The Coca-Cola Company Reports Continued Strong Results in Second Quarter 2018

The Coca-Cola Company continued to execute on its key strategies in the second quarter of 2018. While reported net revenues for the quarter declined due to refranchising, the company delivered strong organic revenue (non-GAAP) growth through balanced volume and price/mix, while gaining value share globally.

“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 CEO of The Coca-Cola Company. “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 5% retail value growth in its sparkling portfolio during the quarter. These efforts, balanced with disciplined growth, have resulted in transaction growth of 4% year-to-date, outpacing unit case volume growth of 3%.

Quarterly Performance

• Revenues: Net revenues declined 8% to $8.9 billion, impacted by a 15% headwind from the refranchising of company-owned bottling operations. Organic revenues (non-GAAP) grew 5%, driven by concentrate sales growth of more than 2% and price/mix growth of more than 2%.

•  Volume: Unit case volume grew 2%. 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 nonalcoholic ready-to-drink (NARTD) beverages.  

• Cash flow: Year-to-date cash from operations was $2.6 billion, down 22%. The decline was largely due to the impact of more than $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 $2.0 billion, down 20%.  

• Share repurchases: Year-to-date purchases of stock for treasury were $1.3 billion. Year-to-date net share repurchases (non-GAAP) totaled $730 million.

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, illustrates 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% stevia. The company also expanded its Diet Coke brand re-stage into Great Britain, including the introduction of new flavors. Within North America, the company’s no-sugar sparkling soft drink portfolio accelerated from the first quarter, resulting in 7% retail value growth, driven by Coca-Cola Zero Sugar and Diet Coke. 

• Digitizing 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 5% increase in sales revenue versus orders placed through traditional call centers, 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 U.S. 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 program. For example, in Mexico, the company’s bottled water brand, Ciel, is now available in a 100% recycled PET bottle. The company plans to release its annual sustainability report in August.

• 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.
  
• “Core business” represents the combined performance from the Europe, Middle East & Africa; Latin America; North America; Asia Pacific; and Corporate operating segments offset by intersegment eliminations.
  
• “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 (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 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 2018 financial results were impacted by one less day, and fourth quarter 2018 financial results will be impacted by one additional day as compared to the same periods in 2017. Unit case volume results for the quarters are not impacted by the variances in days due to the average daily sales computation referenced above.