Coca-Cola Company Q1 2010 Earnings Call Transcript

 |  About: The Coca-Cola Company (KO)
by: SA Transcripts


At this time, I would like to welcome everyone to the Coca-Cola Company's first quarter 2010 earnings results conference call. (Operator Instructions)

I would like to remind everyone that the purpose of this conference is to talk with investors. And therefore, questions from the media will not be addressed. Media participants should contact Coca-Cola's Media Relations Department if they have questions.

I would like to now introduce Jackson Kelly, Vice President and Director of Investor Relations. Mr. Kelly, you may begin.

Jackson Kelly

Good morning and thank you for being with us again today. I am joined by Muhtar Kent, our Chairman and Chief Executive Officer; and Gary Fayard, our Chief Financial Officer. Following prepared remarks this morning, we will turn the call over for your questions.

Before we begin, I would like to remind you that this conference call may contain forward-looking statements, including statements concerning long-term earnings objectives, and should be considered in conjunction with cautionary statements contained in our earnings release and in the company's most recent periodic SEC report.

In addition, I would also like to note that we have posted schedules on our company website at under the Reports and Financial Information tab and in the Investors section, which reconciles certain non-GAAP financial measures that may be referred to by our senior executives in our discussion this morning and from time to time in discussing our financial performance through our results as reported under Generally Accepted Accounting Principles. Please look on our website for this information.

With that, let me now turn the call over to Muhtar.

Muhtar Kent

Thank you, Jackson, and good morning, everyone. Let me begin by saying that I am very pleased with our first quarter results. We once again delivered consistent, profitable and sustainable growth inspired by our 2020 Vision and also fueled by our innovation and global reach.

Despite ongoing challenges in global economic conditions, we continued to invest in our business and build our brands, while generating strong and also steady cash flow. We are competing and winning around the world as one company with our global bottling partners, leveraging our unique scale as well as the increased presence of our brands.

As we announced earlier this quarter, we are taking decisive actions to strategically advance our North America business and further strengthen our franchise system in Europe. We remain confident in our ability to execute our 2020 vision, thus laying the foundation for consistent, long term, sustainable growth.

As I have mentioned on numerous occasions, we see tremendous growth opportunities for our system and for the entire nonalcoholic ready-to-drink beverage industry over the next ten years and beyond. This past quarter, despite the lingering effects of the global recession, we delivered solid 9% operating income growth on a comparable currency neutral basis. Overall, global economic unit case volume grew a strong 3% with a significant number of international markets fueling this growth. Our growth in countries with a per capita of less than 150 was an exceptional 10%.

Let me take a moment to share in more detail our performance across our international markets. In Eurasia and Africa, we saw broad-based growth of 11%. This increase was led by India, up a strong 29%, and cycling 31%, making this our seventh consecutive quarter of double digit growth in this fast-growing nation. And while sustaining this high growth rate in India in the coming months will likely depend on weather patterns during the upcoming monsoon season, we are confident in our ability to deliver consistent double digit growth for the balance of this year.

We also saw double digit growth in Turkey, Northwest Africa, Southern Eurasia, and the Middle East. Notably, we are beginning to see sequential improvement in Russia, which was down 1%, led by the strong performance of brand Coca-Cola, which grew 12% and gained share this quarter in Russia.

Latin America maintained its steady and consistent performance, up 4% overall, driven by strong 12% growth in Brazil. Our Latin Center unit was up double digits, led by Columbia which grew 19%, while our South Latin unit was up mid-single digits. Mexico, impacted by unseasonably cold weather was down 2%. But as the weather has improved, this trend has reversed, with our business generating positive growth in the month of March and despite these weather challenges in the quarter, we continue to gain total nonalcoholic ready-to-drink beverage share in Mexico, driven by both our sparkling and our still beverages.

Our Pacific Group continued to expand up 5% in total, and led by double digit growth across Korea, Indonesia, and several other markets. Our volume performance in Japan was a sequential improvement on our performance in the last two quarters, down 3%. Despite ongoing economic headwinds, we are experiencing steady improvement in the clinical vending channel as well as strong results in the convenience store channel. This led to better performance for our Georgia Coffee business.

Our trademark Coca-Cola brands in Japan keep widening the gap against our primary competitor led by Coca-Cola Zero, which was up 24% for the quarter. In fact, since 2005, we have grown trademark Coca-Cola incremental unit case volume in Japan five times more than our main competitor has grown its trademark brands over the same period.

And I LOHAS, our fast-growing, eco-friendly natural mineral water brand launched last May is building on its market share leadership. In less than a year, it has become the number one packaged water brand in Japan.

China unit case volume grew 6%, including double-digit growth in the latter half of the quarter. This performance comes on the heels of a strong fourth quarter and a great finish to 2009, which was led by growth across our portfolio as well as new product launches. Over the past six months, our volume grew a solid 16%. And while we may see volume strengths from quarter-to-quarter, the 16% growth over the past six months was ahead of our primary international competitor.

For perspective, our China business has generated more than $100 million incremental unit cases this past six months and continues to be twice the size of our primary international competitor on an annual basis. And we are building momentum across our entire portfolio. We are advancing our sparkling business in China behind strong innovations such as the launch of Spritea, which taps into the combined popularity of green tea and Sprite.

We're expanding our winnings to beverage business through the ongoing growth of our industry-leading juice and juice drink beverages and our Minute Maid Pulpy Super Milky dairy brand. And we are kicking off an exciting new Yuan Ye led tea portfolio, launching in Yuan Ye Jasmine Tea. And as we have shared before, we're just getting started in China and remain resolute in our commitment to invest for solid long-term growth.

Now, moving to Europe. Despite the continuation of difficult economic conditions in Europe, our unit case volume growth was even for the quarter. This was an improvement over our 2009 full year results with growth across France, Belgium, the Netherlands and North Central Europe. Further, our company-owned bottlers in Europe grew well ahead of the region with Germany up mid-single digits and Nordics up low-single digits, as we build towards re-franchising both of these operations.

In the United Kingdom, we were pleased that our trademark Coca-Cola brands became the first to top the £1 billion mark in annual U.K. grocery retail sales. We are excited about our recently announced increased investments in Innocent, reflecting our belief in the long-term growth potential of the smoothie business.

Lastly and in alignment with our 2020 Vision, we recently reorganized our Europe business from 10 business units to four, making it easier for us to do business with our bottlers as well as partners as we gain significant scale, speed and simplicity.

In total, these international performance results are a testament to our seasoned operating team, which is executing our 2020 Vision quickly and also with great discipline. I can assure you that our strategy and focus to build the long-term equity of our brands remains decisively clear. This focus is reflected in the volume and value share gains we continue to realize together with our bottling partners around the world. As a system, we are pulling together to communicate with our consumers, invest in our brands and build for a better tomorrow.

Now, let me briefly explain each of these actions. First, communicating with our consumers. Last quarter, I highlighted some of the important global platforms we're leveraging in 2010 to communicate and connect with consumers around the world. We just concluded our successful Vancouver Olympics program, which helped improve trademark Coca-Cola brand equity scores with Teen in Canada. And these improvements are flowing to the bottom-line as we've grown dollar share for trademark Coca-Cola and system revenue in Canada to their highest levels in years.

Meanwhile, our FIFA World Cup Trophy Tour carries on with its journey all around the world. The tour has now traveled to 27 international markets, engaging thousands of consumers and earning an average of $2 million of media value in each and every country visited. In addition, we are finding new and innovative ways to leverage our FIFA World Cup platform to more effectively communicate with consumers.

For example, we launched Powerade's first ever global marketing campaign, which includes an innovative online experience. A series of digital films highlight the functional benefits of Powerade and also showcase a never-ending football game played around the world. This campaign has already launched on YouTube in Brazil, Mexico, Italy, Spain and 16 more countries. We're also teaming up with customers around the world to bring the passion and the excitement of the FIFA World Cup to life for our consumers.

A great example is the marketing program we developed together with Wal-Mart. By using a jointly produced global toolkit, we will drive incremental sales for Wal-Mart and our company, while making the excitement of the World Cup more affordable and accessible for everyday fans.

Finally, as the global partner of the 2010 world exposition in Shanghai, we expect to host over 100 million visitors from China and around the world at our Coca-Cola Happiness Factory pavilion, engaging consumers, customers and other key global stakeholders through an extensive marketing program that will be executed during this exciting 184-day event. So these are just a few examples of how we are connecting directly with our consumers across many, many nations in a way that only our company with our global footprint can do.

Secondly, we are relentlessly focused on investing in our brands. Let me start with sparkling beverages, where I have already highlighted some of the many countries where we experienced sparkling growth this quarter. Brand Coca-Cola grew in line with our worldwide volume. Coca-Cola unit case volume grew over 1 million unit cases in 24 different countries. We were very proud to see Diet Coke for the first time since its introduction tie for the Number 2 brand position amongst all sparkling brands in the United States behind only Coca-Cola, as reported in Beverage Digest last month.

As for Coca-Cola Zero, it is still driving growth for us in every operating group, increasing double digits for the sixteenth consecutive quarter in North America, and 7% on a worldwide basis. Just like we said in our recent investor event, we intend to keep growing trademark Coca-Cola, the epicenter of our business in 2010 and well beyond, and we're building on our track record, successfully introducing cross-category innovations by launching several new beverages including Spritea in China, which I mentioned earlier, as well as Fanta White a new sparkling, lactic drink, which will launch in Japan next week.

We are innovating and expanding our still beverages as well. We are launching new brand extensions across multiple markets such as Vitaminwater Zero in North America, and Minute Maid Nimbu Fresh Lemonade in India. Both are gaining great momentum and traction. We are expanding our successful innovations across borders such as our Pulpy juice drink innovation, created under the Minute Maid trademark in the Pacific and now also available under the Del Valle trademark in Latin America. Altogether, our Pulpy brands are now present in 12 countries.

We also have plans in place to take Hugo, our juice and dairy innovation launched in Chile last year, into other markets in Latin America later this year. We are leveraging best-in-class programs across borders, as in the case of Vitaminwater, where we are implementing a fully integrated 360 degree summer program in almost all of our international markets. We are leveraging best practices from Canada, Great Britain, Japan, and Mexico to ensure excellence, consistency, and impact for this great brand.

Thirdly, we are building for a better tomorrow, and are fully committed to growing in a sustainable and responsible way in partnership with our consumers, customers, and communities. To the benefit of all our consumers, we are working in partnership with the First Lady of the United States on a program to end childhood obesity in a generation. We have announced our clear, on calories commitment in support of this special effort.

While I already highlighted an example of how we work in partnership with global customers, in the end, the proof is in the results. That is why we were particularly pleased to see our business with our top ten global retail customers grow mid-single digits in volume, and double digits in revenue in 2009 ahead of our total company growth.

Lastly, a great example of our efforts to support our communities is our launch of Odwalla's Haiti Hope Mango juice drink in the United States. 100% of the profits of this beverage will go to support the development of a sustainable food industry, and thousands and thousands of families in Haiti.

As we build these relationships for the future, stakeholders from around the world are recognizing our performance. In the past few weeks, we've been honored to receive several acknowledgements; Fortune Magazine ranked us number 10 in their annual list of the world's most admired companies; number one overall in beverages and number one across multiple beverage industry attributes including innovation, financial standards, and social responsibility.

Paris Interactive ranked us number eight on their annual list of most admired U.S. companies, as well as in the top five in vision and leadership, as well as financial performance. Corporate Social Responsibility magazine ranked their 100 best corporate citizens for 2010, and rated us at number eight, ahead of all other beverage companies. And just this week, Business Week moved us up in their annual ranking of the world's most innovative companies, positioning us as the most innovative consumer goods company in the world.

Our eco-friendly Aloha's bottle was recognized by both the Asian Marketing Effectiveness Festival, where we won their Platinum Award, and Japan's Ministry of Environment, which awarded us with their grand prize for Global Environment. Wal-Mart named us their Supplier of the Year in China, while 7-Eleven's franchise system did the same in North America.

Same in North America, our volume results declined 2% for the quarter, consistent with our 2009 results. Our unit case volume for sparkling beverages declined 1% in the quarter in North America, showing sequential improvement. Our still beverages were down 2% for the quarter, although we were able to still hold value share. Importantly, our newest billion-dollar brand simply grew 26% in the quarter, while strong Powerade activity, driven by effective NCAA March Madness programs helped drive volume and value share gains in the sports drinks category.

Now let me turn to our biggest news of the quarter and update you on the great progress we've made since announcing our intention to acquire CCE's North America business. As previously announced, we have appointed Brian Kelley to lead the integration of the Coca-Cola Company's and CCE's North American operations. Brian's integration team announced internally last week, consistent leaders from both the Coca-Cola Company and CEE whose operations credentials and knowledge of the North American market is second to none. I have the utmost confidence that this team will deliver on our integration goals.

Earlier today, we also announced our post-integration leadership team for North America. Steve Cahillane, currently President of the North American business unit for CCE will assume the role of President and Chief Executive Officer of the new Coca-Cola Refreshments once the company's acquisition of CCE North America is successfully concluded. Sandy Douglas will continue as President of Coca-Cola North America. Both Steve and Sandy who have executed very effectively and in concert with each other for the past two years will report directly to me.

This will be the first time ever that our North American bottling can, fountain and juice businesses will be produced, marketed and sold by an integrated 21st century service organization. We're truly excited by this prospect.

And as I've said before, we are taking decisive actions in North America from a position of strength. I am excited that both Steve and Sandy who have been so instrumental in driving positive change in North America have agreed to lead our efforts to capture the great opportunity that this important marketplace has to offer.

Let me reiterate my fundamental view about our business in North America. Growing here is not optional. It is essential to the health and future of our entire global system. As you look at the external forces shaping our 2020 Vision, especially changing demographics, North America is at the height of many of these trends. The U.S. population is growing and will increase by over 30 million by 2020, outpacing the absolute population gains of fast-growing countries like Brazil, Egypt, and Indonesia. With over 30 million teams in 2020, the team population of the United States is projected to be greater than that of Brazil, Mexico, Egypt, and Vietnam. Clearly, there is great opportunity in our North America business across our entire portfolio, and particularly with trademark Coca-Cola.

Today, our favorite brand scores are higher than they have been in over a decade. We believe, innovative marketing, merchandizing, strong execution, and clear communications will be the key to restoring trademark Coca-Cola growth in North America, just like we were able to successfully bring back growth to Coke in Japan and the United Kingdom. The acquisition of CCE's North American business and the refranchising of our European operations are consistent with our 2020 vision. This evolution in our business will give us the financial flexibility and marketing and distribution leadership required to accelerate our business in North America and Western Europe, while also strengthening the long term health of our franchise system.

As we work to create the world's premier, low cost, and effective beverage manufacturing and distribution business, one with a fully empowered and centralized national sales organization, we are confident these actions will result in greater value for our shareholders.

Let me close by saying that it is clear that consumers are not yet out of this crisis and still remain confused due to the extended economic headwinds around the world. Therefore, given this environment, there still may be bumps along the way this year and we may continue to experience some quarter to quarter volatility. That said, we confidently stand behind our long term growth targets and intend to keep winning together in 2010, growing volume, share, and profits.

As we look ahead, we firmly believe that there is no better business to be in than the nonalcoholic, ready-to-drink beverage industry, and we remain intently focused on creating shareholder value. With that let me now turn the call over to Gary.

Gary Fayard

As Muhtar indicated, we're off to a good start in 2010, delivering consistent, sustainable, and quality volume and profit growth in line with our long term growth targets. Our first quarter results are a clear indication that we have the right leadership in place with the right strategic plans and capabilities to achieve these goals.

One quick reminder and as highlighted during our last earnings call, our comparable results for this quarter reflect the impact of the deconsolidation of certain entities, primarily bottlers, due to changes in accounting guidance as per FASB requirements. To facilitate comparisons, we will post details of all these adjustments by quarter on our Investor Relations website later this week.

As outlined in our release, we reported comparable earnings per share of $0.80, up 23% versus prior year. For the quarter, comparable currency neutral operating income was up 9%. Further, our business delivered comparable net revenue growth of 7%, driven by a 3% increase in concentrate sales and a 6% positive currency impact, partially offset by geographic mix.

As anticipated and as we indicated in our last earnings call, we continue to see many of our emerging markets recovering from the global recession at a quicker rate than our developed markets, resulting in continued pressure on our geographic or country mix at a consolidated level. This is a natural outcome for a company like ours with such an extensive global footprint.

At the same time, we effectively executed our revenue growth management initiatives to realize positive pricing. This enabled us to grow global value share for the 11th consecutive quarter, while maintaining global volume share for the quarter. These results reflect our continued effort, focus and commitment to win in every market as we come out of this global crisis. Our objectives remain steadfast, strengthen the health of our brands and drive share gains.

We anticipate that our positive revenue strategies will be offset by geographic mix. Therefore, as we said in the last earnings call, we expect our price mix to be even for the full year. As we also said in that call, we would expect to see a return to positive price mix over the long term as the global consumer sentiment steadily improves.

As for our cash flow from operations, this increased 52% in the quarter to $1.3 billion. This growth was primarily driven by our improved performance and the cycling of a pension fund being of about $200 million in the prior year.

Now, let me explain some of the factors impacting our quarterly results and full year trends. Our comparable currency neutral cost of goods was down 3% for the quarter as a result of the shifts in mix. On a full-year basis, we would expect our cost of goods to grow at a more normalized, low single digit range.

Comparable currency neutral SG&A expenses were down 1% in the quarter. This reflects the timing of marketing expenses, and it also reflects the continued benefits of our productivity initiatives which we've pursued on an ongoing basis for the past two-and-a-half years. We anticipate our full year operating expense leverage will come in the low-single digits.

Next, I want to call out two items related to North America, first related to the CCE transaction. Our integration planning has progressed quickly and in an orderly fashion under the leadership of Brian Kelley and his team. As Muhtar mentioned before, we're excited about the continued leadership both of Steve Cahillane and Sandy Douglas that they will bring to our North American business. As for the approval process for the transaction, we've not experienced any delays and still expect an early fourth quarter close.

Second and as part of our ongoing work to strengthen our economic profits in North America, we've made a strategic decision to exit the low-margin retail spring water segment of the water category. Accordingly, we have eliminated the retail spring and customer brand water volume from our reported volume for both 2010 and 2009. This change did not have any impact on either the company or North America's reported volume results this quarter.

Now, let me take a moment to provide our outlook on some of the other key factors we see impacting this year. As expected, we benefited form currency in the first quarter. We still believe currencies will have a slightly positive impact on our operating income for the full year with its benefit weighted towards the first half of the year. On productivity, we'll try to deliver $500 million in annual savings from our initiatives by the end of 2011.

And lastly, with regards to share repurchase, let me reaffirm that while we are out of the market until we close the transaction with CCE, we're still committed to repurchasing at least $1.5 billion of the company's stock in 2010.

In conclusion, while we're just beginning to emerge form the global recession and expect the recovery to be moderate as consumer outlooks only improves, our seasoned management team is clearly taking the right actions, executing the right strategies in this global environment to drive our business for the long term and build on our track record of success. We remain confident, and will continue gaining global share while enhancing the health of our brands in order to drive long term profitable growth and value for our shareholders.

Operator, we're now ready for questions.

Question-and-Answer Session


(Operator Instructions) Our first question comes from Bill Pecoriello with Consumer Edge Research.

Bill Pecoriello - Consumer Edge Research

Gary, I just wanted to follow up on the price mix. You still see it even on the full year. So just looking at Q1, was it just a matter of some of the timing and the lapse? I know it's your toughest compare. You're having 2 % price mix from a year ago, and then it deteriorated as the year went on. But if you could help us understand how much the geographic mix versus underlying price or product mix impacted the quarter, and why it's getting better balance of year? Again, is it just the comps? Thanks.

Gary Fayard

A couple of different things; one is what we're cycling, but more importantly, it is a combination of a couple of things. One is that obviously we are getting significant growth from our emerging markets, and when those markets which are lower margin grow faster, you are going to get some negative pressure from geographic mix. At the same time, our pricing mix was actually positive in the quarter.

But the other impact that is totally timing and giving me a lot of confidence of where we'll come back even for the full year is that as I look at the different markets around the world and I look at the timing of gallon shipments of concentrate, well, while gallons and cases were pretty much in line for the quarter, within certain high margin countries, Japan, the U.S., South Africa for example, the gallons were behind cases.

This is a quarter where normally the bottlers would be stocking up getting ready for the summer season. Those are natural timings; those will reverse, and so that gives me a lot of confidence that as we look at the price mix, it's going to come back we think even for the full year.


Our next question comes from Marc Greenberg with Deutsche Bank.

Marc Greenberg - Deutsche Bank Securities

My question relates to Japan, which has been soft for some time. I appreciate that you're gaining share and that new products are driving volumes, but trends still remain negative. How should we think about the longer term expectations for Japan, and how might that impact the mix over time for the portfolio?

Gary Fayard

I think no question that Japan remains a very challenging environment from a macroeconomic point of view, but also from a demographic point of view. Also, we have a tremendous business in Japan, tremendous partners in Japan, and we are, as you know busy trying to leverage the scale in Japan and trying to put together productivity measures in Japan that we can then refocus on further investments in our brands.

So I expect Japan to be remain challenged, but I think we see some improvements in the at-work market in Japan, in the vending channel in Japan, compared to lets say 8, 9, 10 months ago.

We are gaining share in Japan, typically in the very critical ready-to-drink coffee segment category. Sparkling beverages are very healthy in Japan. Coca-Cola Zero continues to do really well. Also, some new product introductions also continue to do very well. It's a very complex market. Coca-Cola Zero, as I said was up at about 24%. But you can look at Japan in the following mindset; Japan will remain challenged, but we expect that there will be some sequential improvements going forward.


And next is Wendy Nicholson with Citi Investment Research.

Wendy Nicholson – Citi Investment Research

Could you talk about the shift in the timing of the marketing spending that you referred to in North America? I was surprised by that, given the Olympics and the Super Bowl. So, where is the incremental on higher level of spending coming over the balance of the year and how significant is that?

Gary Fayard

You know that we're on a sales curve, and so we recognize marketing over the year. Really, what you are seeing the impact in the first quarter is that the way our marketing was spread last year, it's what we're cycling. So, you're seeing the reported marketing pretty much even in the quarter, but it's going to be up in the mid-single digits or more for the year. So you will see that shift starting in Q2, Q3, and Q4, but is really a matter of what we're cycling and nothing more than that.

Wendy Nicholson – Citi Investment Research

And in terms of the mix of the spending, obviously I assume you are spending heavily behind simply. But where else is incremental spending coming over the balance of the year?

Gary Fayard

Well, again, we're spending right of what we had budgeted to spend. It's really how it's being recorded and what we're cycling versus the prior year. So we're having marketing increases in spending across all the geographies around the world. The largest increases obviously would have been in Vancouver with the Olympics, but particularly the summer with FIFA World Cup, but that's in the spread as well across here.


And our next question comes from Kaumil Gajrawala. Your line is open. He is with UBS.

Kaumil Gajrawala - UBS

Yes, with UBS. I guess two questions. First, roughly 2% impact on revenues from the accounting changes. That's roughly what we should expect for the rest of the year. And then a second question on productivity, how much of it was in the quarter and how far along are you? Obviously, you're confident in hitting $500 million by the end of 2011. But how far have we gone down so far?

Muhtar Kent

Hello, Kaumil. Let me just talk in reference to productivity, and then I'll pass on to Gary about the first part of your question. On productivity, I think we're seeing the benefits of not just these past few months of work, but also the work that we've put into place over the last 24, even 30 months. And this is obviously very long term, but also very important and effective project. And I'd say that we are on target with realizing our goals through 2010, but also putting into place all the necessary work that will ensure that we realize also our goals in 2011. And as you know, the target is $500 million by 2011.

Gary Fayard

And on the accounting changes, Kaumil, that's why I mentioned that we're going to put details out by quarter and for the year out on the website later this week. And what we realize is some people when they had modeled it, didn't get it exactly right. So it is 3% impact in the quarter of consolidated revenues, but then there is a net of company elimination. So it's actually 2% net of the eliminations, 2% percent on operating income and 0% at pre-tax income or net income. So you come back to exactly the same place. But it was about $115 million reduction in net revenue in the quarter from the deconsolidation of those bottles.


And next is Christine Farkas with Bank of America.

Christine Farkas - Bank of America

I'm hoping to dive into North America a little bit. Correct me if I am wrong, but this is the first quarter I've seen where sparkling outperformed still beverages, and I'm wondering if mix had something to do with your margin improvement or if there were other factors. And speaking to the still beverages, certainly cycling a strong Powerade comp, but can you talk about some of the other non-water still beverages and the performance in the quarter?

Muhtar Kent

Thanks, Christine. You're right in pointing that out, and I think that we're also pleased with that. And that is the testimony to not only, again, work that's been done in this past quarter, but the work that we've been doing in our brands strengthening our brands, particularly sparkling brands, the investments that are going into sparkling brands for the last year-and-a-half. And again, our brand metrics for our sparkling brands are healthier than we've seen them in many, many years.

Coca-Cola Zero, again, had a very, very strong quarter in the United States. And again, still tremendous room to grow in the United States going forward. So I think packaging is working. Our 99-cent single-serve is working. The contourization, as is now, in more than 50% of the country and getting tremendous distribution coverage is working very well. So all those programs that we'd put into place last year and even at the end of 2008 are beginning to bear fruit. So that's why we see an improving landscape in the sparkling category in the United States and all brands in that category.

As far as still beverages are concerned, I think sports Powerade, again, cycling a very strong prior-year quarter, a double digits growth from last year, grew this year, which was very pleasing. We, I think, gained volume and value share in the juice and juice drinks category as expansion of Simply Orange in both packaging and cold channel led to another quarter of double-digit growth, which was very pleasing.

And again, we also made the strategic decision to exit the lower-margin retail spring water segment of the water category. And accordingly, we've eliminated the retail spring and customer brand water volume from our reported results for 2010 as well as 2009. And I can reiterate that this change did not impact either the company's or our North America's reported volume results this quarter.

And again, I think vitaminwater, we're very excited with the changes we've made. New product innovation of vitaminwater Zero as well as packaging, as well as the advertising. And we expect to deliver stronger results through the balance of the year with, again, that strong brand. Our energy brand NOS continued to grow very effectively in the quarter as well as also our Smartwater. So I think overall, those are the sort of important points that I'd like to make about our North American business that you asked Christine.

Christine Farkas - Bank of America

Muhtar, I'm just wondering if on the Philippines the momentum has continued, and you saw positive growth in the first quarter?

Muhtar Kent

I'll say that I think all the hard work that our (NYSE:BIG) group is doing in the Philippines is beginning to pay dividends, and I'm pleased, although not excited because I think there is still room for improvement.


And next is Judy Hong from Goldman Sachs.

Judy Hong - Goldman Sachs

Muhtar, one is a quick follow up in terms of North America. You've talked about sparkling being down 1% in the fourth quarter. How much of that (is just) really category getting better and maybe you can talk about your volume and value share performance, specifically in sparkling in North America in the quarter?

Muhtar Kent

We have certainly had good results in our value share in North America in sparkling and I'm pleased with that. It's too early to say whether the category is beginning to improve. All I can tell you is that our Food Service business, our fountain business, which is a great litmus test for consumer sentiment, we saw some improvement in the latter half of the quarter.

But again, as I referenced to Christine's question, it's really important to understand that these packaging changes, and also our Open Happiness campaign, our branding, our connection with the Olympics property in the quarter, all of that played very well into our brands. Again, our brands are getting healthier; our packaging as I said is working; 50% coverage in the entire United States on our contourization for two liter. The pricing of two liter, again, versus the single serves are in a much better place than it was back 18 months ago.

All of that is beginning to show. The logic of all of that is beginning to pay dividends.

Judy Hong - Goldman Sachs

And then, just in terms of Europe, Germany, clearly, second quarter in a row where volume was up pretty nicely here. Can you talk about what's been driving the improvement in that market? And then moving to the U.K., the weather was not really great in that market in the first quarter. So, how did volume do in terms of The U.K., because I don't think you gave us the volume number for the U.K. market?

Muhtar Kent

U.K. was slightly down. But I think really important to understand is about Germany. What is happening in Germany, it's got nothing to do with this past quarter or this past year. Germany was not a market that needed to be fixed; Germany, as you know, it took us years to try to ensure that we could put the right structure in Germany. We closed the deal finally in 2006, and we've been busy putting ourselves to work to get Germany right.

So it's really important to understand that this is not a program that suddenly came into being last quarter or last year. We've been working on getting Germany right. Is Germany right? I'd say probably more than certainly 50% right, and I am confident that looking into the future, Germany is going to start yielding some good dividends as we move towards franchising Germany in the period that we've announced.

But thinking along the same lines as what we are doing in the United States, these are long term programs that we commit ourselves to fixing major markets. Germany was a big one internationally, and now we see that it's on the way to repair and it's going to be finding the right home.


And the next question comes from John Faucher with JPMorgan Chase.

John Faucher - JPMorgan Chase

Quick question; on the North America volume, I apologize for following up on this. Muhtar, you said it didn't affect the loss of the spring water business, didn't affect the volume numbers. Is that because you excluded it from both years, or was that because it was so small that it was less than 1%?

Muhtar Kent

Well, because we excluded it from both years. But Gary can give you some more details on that. The answer is, we excluded it from both years.

Gary Fayard

John, we excluded it from both years, but it's very small and did not impact the volume growth rate of North America at all. On a full year basis, it's less than 1% of North America.

John Faucher - JPMorgan Chase

Then going back to the Japan question that Mark had; you talked about the strength of CSDs. How much of the price mix issue in Asia is related to lower non-carb volumes, this strategic push into CSDs, and the channel mix that entails. And I guess, is that one of the mix problems that we should expect to improve over the next couple of quarters, or is that one going to take a little bit longer? Thanks.

Muhtar Kent

John, I think it's more related also to the channel in Japan, and the channel was under tremendous pressure this time last year and remained under tremendous pressure for all of 2009.

And as I mentioned in an earlier comment, we see beginnings of some light there in the very critical vending channel. And I think that is much more critical to the revenue and to the NSR than the different product categories.

Also CBS, I think we're beginning to see some really good positive developments in the CBS channel as well. But I think, vending, which is a really critical channel, is beginning to show some improved lights.

John Faucher - JPMorgan Chase

Okay. And then one follow-up there, which is when you look at that impact, whether it's the channel piece or the mix from non-carbs and the CSDs, how much of the global mix decline do you think that is? Is that a small piece or is that a pretty sizeable piece, just for the Japan portion?

Muhtar Kent

I would say on a global basis, it's not that sizable.


And our next question comes from Mark Swartzberg with Stifel Nicolaus.

Mark Swartzberg – Stifel Nicolaus

Muhtar, on Mexico, could you give us some more color on the performance in the quarter, including that sequential improvement, and then share with us more on your outlook for Mexico?

Muhtar Kent

Again, the portfolio is working very well in the company. I just want to reiterate, as I get into the Mexico details, because in our quarter where Mexico was down and a quarter where China grew mid-single digits, we achieved a strong, I may add, organic 3%-plus growth in our global volume. And I think that's a testimony to how well we're doing all across the world and our brands are doing all across the world. And our investment programs are paying off all across the world. So that's point number one.

Number two, on Mexico, very, very seasonable weather, and I think essentially we have seen improved results, positive rates of growth in the latter part of the quarter. And I think that leads me to believe that we will put back to trends in Mexico.


And next is Lauren Torres with HSBC.

Lauren Torres - HSBC

Good morning. Another market you mentioned did sequential improvement was Russia. So just curious, coming off a rather difficult year last year, what kind of changes are you seeing in that market this year, and I think maybe also Central and Eastern Europe, some similar comments may apply. So can you just give more color on what you think with respect to the recovery in those markets?

Muhtar Kent

Lauren, I think, I see at it this way. Russia always goes deeper and comes back quicker and with more rigor. So therefore, that's what's we're going to see I believe in Russia. And you'll see a more market return of the Russian consumers back to their normal habit, I believe, in the coming year or so. And I think that the return to normalcy in Eastern Europe is going to take a little longer, although Eastern Europe didn't go down as far as Russia. So I think those are the comments.

I think Russia, already after, as you said, a very difficult consumer environment in 2009 where we saw double digit declines for the whole PPG sector, is beginning to show again positive developments where we're almost even in the quarter in Russia, minus-1. And we importantly grew trademark Coca-Cola double digits in Russia, which as I said was pleasing for me.

So as we go into the summer, and Russia again is a very seasonal-dependent market, I believe that we will see sequential improvement in both the sentiments of the consumer in Russia, the spending of the consumer in Russia and also our business.

Lauren Torres - HSBC

And can I also ask, in Europe, your volumes were even in the quarter and you highlighted a lot of markets that are improving, where is the particular weakness that just got you to flat volumes in Europe and not seeing an improvement in that region?

Gary Fayard

Well, I think I can't give you any more details, but I can tell you the following that certainly Southeast Europe was not as strong as some of those markets that we referenced. Spain continues to be challenged, for example.


And next is Caroline Levy with CLSA.

Caroline Levy - CLSA

Good morning. Just want to dig into, number one, market share in North America just to make sure. It seems that you did lose overall market share in North America, even though you gained in stills. And I'm just wondering why you think that might have happened?

Muhtar Kent

Well, Caroline, first, I think as far as North America is concerned, in terms of our value share in the quarter in sparkling, we lost a little bit of value share in the full quarter as we looked into our volume share in North America. Again, we had slight losses in sparkling and also in still. And I think that is again a result of our discipline in pricing in the United States and what we saw is a bigger loss of share in the beginning of the quarter and some of that share gains were coming back in the latter part of the quarter to result in slightly down share in both volume and value, and in both still and sparkling.

Caroline Levy - CLSA

And do you expect to reverse that, and are you saying it's a function of a widening price gap versus the competition?

Muhtar Kent

As I said, it was the difference between the first half of the quarter and the second half. Volume share decline was mainly due to very aggressive competitive pricing in the beginning of the quarter, bundling and so forth, as well as pricing. But I think CCNA and CCE continue to focus on building consumer and customer value through strong brands, and we see tremendous value from being disciplined in our pricing between our future consumption and our immediate consumption channels.

I think therefore that we anticipate also that the industry will return definitely to rational pricing through the balance of the year, and we've seen some of that also certainly in the latter half of the quarter.

Caroline Levy - CLSA

And in China, your comps actually get much harder, your comparisons, as you move through the year. So, do you think this is perhaps the year where we should not expect double digit volume growth in China?

Muhtar Kent

Well, first, Caroline, I think China still continues to remain the most important growth market for the company, and I think through the end of 2009 as you saw, we held double digits in China. It's been 26 consecutive quarters since 2003 till the end of 2009, and during that time, '03 to '09, our base grew threefold, almost to 1.8 billion cases or over 400 billion servings per annum.

Having said that, we all know that China remains a complex, rapidly changing market. But I can reiterate one thing; our brands, our investment, our innovation platforms remain very healthy, and I would state that we would be disappointed if we would not continue to achieve double digit growth on an annual basis in China going forward.

If you view our business in China over the past six months, our volume averaged at 16% growth over the last six months. Very consistent with same prior year period, and this is very similar to what you would have seen also if you compared quarter four of '08 versus quarter one of '09.

Caroline Levy - CLSA

I have a question for Gary. Currency looks like it added $0.05, so it would have been $0.75 without the of currency benefit, is that right?

Gary Fayard

Yes, that's about right, Caroline.


And our last question comes from Alice Longley with Buckingham Research

Alice Longley - Buckingham Research

My question is about price mix, and I think you've talked about it in the Pacific. Could you talk about Latin America and Eurasia-Africa? It was I think 10% in Latin America. Is that likely to persist through the year? And the negative 5% Eurasia-Africa, could you talk about that?

Gary Fayard

I'd say a couple of things; in Latin America, we got very strong price mix of ten points, and that's both in pricing mix and geographic mix. So everything was positive in Latin America. I don't know if that will continue at that kind of pace. I don't think anyone would expect you could continue that forever.

But Latin America is doing extremely well across all the metrics, and particularly as we've seen Mexico coming back some, we would expect to see very positive results we have in Latin America through remainder of this year.

Eurasia and Africa, there was a negative 5 plus price mix there. It is primarily driven by geographic mix of higher growth in Northern Africa for example, lower sales in South Africa. But as I mentioned, the concentrate sales are behind cases in South Africa, which is what's driving that. I would expect that to reverse in the remainder of the year, and so a lot of that will start coming back.

Alice Longley - Buckingham Research

So that price mix could actually turn positive ahead?

Gary Fayard

Yes, it could.

Alice Longley - Buckingham Research

OK, good. Thank you.

Muhtar Kent

Thank you, Gary and Jackson. In closing, the actions taken this quarter as well as our management team's continued performance track record gives us confidence in our company today in our path to 2020. We will continue to generate strong cash flow, and redeploy that cash to both growing our business and rewarding our shareholders. We are investing alongside our system, and leveraging our global franchise network to win consistently and sustainably around the world.

At the same time, we're committed to delivering consistent value to our share owners through regular dividend payments and share repurchase programs. We will execute flawlessly on our 2020 vision by working closely with our global bottling partners, our employees, our customers, and all our key stakeholders.

As I said, we see tremendous opportunity ahead for the Coca-Cola Company in all our markets, and remain intently focused on partnering across our system to execute our strategic priorities and generate long term sustainable growth. And most of all, we thank you for your interest in investment in our company.

There is no greater responsibility than earning your trust and confidence. So rest assured, we're working tirelessly to keep our commitments and grow the value of your investment in our company. Thank you for joining us this morning.


And that concludes today's call. Please disconnect your line at this time.

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