongoing productivity efforts, partially offset by an approximate 200-basis point headwind from the adoption of the new revenue recognition accounting standard and the impact of currency
• Market share: The company continued to gain value share in total non-alcoholic ready-to-drink (NARTD) beverages
• Cash flow: Year-to-date cash from operations was $2.6 billion, down 22 per cent. The decline was largely due to the impact of over $600 million from the year-over-year increase in tax payments in addition to the impact of the refranchising of North American bottling territories, partially offset by strong cash generation in the underlying business. Year-to-date free cash flow (non-GAAP) was $2 billion, down 20 per cent
• Share repurchases: Year-to-date purchases of stock for treasury were $1.3 billion. Year-to-date net share repurchases (non-GAAP) totalled $730 million
• Earnings per share: Earnings per share (EPS) from continuing operations grew 68 per cent to $0.53. Comparable EPS from continuing operations (non-GAAP) grew three per cent to $0.61, impacted by a two per cent currency headwind

Company updates
• Lifting, shifting and scaling brands around the world: The company expanded its footprint within the fast-growing, plant-based nourishment category with the launch of AdeZ in Europe by leveraging the brand edge of AdeS, a plant-based beverage originating in Latin America. Positioned as a premium offering, AdeZ will expand the company’s presence beyond the beverage aisle into on-the-go snacking. AdeZ was launched in more than 10 European markets during the quarter and is on track to be in 19 markets by the end of 2018. This rollout across a new continent, within a year after the acquisition of AdeS, illustrated the company’s ability to act with speed and agility in a rapidly-changing consumer landscape
• Reducing sugar while growing value: The company continued to execute on its strategy of delivering great-tasting sparkling beverages with less sugar. During the quarter, the company debuted Coca-Cola Stevia No Sugar in New Zealand, which is sweetened with 100 per cent stevia. The company also expanded its Diet Coke brand re-stage into Great Britain, including the introduction of new flavours. Within North America, the company’s no-sugar sparkling soft drink portfolio accelerated from the first quarter, resulting in seven per cent retail value growth, driven by Coca-Cola Zero Sugar and Diet Coke
• Digitising the enterprise: The company continues to embrace the growth of e-commerce and rethink how products are sold and delivered, not only to consumers but to customers as well. In North America, the company expanded coverage of the digital MyCoke platform, which allows retail customers to replenish beverage inventories and schedule future orders online. The MyCoke platform has led to over a five per cent increase in sales revenue versus orders placed through traditional call centres, while reducing costs and further driving the Coca-Cola system’s competitive edge
• System commitment to drive shared opportunity: The system’s ongoing commitment to investment in capabilities and products was demonstrated by three significant announcements during the quarter. In the United States, Coca-Cola Southwest Beverages (CCSWB) announced plans to build a new production and distribution facility to expand the portfolio and help drive improved execution. The CCSWB plant in Houston will be the first built in the United States in over a decade. In China, the company and its bottling partner, Swire Group, celebrated the opening of one of the country’s largest plants. The facility received a gold certification of Leadership in Energy and Environmental Design (LEED). In Canada, fairlife LLC – one of the company’s joint ventures in value-added dairy – announced plans to build a new production facility in ontario and introduce fairlife products in the Canadian market
• Doing business the right way: The company has long been engaged in water conservation efforts throughout the world as part of its goal to replenish all of the water used in its beverages. The company accomplished this goal globally five years ahead of schedule and continues to invest in water replenishment programs. Earlier this year, the company announced its World Without Waste initiative, with goals that include collecting and recycling a bottle or can for every one the company sells by 2030. Each of the company’s business units has developed local plans to address the pillars of the World Without Waste programme. For example, in Mexico, the company’s bottled water brand, Ciel, is now available in a 100 per cent recycled PET bottle. The company plans to release its annual sustainability report in August
• Price/mix grew more than two per cent for the quarter, driven by strong pricing and mix performance in the company’s international operations

• Unit case volume grew two per cent in the quarter. Category cluster performance was as follows:

Sparkling soft drinks: Two percent
Juice, dairy and plant-based beverages: -2 per cent
Water, enhanced water and sports drinks: Four per cent
Tea and coffee: -1 per cent

• Operating income was impacted by comparability items, predominantly charges associated with productivity and reinvestment initiatives, as well as structural items related to refranchising. Growth in comparable currency neutral operating income (adjusted for structural items and accounting changes) (non-GAAP) was driven by organic revenue (non-GAAP) growth and the benefit from ongoing productivity initiatives

The Middle-East and Africa
• Price/mix grew four per cent for the quarter due to solid price/mix across all business units, partially offset by a negative geographic mix as growth in emerging and developing markets outpaced developed markets
• Unit case volume grew one per cent in the quarter, as growth across the majority of the group’s markets was partially offset by declines in South Africa and Western Europe
• Operating income growth trailed revenue growth, largely due to the impact of currency and increased marketing investments related to key product launches. Product mix also impacted the quarter due to continued strong growth in innocent, a finished goods business
• The company maintained value share in the juice, dairy and plant-based beverages cluster

Latin America
• Price/mix growth of 12 per cent for the quarter was primarily driven by strong price/mix in Mexico, Brazil and the South Latin business unit
• Unit case volume was even for the quarter, as growth in Mexico and Chile was offset by declines in Argentina and Brazil
• The company gained value share in total NARTD beverages and gained or maintained value share in all category clusters

North America
• Price/mix declined three per cent for the quarter as low single-digit pricing in the marketplace was offset by one point from increased freight costs, one point from the timing of deductions and approximately two points from business mix as performance in the concentrate business, notably sparkling soft drinks, outpaced the finished goods businesses, including juice and tea
• Unit case volume grew one per cent in the quarter. Sparkling soft drinks growth of one per cent included continued double-digit growth in Coca-Cola Zero Sugar. Juice, dairy and plant-based beverages declined six per cent, as growth in dairy was offset by a decline in juice, largely due to package downsizing across the juice portfolio and deprioritising lower-margin juice drink brands. Tea and coffee declined one per cent as solid growth in coffee was offset by a decline in tea, primarily due to package downsizing in Gold Peak tea. Water, enhanced water and sports drinks grew five per cent, led by strong growth in Powerade and across the total water portfolio. Transactions outpaced volume across each line of business as the company continued to focus on driving value over volume
• Operating income was unfavourably impacted by a five-point headwind from cycling the benefit of inter-company profit elimination in the prior year related to the refranchising of North American bottling operations, as well as increased input and freight costs
• The company gained value share in total NARTD beverages along with sparkling soft drinks and the water, enhanced water and sports drinks cluster

Asia-Pacific
• Price/mix was even for the quarter, as positive underlying pricing was offset by negative geographic mix due to growth in China and India outpacing developed markets, specifically Japan and Australia
• Unit case volume growth of five per cent in the quarter was driven by strong performance in China and India. All business units grew volume in the quarter, with the exception of the South Pacific
• The company maintained value share in total NARTD beverages and gained value share in sparkling soft drinks

Bottling investments
• Price/mix grew one per cent for the quarter, largely due to strong performance in India and benefiting from geographic mix
• The operating loss for the quarter was largely driven by items impacting comparability. Comparable currency neutral operating income (non-GAAP) was unfavourably impacted by the refranchising of North American bottling territories and the deconsolidation of previously-held bottling operations in China in the prior year.

-----------------------------------------------------------------------------------------------------------------

Editors Note:

To apply for becoming a contributor of EN-SJGLE.com,

welcome to send your CV and sample works to us,

Email: Julia.Zhang@ubmsinoexpo.com.