Coca-Cola Reports Strong Results for Fourth Quarter and Full Year 2018

Coca-Cola Reports Strong Results for Fourth Quarter and Full Year 2018

Net Revenues Declined 6% for the Quarter and 10% for the Full Year, Impacted by Bottler Refranchising and Currency Headwinds

Organic Revenues (Non-GAAP) Grew 5% for the Quarter and Full Year

Operating Income Grew 21% for the Quarter and 14% for the Full Year; Comparable Currency Neutral Operating Income (Adjusted for Structural Items and Accounting Changes) (Non-GAAP) Grew 8% for the Quarter and 11% for the Full Year

Fourth Quarter and Full Year Operating Margin Expanded 516 and 585 Basis Points, Respectively; Comparable Operating Margin (Non-GAAP) for the Quarter and Full Year Expanded 13 and 385 Basis Points, Respectively

Fourth Quarter EPS from Continuing Operations Was $0.18 Versus a Loss Per Share of $0.66 in the Prior Year; Fourth Quarter Comparable EPS from Continuing Operations (Non-GAAP) Grew 9% to $0.43, Impacted by a 10% Currency Headwind

Full Year EPS from Continuing Operations Grew 474% to $1.57; Full Year Comparable EPS from Continuing Operations (Non-GAAP) Grew 9% to $2.08, Impacted by a 4% Currency Headwind

Company Provides 2019 Financial Outlook

The Coca-Cola Company today reported another quarter of solid operating performance, capping off strong financial results for the year. While reported net revenues declined due to refranchising and currency headwinds, the company delivered organic revenue (non-GAAP) growth within its long-term target for the sixth consecutive quarter, while also gaining value share globally.

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"I am pleased with our strong organic revenue and earnings growth in 2018. Our results demonstrate progress in our transformation as a consumer-centric, total beverage company and the power of a more strategically aligned system," said James Quincey, CEO of The Coca-Cola Company. "Coca-Cola has established a strong foundation to capitalize on long-term growth opportunities and drive sustained shareowner value."

Quarterly / Full Year Performance

• Revenues: Net revenues declined 6% to $7.1 billion for the quarter and declined 10% to $31.9 billion for the year. Fourth quarter and full year results were impacted by headwinds of 13% and 17%, respectively, from the combined impact of currency and the refranchising of company-owned bottling operations. Organic revenues (non-GAAP) grew 5% for the quarter, driven by concentrate sales growth of 1% and price/mix growth of 4%. The quarter included one additional day, which resulted in an approximate 1-point benefit to organic revenue (non-GAAP) growth. For the year, organic revenues (non-GAAP) grew 5% driven by concentrate sales growth of 3% and price/mix growth of 2%.
• Margin: Operating margin, which included items impacting comparability, expanded 516 and 585 basis points for the quarter and full year, respectively. Comparable operating margin (non-GAAP) expanded 13 and 385 basis points for the quarter and full year, respectively. Margin expansion was driven by divestitures of lower-margin bottling operations and the company's ongoing productivity efforts. These drivers were partially offset by the impact of the adoption of the new revenue recognition accounting standard and currency, which resulted in an approximate 220 and 160 basis-point headwind for the quarter and full year, respectively.
• Market share: The company continued to gain value share in total nonalcoholic ready-to-drink (NARTD) beverages for the quarter and full year.
• Cash flow: Cash from operations for the full year was $7.3 billion, up 6% from the prior year. Full year free cash flow (non-GAAP) was $6.0 billion, up 14% from the prior year.
• Share repurchases: Full year purchases of stock for treasury were $1.9 billion. Full year net share repurchases (non-GAAP) totaled $442 million.

Company Updates

• Key leadership appointments and fostering a growth culture: In the fourth quarter, the company announced several changes in top leadership, including the election of a new president and chief operating officer, in addition to succession plans for the chief financial officer and the chairman of the board. Within the broader organization, the company made solid progress during the year in renewing its culture by implementing changes to its compensation philosophy – placing a sharper focus on performance and the potential to drive long-term growth. The company also continued to act with more speed and agility, enabled by a new operating model that has given field operations greater decision-making authority and autonomy.
• Tailoring the sparkling portfolio to today's consumer: The company continued to strengthen its sparkling soft drinks portfolio and build consumption rituals through world-class innovation, premiumization and revenue growth management initiatives. In North America, innovation in the iconic Diet Coke brand, along with the continued success of Coca-Cola Zero Sugar, led to an 8-point acceleration in retail value growth for the no-calorie sparkling soft drinks portfolio for the year. The company's strong performance in low- and no-calorie sparkling soft drinks demonstrates the success of its initiatives to help consumers reduce added sugar. Globally, premium innovations, such as Coke Plus Coffee, and revenue growth management initiatives helped drive transactions ahead of 2% volume growth in the sparkling soft drinks portfolio during 2018.
• Growing the total portfolio: The company’s increased speed and agility, coupled with the strength of its distribution system, helped launch approximately 500 products across multiple markets through the lift, shift and scale strategy while also accelerating the elimination of underperforming SKUs during the year. The company also announced several key acquisitions in 2018, including Costa Limited, which provides a platform to build a global coffee business, and a strategic partnership with BODYARMOR, one of the fastest-growing beverage trademarks in the United States.
• Working toward a World Without Waste: In early 2018, the company introduced its World Without Waste initiative, which includes a goal to collect and recycle one bottle or can for each one the company sells by 2030. The company’s progress during the year included establishing or joining 10 global partnerships; announcing four technology advancements, including the opening of PlantBottle technology for use across the industry; and launching water in 100% recycled plastic bottles in four markets.

Note: Certain rows may not add due to rounding.

In addition to the data in the preceding tables, operating results included the following:

Consolidated

• Price/mix growth of 2% for the year was largely driven by solid price and package execution in the marketplace within Latin America and Europe, Middle East & Africa. For the full year, concentrate sales grew ahead of unit case volume, primarily from the dissolution of Beverage Partners Worldwide and the company’s subsequent launch of Fuze Tea across major European markets. Price/mix growth of 4% for the quarter was due to price/mix of 3% in the core business and a 1-point benefit of segment mix from Bottling Investments. Concentrate sales grew 1 point ahead of unit case volume in the quarter, largely due to one additional day.
• Full year unit case volume growth of 2% was led by 3% growth in developing and emerging markets along with slight growth in developed markets. For the quarter, unit case volume growth was even, as solid growth across Central and Eastern Europe as well as India was offset by the impact of more challenging economic conditions in certain emerging markets, such as Argentina and Central America. Volume performance throughout the year was impacted by strategic actions to focus on value over volume, including pricing and packaging decisions in the United States and Western Europe, as well as the deprioritization of low-margin commodity water in China. Category cluster performance was as follows:
  • For the year, sparkling soft drinks grew 2%, driven by strong growth in China and India as well as across Central and Eastern Europe. Full year growth was led by Trademark Coca-Cola through continued double-digit growth of Coca-Cola Zero Sugar in addition to strong growth in the low- and no-calorie offerings of Sprite and Fanta. Sparkling soft drinks declined 1% in the quarter as solid volume growth across Central and Eastern Europe as well as India was offset by the impact of more challenging economic conditions in certain emerging markets, including Argentina and Central America.
  • Juice, dairy and plant-based beverages declined 2% in the quarter and 1% for the year. The declines were largely driven by strategic decisions to deprioritize low-value juice brands in key African and Southeast Asian markets, as well as packaging downsizing actions in the juice portfolio within North America.
  • Water, enhanced water and sports drinks grew 3% for the year, driven by strength in single-serve packaging in China and premium offerings in North America. The category cluster grew 1% in the quarter, led by performance across developing and emerging markets.
  • Tea and coffee grew 3% in the quarter and 1% for the year, largely driven by innovation and new product launches including Georgia Craftsman in Japan and Authentic Tea House in China.
• Operating income grew 21% in the quarter and 14% for the year, which included a benefit from comparability items, partially offset by currency headwinds and structural headwinds related to refranchising. Comparable currency neutral operating income (adjusted for structural items and accounting changes) (non-GAAP) grew 8% in the quarter and 11% for the year, driven by solid organic revenue (non-GAAP) growth and the benefit from ongoing productivity initiatives.

Europe, Middle East & Africa

• Price/mix declined 1% for the quarter, primarily due to negative geographic mix from the timing of shipments across the Middle East and North Africa.
• Unit case volume was even in the quarter, as continued double-digit growth in Coca-Cola Zero Sugar and strong performance in Fuze Tea was offset by the impact of a challenging macroeconomic environment in certain key African and Middle Eastern markets.
• For the year, the company gained value share in total NARTD beverages as well as the juice, dairy and plant-based beverages category cluster and the tea and coffee cluster. The company maintained value share in the water, enhanced water and sports drinks category cluster.

Latin America

• Price/mix grew 13% for the quarter, largely driven by strong performance in Mexico through revenue growth management initiatives as well as positive price/mix across all business units.
• Unit case volume declined 2% in the quarter as growth in Brazil, Colombia and Peru was more than offset by a double-digit decline in Argentina. Mexico volume was even for the quarter, partially due to the impact of strategic revenue growth management initiatives in the market.
• For the year, the company gained value share in total NARTD beverages and in all category clusters with the exception of the tea and coffee cluster.

North America

• Price/mix grew 2% for the quarter, marking another quarter of sequential improvement, as pricing actions across the portfolio offset a more challenging cost environment.
• Unit case volume declined 1% in the quarter, largely due to the impact of strategic revenue growth management initiatives in the market. For the total portfolio, transaction growth outpaced volume performance reflecting continued focus on value over volume. Sparkling soft drinks volume declined 1% as high single-digit growth in Coca-Cola Zero Sugar and strong performance in Sprite was offset by the impact of pricing actions taken across the total sparkling soft drinks portfolio. Juice, dairy and plant-based beverages volume declined 2% as strong growth in fairlife and Honest juices was offset by the impact of package downsizing across the juice portfolio. Tea volume declined low single digits, impacted by deprioritizing low-margin tea products.
• Operating income for the quarter was unfavorably impacted by a combined 10-point headwind from cycling the benefit of intercompany profit elimination in the prior year related to refranchising in addition to the impact of accounting changes. Operating income was further impacted by increased freight costs.
• For the year, the company gained value share in total NARTD beverages along with sparkling soft drinks.

Asia Pacific

• Price/mix grew 2% for the quarter as solid pricing across the majority of the group's markets was partially offset by geographic mix due to growth in emerging and developing markets outpacing developed markets.
• Unit case volume grew 2% in the quarter led by strong growth across India and Southeast Asia, partially offset by declines in the Philippines and Australia. China's volume growth was slightly positive in the quarter as strong marketing and innovation within Trademark Coca-Cola and Sprite was partially offset by the impact of the deprioritization of low-margin commodity water.
• For the quarter, operating income grew faster than revenues largely due to concentrate sales outpacing unit case volume, ongoing productivity initiatives and the impact of accounting changes.
• For the year, the company maintained value share in total NARTD beverages and gained value share in sparkling soft drinks in addition to the tea and coffee category cluster.

Bottling Investments

• Price/mix grew 3% in the quarter driven by strong price/mix performance in India.
• The operating loss in the quarter was partially driven by items impacting comparability. Comparable currency neutral operating loss (non-GAAP) was impacted by the refranchising of North American bottling territories and the deconsolidation of bottling operations in Latin America.

The 2019 outlook information provided below includes forward-looking non-GAAP financial measures, which management uses in measuring performance. The company is not able to reconcile full year 2019 projected organic revenues (non-GAAP) to full year 2019 projected reported net revenues, full year 2019 projected comparable currency neutral net revenues (non-GAAP) to full year 2019 projected reported net revenues, full year 2019 projected comparable currency neutral operating income (non-GAAP) to full year 2019 projected reported operating income, or full year 2019 projected comparable EPS from continuing operations (non-GAAP) to full year 2019 projected reported EPS from continuing operations without unreasonable efforts because it is not possible to predict with a reasonable degree of certainty the actual impact of changes in foreign currency exchange rates; the exact timing and amount of acquisitions, divestitures and/or structural changes; and the exact timing and amount of comparability items throughout 2019. The unavailable information could have a significant impact on full year 2019 GAAP financial results.

Full Year 2019 Revenues:

• Approximately 4% growth in organic revenues (non-GAAP)
• 12% to 13% growth in comparable currency neutral net revenues (non-GAAP) including an 8% to 9% tailwind from acquisitions, divestitures and structural items
• Comparable net revenues (non-GAAP): 3% to 4% currency headwind based on the current rates and including the impact of hedged positions

Full Year 2019 Operating Income:

• 10% to 11% growth in comparable currency neutral operating income (non-GAAP) including a low single-digit tailwind from acquisitions, divestitures and structural items
• Comparable operating income (non-GAAP): 6% to 7% currency headwind based on the current rates and including the impact of hedged positions

Full Year 2019 Other Items:

• Underlying effective tax rate (non-GAAP): Estimated to be 19.5%
• Cash from operations: At least $8.0 billion
• Capital expenditures (excluding discontinued operations): Approximately $2.0 billion
• Net share repurchases (non-GAAP): Share repurchases to offset dilution from employee stock-based compensation plans

Full Year 2019 EPS:

• Comparable EPS from continuing operations (non-GAAP): -1% to 1% growth versus $2.08 in 2018

First Quarter 2019 Considerations:

• Comparable net revenues (non-GAAP): 6% to 7% tailwind from acquisitions, divestitures and structural items; 6% to 7% currency headwind based on the current rates and including the impact of hedged positions
• Comparable operating income (non-GAAP): 0% impact from structural items, which does not include the impact from acquisitions and divestitures; 10% to 11% currency headwind based on the current rates and including the impact of hedged positions
• One less day compared to first quarter 2018

• 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; and Asia Pacific operating segments and Corporate 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 were 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.

The company is hosting a conference call with investors and analysts to discuss fourth quarter and full year 2018 operating results today, Feb. 14, 2019, at 8:30 a.m. ET. Also today, the company's Investor Relations team will hold a separate investor and analyst conference call to address financial modeling-related questions at 10:30 a.m. ET. The company invites participants to listen to a live webcast of both conference calls on the company’s website, http://www.coca-colacompany.com, in the "Investors" section. An audio replay in downloadable digital format and a transcript of the calls will be available on the website within 24 hours following the calls. Further, the "Investors" section of the website includes a reconciliation of non-GAAP financial measures to the company’s results as reported under GAAP, which may be used during the calls when discussing financial results.

Investors and Analysts
Tim Leveridge: +1 404.676.7563

Media
Scott Leith: +1 404.676.8768

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