The Coca-Cola Company Reports 2010 Second Quarter and Year-to-Date Results

The Coca-Cola Company reports strong second quarter 2010 operating results, with volume increasing 5%, ahead of our long-term target and cycling 4% growth in the prior year. We achieved 2% volume growth in North America, demonstrating the momentum we are building for our system in this important market. International volume increased 6%. Eurasia and Africa volume grew 10% in the quarter, cycling 7% in the prior year, with a return to growth in Russia, which was up 6%. India demonstrated continued strong growth of 22% in the quarter, cycling prior year growth of 33%. Latin America volume grew 7%, cycling 6% growth in the prior year quarter, with 13% growth in Brazil and 5% growth in Mexico. Pacific volume grew 6%, cycling 6% in the prior year quarter, with 6% growth in China and double-digit growth in the Philippines and Thailand. Although Europe volume was down 1% in the quarter due to continued challenging economic conditions, Germany and Iberia both grew volume 1% and France was up high single digits.

Strong growth continued in countries with per capita consumption of Company brands less than 150 eight-ounce servings per year, with volume up 10% in the quarter and year-to-date in those countries.

We gained global volume and value share in total nonalcoholic ready-to-drink (NARTD) beverages as well as sparkling and still beverages, driven by gains in both North America and many international markets. We also realized volume and value share gains across core sparkling beverages, juices and juice drinks, sports drinks and packaged water.

Brand Coca-Cola, which was up 5% in the second quarter and 4% year-to-date, continues to energize the Company’s growth through our investment in global properties like the FIFA World Cup™ sponsorship and the “Open Happiness” global integrated marketing campaign, resulting in continued volume and value share gains. The strong brand Coca-Cola growth came from a diversity of markets, including Brazil, Mexico, the Philippines, Turkey, Thailand, Russia, India and the United States. Total sparkling beverage volume increased 3% in the quarter, with international sparkling beverage volume increasing 4%. Total still beverage volume increased 10% in the quarter, led by continued growth in juices and juice drinks, sports drinks, teas and water brands. Still beverage volume increased 11% internationally.

Muhtar Kent, Chairman and Chief Executive Officer, The Coca-Cola Company said, “I am pleased with the performance of our Company, where we once again delivered a solid quarter of growth with consistent profitable results inspired by our 2020 Vision and fueled by our strategic marketing, innovation and focused execution. We continue executing around the globe in close alignment with our bottling partners, leveraging our scale and unique global platforms – such as our FIFA World Cup™ campaign – to build the equity and global share of our brands.”

Mr. Kent continued, “It is clear, however, that the state of the global economy remains uncertain in many regions, affected by ongoing deficit concerns in Europe, recent downward revisions to China’s economy and weakened consumer confidence. While this uncertainty weighs on us all, we remain resolute in our commitment to invest in our global operations and our brands for the long-term. Even during these challenging times, our brand equity is growing stronger around the world, as consumers continue to choose our brands, with 4% global growth for brand Coca-Cola year-to-date. Additionally, we continue to make tangible progress with our planning related to the efficient and effective integration of Coca-Cola Enterprises’ (CCE) North American bottling business and we remain on track to complete the transaction in the fourth quarter of 2010.

“Looking forward to the balance of the year, we remain cautious, yet confident in our ability to deliver our 2010 plan while continuing our efforts to achieve our 2020 Vision through consistent long-term profitable growth.”

FINANCIAL HIGHLIGHTS

• Second quarter and year-to-date 2010 reported net revenues increased 5%. Second quarter reported net revenues included a positive currency impact of 2% offset by a 2% impact due to the deconsolidation of certain entities required by a change in accounting guidance. Comparable currency neutral net revenues increased 5% in the quarter, reflecting a 5% increase in concentrate sales. Price/mix for the quarter was even, with our positive revenue growth management strategies being offset by geographic mix. Year-to-date comparable currency neutral net revenues increased 3%.

• Reported operating income increased 13% in the quarter and 15% year-to-date. Second quarter 2010 comparable currency neutral operating income increased 11%. This was driven by strong top-line performance as well as a continued strong focus on cost management and the leveraging of productivity initiatives as well as favorable timing of marketing expenses versus the prior year. Year-to-date comparable currency neutral operating income increased 10%.
• Year-to-date cash from operations increased 18%. There were no share repurchases during the first half of 2010 (except for minimal treasury share activity related to employee benefit plans) due to the proposed acquisition of Coca-Cola Enterprises’ North American bottling business.
• Productivity initiatives are well on track to achieve our target of $500 million in annualized savings by year-end 2011.

OPERATING REVIEW

Eurasia & Africa

• Our Eurasia and Africa Group’s volume increased 10% in the quarter, cycling 7% growth in the prior year quarter. Year-to-date volume increased 11%, cycling 5% growth in the prior year. Net revenues for the quarter increased 14%, reflecting a 13% increase in concentrate sales and a 6% positive currency impact, partially offset by negative country and price/mix of 5%. Reported operating income increased 26% in the quarter. Comparable currency neutral operating income increased 17% in the quarter due to the increase in concentrate sales, partially offset by increased FIFA World Cup™ marketing investments and continued investment in the business as well as country and product mix.
• In Eurasia and Africa, sparkling beverages increased 9% and still beverages increased 18% in the quarter, with brand Coca-Cola growing 10%. The broad-based volume growth was led by a 22% increase in India in the quarter, up 24% year-to-date, with share gains across most key beverage categories in that market. Volume in Turkey was up 10%, and Africa also reported strong volume growth in the quarter with the East and Central Region growing double digits and high single-digit growth in the North and West Region. Russia volume grew 6% in the quarter, showing sequential improvement as well as strong brand Coca-Cola performance, which was up 19%.

Europe

• Our Europe Group’s volume in the quarter declined 1%, cycling 1% growth in the prior year quarter, yet showed improving volume trends in June. Year-to-date volume decreased 1%, cycling a decline of 1% in the prior year. Net revenues for the quarter increased 2%, primarily driven by positive country and price/mix of 2% and partially offset by a 1% decline in concentrate sales. There was no impact from currency. Reported operating income increased 9% in the quarter as a result of positive price/mix and continued expense management as well as favorable timing of marketing expenses. Comparable currency neutral operating income increased 7%.
• Volume performance in the quarter was positively impacted by strong growth in France as well as volume growth in Germany and Iberia. Coca-Cola Zero volume grew 6% in the quarter and brand Coca-Cola was even, with volume and value share gains in total NARTD beverages and value share gains in core sparkling and still beverages. Europe also gained volume and value share in sports drinks and energy drinks. Volume results were impacted by ongoing challenges in South and Eastern Europe and the Adriatic and Balkans region, and we continue to monitor consumer confidence throughout Europe as economic challenges persist and consumer confidence remains weak.

Latin America

• Our Latin America Group delivered volume growth of 7% in the quarter, cycling 6% growth in the prior year quarter. Year-to-date volume grew 5%, cycling 6% growth in the prior year. Brand Coca-Cola volume was up 7% in the quarter and 6% year-to-date driven by strong activation of our FIFA World Cup™ programs. Net revenues for the quarter increased 12%, reflecting positive price/mix of 12% along with 6% concentrate sales growth and a 4% positive currency impact, partially offset by the impact of the deconsolidation of certain entities required by a change in accounting guidance. Reported operating income was up 22% in the quarter, with comparable currency neutral operating income up 20%, primarily reflecting favorable volume and pricing and the continued management of expenses.
• Solid volume growth in the quarter was led by a 13% increase in Brazil, a 5% increase in Mexico and a 5% increase in our South Latin Region. Brazil’s focus on single-serve and returnable packaging has resulted in steady volume growth as well as strong volume and value share gains in total NARTD and sparkling beverages. Additionally, Mexico continued to gain volume and value share in total NARTD beverages as well as in the sparkling and still beverage categories, driven by volume and value share gains across juices and juice drinks, sports drinks, energy drinks and tea.
• In the quarter the Latin America Group gained volume and value share in total NARTD beverages and across most key countries. In addition, the group posted volume and value share gains in sparkling beverages, sports drinks, energy drinks and tea, with volume share gains in juices and juice drinks.

North America

• Our North America Group’s volume improved 2% during the quarter with volume and value share gains across most categories, and driven by a continued focus on building strong value-creating brands, led by brand Coca-Cola. Year-to-date volume growth was even, cycling a decline of 1% in the prior year. Net revenues for the quarter increased 3%, reflecting a 2% increase in concentrate sales and a 1% positive currency impact. Reported operating income increased 11%, while comparable currency neutral operating income increased 9% in the quarter, reflecting the impact of higher concentrate sales coupled with favorable timing of marketing expenses and the continued focus on executing a well-defined price, package and channel strategy.
• Volume for sparkling beverages was even in the quarter, showing sequential improvement quarter on quarter and positively impacted by strong summer marketing initiatives, including activations around the FIFA World Cup™. Brand Coca-Cola was up 1% in the quarter and continued to increase its favorite brand score advantage versus the competition among key consumer segments. Coca-Cola Zero again delivered double-digit volume growth in the quarter, achieving 17 consecutive quarters of double-digit growth. North America gained volume and value share in sparkling beverages.
• Still beverage volume was up 7% in the quarter, led by the strong growth of POWERADE, which was up 17%, resulting in volume and value share gains in sports drinks. In addition, the glaceau business grew volume 6% in North America. In the quarter, North America gained volume and value share in total still beverages and juices and juice drinks with the expansion of Trademark Simply single-serve packaging in the cold drink channel. Trademark Simply volume grew 29% in the quarter.

Pacific

• Our Pacific Group delivered volume growth of 6% in the quarter, cycling 6% growth in the prior year quarter. Volume in the Pacific Group was partially impacted by poor weather in the key markets of China and Japan. Year-to-date volume grew 6%, cycling 5% growth in the prior year. Net revenues for the quarter decreased 1%, primarily reflecting a 3% increase in concentrate sales and a 5% positive currency impact, offset by a 10% impact from country and channel mix. Reported operating income was even in the quarter. Comparable currency neutral operating income decreased 5% in the quarter, reflecting negative country and channel mix, primarily in Japan.
• Pacific Group volume growth in the quarter was led by the Philippines, China and Southeast and West Asia. Volume in China grew 6%, with sequential monthly improvement from April to June. Importantly, we gained volume and value share in total NARTD beverages as well as volume and value share in key beverage categories, including still beverages, packaged water and juices and juice drinks. China also posted value share gains in sparkling beverages. China juices and juice drinks grew 21% in the quarter due to the continued strong momentum of Minute Maid Pulpy, a brand which has expanded into the value-added dairy category with the successful launch of Minute Maid Pulpy Super Milky.
• In Japan, volume declined 3% in the quarter, consistent with volume performance in the first quarter, but showed sequentially improving volume and share performance during the quarter. While our Japan business continues to be impacted by a weak economy and unfavorable weather, we saw improved performance in the key convenience store channel, driven by the continued strong momentum of Coca-Cola Zero, up 21% in the quarter, and package diversification of the I LOHAS natural mineral water in the award winning eco-crush PET bottle and Sokenbicha tea in the lightweight “double eco” plant bottle.

Bottling Investments

• Our Bottling Investments Group’s volume increased 1% in the quarter on a reported basis, and increased 11% on a comparable basis after adjusting for the impact of the deconsolidation of certain bottlers required by a change in accounting guidance. This performance was driven by growth across most markets, especially India, the Philippines and Brazil. Reported net revenues for the quarter increased 3%, while comparable net revenues were up 11% after adjusting for the impact of the deconsolidation. This reflects the 11% increase in volume and a low single-digit currency benefit, partially offset by country mix. Reported operating income increased 12%. Comparable currency neutral operating income increased 17% reflecting the increase in revenues and the benefits of disciplined capital investments and expense management, partially offset by continued investment in our in-market capabilities.

FINANCIAL REVIEW

Reported net revenues for the quarter increased 5%, with comparable net revenues up 7%, reflecting a 2% impact due to the deconsolidation of certain entities required by a change in accounting guidance. Net revenues were further impacted by a 2% positive currency impact and a 5% increase in concentrate sales, and reflected price/mix even with the prior year. Net revenues were negatively impacted during the quarter by geographic country mix as economic recovery in emerging markets generally continues to outpace the rest of the world. At the same time, however, we effectively executed our revenue growth management initiatives to realize positive pricing. This enabled us to grow global value share for the twelfth consecutive quarter while also gaining global volume share for the quarter.

Cost of goods sold increased 1% in the quarter. After adjusting for items impacting comparability, currency neutral cost of goods sold increased 3%, as a result of a shift in mix.

Selling, general and administrative (SG&A) expenses increased 1% in the quarter. After adjusting for items impacting comparability, SG&A expenses increased 3% in the quarter and increased 1% on a currency neutral basis. This increase was primarily driven by the continued investment behind our bottling operations partly offset by the continued benefits associated with our ongoing productivity initiatives as well as timing of marketing expenses versus the prior year.

Reported operating income increased 13% and our comparable operating income increased 15% in the quarter. Items impacting comparability reduced second quarter operating income by $78 million in 2010 and by $34 million in 2009. These items were primarily related to restructuring charges and costs related to global productivity initiatives as well as costs in 2010 related to the CCE transaction. In addition, items impacting comparability in 2009 included the deconsolidation of certain entities required by a change in accounting guidance. Currency positively impacted comparable operating income by 4% in the quarter. Comparable currency neutral operating income was up 11% in the quarter.

For the second quarter of 2010, our reported earnings per share were $1.02, an increase of 16%. Reported earnings per share for the second quarter of 2010 and 2009 included a net charge of $0.04 in both years. The net charge in both years included restructuring charges and costs related to global productivity initiatives. The net charge in 2010 also included costs related to the CCE transaction. After considering the items impacting comparability, earnings per share for the quarter were $1.06, an increase of 15%. Earnings per share for the quarter were positively impacted by the relative weakness of the U.S. dollar versus other currencies around the world as compared to the prior year.

Cash from operations was $4.3 billion for the first six months of the year as compared with $3.7 billion in the prior year, an increase of 18%. This increase was primarily driven by our improved performance, including the effect of currency.

Effective Tax Rate

The reported effective tax rate for the quarter was 23.7%. The underlying effective tax rate on operations for the quarter was 23.2%. The variance between the reported rate and the underlying rate was due to the tax impact of various separately disclosed items impacting comparability.

Our underlying effective tax rate does not reflect the impact of significant or unusual items and discrete events, which, if and when they occur, are separately recognized in the appropriate period.

Items Impacting Prior Year Results

First quarter 2009 results included a net charge of $0.07 per share primarily related to restructuring charges and asset write-downs.

Second quarter 2009 results included a net charge of $0.04 per share primarily related to restructuring charges and asset write-downs.

NOTES

• 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 nonalcoholic ready-to-drink 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.
• Year-to-date 2010 results were impacted by one fewer selling day in the first quarter, which will be offset by the impact of one additional selling day in fourth quarter 2010 results.
• Comparable results for the second 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 growth targets referenced in this release are on a comparable currency neutral basis and exclude structural changes.

CONFERENCE CALL

We are hosting a conference call with investors and analysts to discuss our second quarter and year-to-date 2010 results today at 9:00 a.m. (EDT). We invite investors to listen to the live audiocast of the conference call at our website, http://www.thecoca-colacompany.com/investors/index.html in the “Investors” section. A replay in downloadable MP3 format will also be available within 24 hours after the audiocast on our website. Further, the “Investors” section of our website includes a reconciliation of non-GAAP financial measures that may be used periodically by management when discussing our financial results with investors and analysts to our results as reported under GAAP.