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The Coca-Cola Company (NYSE:KO)

Q1 2008 Earnings Call

April 16, 2008 8:30 am ET

Executives

Ann Taylor - Vice President and Director of Investor Relations

Neville Isdell - Chairman of the Board, Chief Executive Officer

Muhtar Kent - President, Chief Operating Officer

Gary P. Fayard - Chief Financial Officer, Executive Vice President

Analysts

Christine Farkas - Merrill Lynch

Bill Pecoriello - Morgan Stanley

Lauren Torres - HSBC

John Faucher - J.P. Morgan

Judy Hong - Goldman Sachs

Mark Swartzberg - Stifel Nicolaus

Bryan Spillane - Bank of America

Ann Gurkin - Davenport & Co. Of Virginia

Anthony Vocallo - Credit Suisse

Marion Montagne

Operator

Good morning. My name is Dennis and I will be your conference facilitator. At this time, I would like to welcome everyone to The Coca-Cola Company’s first quarter 2008 earnings results conference call. (Operator Instructions) I would like to now introduce Ann Taylor, Vice President and Director of Investor Relations.

Ann Taylor

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

Before we get started, 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 SEC report.

In addition, I would also like to note that we have posted schedules on our company website at www.thecocacolacompany.com under the financial information tab in the investors section, which reconcile 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 to our results as reported under generally accepted accounting principles. Please look on our website for this information.

Now let me turn the call over to Neville.

Neville Isdell

Thank you, Ann and good morning, everyone. I am going to start this morning with just a few brief observations about our first quarter results and Muhtar will then provide details on the operational performance and the strategies we are employing, and that will be followed by Gary’s overview of financials and some additional perspective on 2008.

Well, we are off to a good start for 2008 further building on our success in 2007. The strength of our brand portfolio, the breadth of our global system, and the winning culture that thrives throughout the system continue to drive our business forward.

I am particularly pleased with our performance in the first quarter given the very strong comparables from the prior year and the challenging U.S. economic environment. We once again proved our ability to successfully manage our portfolio of brands and geographies and through that over time to deliver balanced growth.

We continue to see the benefit of successfully executing our system strategies together with our bottling partners and thus driving strong top and bottom line results. We achieved volume growth of 6% in the quarter, successfully cycling 6% growth in the prior year. This is now the 12th consecutive quarter that we’ve achieved volume results of 4% or greater.

Revenue growth was robust at 21%. The acquisition of bottlers contributed 5% to this growth, such that even excluding this impact revenues grew a very strong 16%.

Ongoing operating income increased 19%, with currency contributing 11%. So our currency neutral operating income increased 8% while as before, we are continuing to make strategic long-term investments behind our brands.

And notably, this is our sixth consecutive quarter of double-digit comparable EPS growth.

Now once again our international operations drove our results, delivering unit case volume growth of 7%, even while successfully cycling 9% growth in the prior year. Importantly, the growth continues to be sourced from developed and emerging markets. All operating groups delivered growth with the exception of Africa, which had a challenging cycle of 17% growth last year but also significant power shortages in South Africa which impacted the results. Even in North America, we achieved slight growth despite the difficult macroeconomic environment.

The current strength of our portfolio also enabled us to deliver balanced growth. Sparkling beverages unit case volume increased 3% in the quarter with our international operations delivery 5% growth on top of 8% in the prior year. This growth was led by trademark Coca-Cola and the continued expansion and strong performance of Coca-Cola Zero, which is now in 81 markets. This is particularly noteworthy given that we are now cycling the successful launches that took place in 2006 and 2007. Additionally, trademarks Fanta and Sprite delivered 2% and 6% growth respectively.

Still beverage unit case volume increased 17%, driven by robust growth across our portfolio of juice, tea, and water brands.

Clearly our strategies are working and we are expanding our volume and value share relationship position in the non-alcoholic ready-to-drink beverage industry, as well as in sparkling beverages and key still beverage categories.

As I enter my final quarter as CEO, I am pleased with our accomplishments and our solid performance. We have put in place a strong foundation and I remain confident in our outlook for 2008. Our well-balanced geographic mix and broad portfolio gives us a unique position from which to manage through current headwinds.

So with that, let me now turn the call over to Muhtar to provide the details on our operations. Muhtar.

Muhtar Kent

Thank you, Neville and good morning, everyone. Overall, this was another solid quarter for the Coca-Cola Company, again characterized by balanced growth across countries and across brands. As Neville indicated, our performance in the quarter was once again led by our international operations, where we continue to reap the benefits of our scale, our world-class franchise leadership, and the successful execution of our clearly defined strategies to drive growth and address key issue markets.

We continue to make significant investments for the long-term in our BRIC markets. In the emerging markets, we focus on realizing profitable growth and continue to expand our leadership positions in our developed markets with value growth.

Our performance in 2007 and thus far in 2008 underscores this approach and we believe enables us to appropriately manage our portfolio for balanced and sustained growth as we track emerging macroeconomic trends.

The international business growth in our emerging markets remained strong. For the quarter we achieved double-digit growth in key emerging markets including China, India, Russia, Brazil, Turkey, the Philippines, as well as Eastern Europe. Double-digit unit case volume growth in trademark Coca-Cola drove the results in most of these markets, whilst we continue to rapidly expand our still portfolio with the continued success of Minute Maid Pulpy, the strong growth of our sparkling and still portfolio in Russia, and the launch of the new mainstream tea Original Leaf in China. Additionally, China continues to leverage the Olympic Games to drive positive performance.

In our Eurasia and Pacific groups, we delivered strong growth of 13% and 10% respectively, primarily driven by the solid performance of these emerging markets. In Eurasia, we are improving our share trend and are delivering balanced healthy growth across all key countries. And in the Pacific group, we are continuing to invest for future growth and achieving non-alcoholic ready-to-drink volume and value share gains.

Japan’s performance reflects our efforts to successfully stabilize our business. Japan achieved slight unit case volume growth in the quarter, cycling 3% from the previous year. This is now the sixth consecutive quarter of growth in Japan. Sparkling beverage volume growth was led by trademark Coca-Cola, which increased double-digits, benefiting from the successful execution of our three cola strategy. Georgia Coffee for the second consecutive quarter also delivered growth.

We launched a new marketing campaign which is connecting well with consumers. We are continuing to innovate around the brand with new flavors, new packaging, as well as marketing initiatives to drive further growth.

The European group demonstrated it has established a solid foundation from which to deliver balanced broad-based geographic and brand growth. Europe achieved 3% unit case volume growth in the quarter, successfully cycling 11% from the prior year. Importantly, key countries delivered solid growth in the quarter -- Germany growing unit case volume at 2%, successfully cycling 11% as we continue to expand our availability in the fast-growing discounted channel.

We continue to be encouraged by our progress in Great Britain, which increased unit case volume mid-single-digits and delivered its second consecutive quarter of growth.

Europe also achieved balanced portfolio growth with sparkling beverages growing 2% and still beverages increasing 14%. Sparkling beverage growth was led by the continued success of Coke Zero and our three cola strategy which jointly drove category share gains in the quarter. Coca-Cola Zero has now been launched in 26 countries in Europe and continues to recruit drinkers back into the category.

We also continue to create innovation in the category with the launch of Coca-Cola Light Plus in France, a product offering vitamins and minerals and now in six international markets.

The expansion in still beverages was driven by double-digit organic growth in Nestea, Aquarius, Powerade, and Burn. The brand performance led to volume and value share gains in still beverages for the entire group.

Additionally, I am pleased that our global joint venture with illycaffè, a premium brand of ready-to-drink coffee is now launching in 10 European countries. European consumers will now be able to enjoy three premium espresso based offerings, and this is a great example of an idea moving from conception to the marketplace in less than a year. We believe this partnership is going to enhance our global leadership in the fast-growing, high value, ready-to-drink coffee category.

Latin America delivered strong results in the first quarter and continues to be a dynamic story for our company. Unit case volume increased 9% with all business units delivering solid growth. In Mexico, unit case volume increased 11%. Continued solid organic growth was led by a mid-single-digit unit case volume increase in trademark Coca-Cola.

Key marketing initiatives around Coke and [Mills] and the Happiness Factory 2 campaigns led to volume and value share gains. We are successfully integrating also Jugos del Valle into our system and while it’s early days, it is performing ahead of our expectations.

In Africa, unit case volume in the quarter declined 1%, cycling strong growth of 17% in the prior quarter. South Africa in particular had a challenging 29% prior year growth rate to cycle, which reflected the replenishment of trade inventories due to CO2 shortages at the end of ’06. Additionally, CO2 shortages in the current quarter also contributed to the 9% volume decline in South Africa.

Our system is currently investing in manufacturing capability that would allow us to produce our own supply of CO2 and therefore minimizes the impact on us in the -- which will minimize the impact on us in the future.

Now I would like to move to North America. As you are well aware, we faced a challenging macroeconomic environment in the first quarter which not only affected our North America business but also negatively impacted the U.S. beverage industry as a whole. Specifically, our food service and other on-premise businesses were hit the hardest. However, our consistent focus on executing our strategies and our commitment to winning enabled us to deliver slight unit case volume growth in the quarter.

While our performance in North America is not where we want it to be, I am encouraged by the steadfastness of our teams. Despite the overall U.S. industry volume declining in the first quarter, we actually gained volume and value share. I am confident that we have the right strategies in place to deliver against our goals. We will continue to invest behind our brands as well as customer relationships while improving our in-market execution.

We continue to execute our three cola strategy. In the quarter, our U.S. business achieved share gains in core sparkling beverages led by Coca-Cola Classic, Diet Coca-Cola, and Coca-Cola Zero each gaining share. Coca-Cola Zero continued to drive strong growth, achieving more than 40% volume growth, two-and-a-half years after launch, cycling in fact 27% growth from prior year.

On the marketing side, we are investing in brand building activities and connecting to the passion points of our consumers through our Super Bowl advertising, sponsorship of American Idol, the NCAA Final Four, as well as Daytona 500 activation.

Importantly, our still beverage portfolio continues to outperform the industry, driven by the strong performance from Glaceau, Fuse, and our warehouse Chill Juice business. Glaceau and Fuse continue to perform ahead of expectations, reflecting increased availability as well as velocity through our hybrid distribution model. These acquisitions remain a key catalyst for our overall business in North America, creating greater alignment between us and our bottling partners, as well as providing resources to continue to invest behind our total portfolio.

In the first quarter, we began the international expansion of Glaceau first in Australia. We will continue to strategically look at other markets to expand the brand throughout 2008.

As Neville and I have been saying for the past several quarters, we are committed to restoring growth to North America and have taken important steps to put us on the right track. Despite the challenging environment, in 2008 we will continue to invest along with our bottling partners for growth. We are aligned with our bottling system and our customers behind a strong marketing calendar for the remainder of the year.

Overall, I am pleased with our performance in the first quarter. However, we continue to recognize there is still much more work to be done, particularly in North America. Globally, our performance going forward will be underpinned by the successful execution of our five strategic priorities, which I have previously laid out. I am committed to continuing improvement in the execution of our strategies.

Even in the face of a challenging economic environment, I am confident that by leveraging the scale and power of our brands, our consumer base, customer network, and franchise system to capture the greatest share of opportunity while carefully managing our expenses, we will achieve another successful year of growth for the Coca-Cola Company and create value for our shareowners.

Now let me turn the call over to Gary.

Gary P. Fayard

Thanks, Muhtar and good morning, everyone. As Neville and Muhtar indicated, we are starting the year with solid financial results. As you saw in the release, we reported earnings per share of $0.64 per share on a diluted basis for the first quarter, an increase of 19%. This included a net charge primarily related to restructuring charges and asset write-downs of $0.03 per share. Therefore our adjusted EPS was $0.67 per share, an increase of 20% after considering items impacting comparability in both the current and prior year. This is now our sixth consecutive quarter of double-digit comparable EPS growth.

Net revenue in the quarter increased 21%, which included a 5% benefit from structural changes primarily related to our acquisition of bottlers. The growth was driven by 5% increase in concentrate sales, a 9% increase from currency, and a 2% favorable impact from price mix.

In the quarter, unit case volume increased 6%, which we report on an average daily sales basis. There was one less day this quarter than in the prior year quarter. Therefore on a reported basis, unit cases and concentrate sales are in line for the quarter.

In the quarter, the impact of one less day was offset by the shift of Easter into the first quarter, so really no net P&L impact. The second quarter will be impacted by the shift of the Easter holiday into the first quarter but also note that in the fourth quarter of this year, we will have two additional days.

We grew operating income by 15% on a reported basis. After considering items impacting comparability in the current and prior year quarter, operating income increased 19%, which includes an 11% benefit from currencies. So on an ongoing currency neutral basis, we grew operating income 8%.

SG&A on an ongoing basis increased 21% in the quarter. About 17 points of that increase was due to bottler and brand acquisition, increased sales and service expenses as we invested for growth in our bottling operations and from currency. The remaining four points were from our continued investment behind our brands, while controlling G&A expenses as we focus on productivity and expense management.

Additionally, we continue to see margins improve in both our core business as well as in our bottling investment group. Our continued focus on driving efficiency and effectiveness throughout our organization generated three points of operating expense leverage on our core business.

Cash from operations for the quarter increased 18% to $1.1 billion on the strong underlying business performance.

In the quarter, we repurchased approximately $309 million of our stock. We still anticipate that our range for share repurchase for the full year will be between $1.5 billion and $2 billion.

Now let me address some of the factors we see impacting the remainder of 2008. We remain confident in our ability to achieve long-term sustainable growth despite the slowdown in the U.S. economy, given our balanced geographic mix and brand portfolio. As you have seen from our results, our international markets, particularly our emerging markets, have maintained their strong performance even against a difficult economic environment in the U.S.

Globally, we have strong aligned plans in place with our bottling partners for the remainder of the year which reflect the realities of the local economic conditions. We will continue to portfolio manage globally as we expect solid performance in most of our markets with softness in North America, as our business in North America will continue to be impacted by the difficult economic environment in the near-term.

From a commodity cost perspective, our assumptions are unchanged. We would expect a slight increase for the system and essentially flat for the company. From a capital expenditure standpoint, we purchased approximately $372 million in net property, plant, and equipment during the quarter. For 2008, we continue to expect total company net capital expenditures to be approximately $1.6 billion to $1.7 billion, as we make investments primarily in our acquired bottling operations.

With regard to taxes, we ended up the quarter with an underlying effective tax rate of 22% and we expect to remain at that underlying rate for the remainder of the year.

Finally, let me move to currency -- as I mentioned, we saw a positive impact from currency for the quarter on operating income of 11%. This was clearly ahead of our previous expectations, given the change in market rates late in the quarter.

We are effectively covered for the full year on the YEN and the Euro and I would remind everyone that in our hedging strategy, we use an option strategy so we maintain all of the upside in currencies.

Based on current market rate expectations for the remainder of the year and benefits of coverage in place, we would expect currency benefits on ongoing operating income for the full year to be in the mid single digit range.

Given the greater than expected currency benefit, the company is evaluating whether there might be opportunities to reinvest a portion of the currency benefit in marketing programs and productivity initiatives to drive long-term sustainable growth.

That’s what I wanted to cover this morning. Operator, if we can now turn it over for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question will come from the line of Christine Farkas with Merrill Lynch.

Christine Farkas - Merrill Lynch

Thank you very much. There’s a lot that’s growing here but I want to focus on the segment that isn’t and that’s North America. I’m wondering, Muhtar, in looking at your margins for the quarter, which were down substantially year over year, we know that Glaceau is probably a lower margin business while your fountain business is also a lower margin business and that was down. Can you just kind of go through perhaps those factors or other factors and how they might have impacted structurally the margin structure in North America?

Muhtar Kent

I’ll just reflect on first the margins. Firstly, I think what you see is that Glaceau is adding of course revenue at a higher rate than it’s adding obviously income in terms of how it comes into the business and how it is reflected in the P&L, so you do see a greater, a higher benefit from revenues versus income when you add Glaceau numbers to our total numbers.

Secondly, certainly in terms of the food service, both cost of goods sold are impacted by freight, by HFCS, and we are continuing to invest in our marketing programs. But overall, I think that we have also a lot of supply chain initiatives that we are working on in our North American business and not all of them have been coming and bearing fruit in Q1.

Gary P. Fayard

If I could add one thing to that, remember on Glaceau that while on a percentage margin basis, it would not be -- the margins are not as high. On a pennies, profit per case basis it is actually higher. So Glaceau is very positive for us from an absolute P&L point of view. So really what you are seeing is some cost of goods and some mix with food service and sparkling down for the quarter.

Christine Farkas - Merrill Lynch

As well as some investment itself. Thank you.

Gary P. Fayard

Correct and we are continuing to invest behind the brands in fact globally in every market.

Christine Farkas - Merrill Lynch

Thanks a lot, gentlemen.

Operator

Your next question will come from the line of Bill Pecoriello with Morgan Stanley.

Bill Pecoriello - Morgan Stanley

Good morning, everybody. Congratulations on a strong quarter. I also had a question on North America. Aside from the weak food service business, the retail business was also flattish if you exclude acquisitions and I wanted to try and understand some of the other factors that could be playing a role there. Do you see -- you mentioned that you think the Coke system gained volume share. We saw Pepsi very promotional over Easter in some channels. Was that a factor? On the bottler execution, any distraction as the Glaceau, which is exceeding your expectations, is being integrated, is that having any impact? And then as you look at the balance of the year and trying to grow the business, would the U.S. be a prime candidate for getting any disproportionate reinvestment on the foreign currency upsides that you were referring to? Thanks.

Muhtar Kent

Firstly, as I indicated overall industry declined in the U.S. but we have gained total beverage volume and value share in terms of the quarter, so I want to highlight that and our still beverage portfolio also continues to outperform the industry and Glaceau and Fuse continue to perform ahead of our expectations. And therefore, looking into the second half of the year, we remain confident that we do have the right strategies in place. It’s a difficult environment and in terms of what is being impacted in the bottle and can side of the business is also the immediate consumption side of the business that is impacted more because of the way -- how the consumer sentiment is currently reflecting into the total industry.

So I want to just highlight that the retail performed -- our retail business performed better than the industry and there’s a move from on-premise to more home consumption and we are reflecting our marketing programs to -- realigning our marketing programs all the time on a flexible basis to ensure that we can capture whatever opportunities are out there. But there’s no question that the food side of the business is more challenging at the moment, the food service side.

Neville Isdell

Just to add on the -- your comment about the end of March and our competitor, that does happen at the end of a quarter sometimes from a competitor. We have got a very balanced plan for the full year and we don’t react as it were week by week, and you know we’ve had a very strong quarter. So that -- from a share standpoint and that’s because of the integrity of our programs and the way that we work in conjunction with our bottlers.

Bill Pecoriello - Morgan Stanley

Thank you.

Operator

Your next question will come from the line of Lauren Torres with HSBC.

Lauren Torres - HSBC

Good morning. Latin America was once again a strong market for you in this quarter. I was just hoping you could talk more about how the weakness in the U.S. has or may carry over to potential weakness in Latin America, particularly in Mexico. Have you seen evidence of this or are you at least concerned about a slow down in these markets?

Muhtar Kent

Lauren, we have not yet seen any evidence of any slow down in Latin America at the moment. There’s -- we also -- we all read about the remittances from the United States having gone down significantly to Mexico at the moment but right now from -- in terms of the market sentiment, in terms of the consumer sentiment, we have not yet seen any impact not just in Mexico but across all of Latin America. We haven’t yet seen any but certainly that could be a risk going forward but we have certainly not seen anything at the moment.

Lauren Torres - HSBC

But so far with respect to volume and pricing, it’s been well accepted and you’ve seen some good momentum there?

Muhtar Kent

Absolutely, yes.

Lauren Torres - HSBC

Okay. Thank you.

Neville Isdell

Lauren, just to add, I was actually in two of the smaller markets, Chile and Peru, a few weeks ago and there’s a vibrancy in Latin America that I don’t think we’ve seen in decades and reflect in those some other markets, which are actually going to be -- they are not obviously of the size of the ones that we normally focus on but from an incremental standpoint are going to be important as we go forward. So I think this is also true globally. We look at the BRICs as we should and we will continue to but again around them are some other markets, the Vietnams, et cetera, Philippines, where there is significant incremental growth for us as we go forward.

Operator

Your next question will come from the line of John Faucher with J.P. Morgan.

John Faucher - J.P. Morgan

Good morning, everyone. I was wondering if you could update us in terms of any further thoughts on spinning off some of the company owned bottlers. The margin improvement there has been very impressive. It seems like you’ve got great plans there. How is the spin-off of sort of the better functioning, the ones you’ve made better going to impact your margin targets and your growth targets in terms of looking at the bottling operations? Thanks.

Neville Isdell

John, let me give you a headline comment and then pass it over to Muhtar. We’ve consistently said that, as you know, it will be our plan to divest. However, we really need to get these large bottlers, some of which we have only recently acquired, if you take China, if you take the Philippines, into really good shape before we move them on. So for the larger ones, nothing immediate whatsoever and I’ll let Muhtar pick it up from there on some of the others.

Muhtar Kent

The key for us is that first we need to assure ourselves that we’ve got it right and working where we want it to be in terms of the conditions that we’ve brought -- improved inside the operational side of the bottlers that we own. That’s point number one and you’ve seen us talk about -- you know, [Ramill] has now found itself the right home and you’ll see us doing more of that as we move forward.

We’re working on this investment of a portion of our equity in our Pakistan CBOs at the moment and again, that’s because we feel the timing is right and we will move forward with that. And as we move into the future, you will see us employing different strategies. It’s not just going out and selling but structural also strategies to make sure that we have the right structures in place for the right markets as we move forward into our bigger bottling investments, whether it be Germany or whether it be Philippines or whether it be China or whether it be India.

Gary P. Fayard

I guess I would add one other thing as well -- as we look to dispose of bottlers, and you’ll see some of those as Muhtar said this year and in fact, this second quarter. The other thing we look for is ensuring that the bottling partner that we are going to sell to has the capability not only financially because we want a long-term sustainable successful bottler when we sell, but also has the management capability, the operational capability to maintain the momentum once we’ve corrected these bottlers and continue for the long-term success of the system. So we are being very careful in who we sell to and what we do and we are selling for fair prices as well. We are not trying to maximize big gains. We’re trying to maximize long-term sustainable results as we go forward.

Muhtar Kent

Just one add-on, John, and don’t -- take what we are doing also in the face of ensuring that we may now own a bottler but we may have a -- we may employ a structural difference that will benefit our system as we move forward. Example is Korea where now we have a local partner, very effective. We are working -- we have totally aligned and we’ve actually generated growth in the quarter in Korea for the first time in many quarters and we are confident about the future there. So the main purpose is to ensure that we have the right structure in place for the future benefit of creating sustainable value and growth in that market.

John Faucher - J.P. Morgan

Okay and then Gary, to your point on the second quarter, I mean, I’m assuming you are going to sell off the smaller bottlers, so I’m assuming there’s not going to be much of a P&L dilution impact there but any advice in terms of how we model it or is it just too much of a rounding error to say there is really not going to be any noticeable dilution?

Gary P. Fayard

There’s not going to be noticeable dilution and in fact on [Ramill], and for those that don’t know [Ramill], it’s one of the bottlers that we own in Brazil that we’ve announced that we are selling to Femsa, we actually had planned to sell it. It was in our plan so everything we’ve said about 2008 off the year-end call today, we’ve had it in our plans the whole time so it’s not that significant.

John Faucher - J.P. Morgan

Thanks.

Operator

Your next question will come from the line of Judy Hong with Goldman Sachs.

Judy Hong - Goldman Sachs

Good morning, everyone. I wanted to go back to North America and I appreciate the comment that you guys are gaining market share here but just looking at the broader industry and looking at the significant slowdown that we’ve seen in some of the higher growth segments in the still segment, like ready-to-drink teas, sports drinks, energy drinks, et cetera, I’m just wondering if you can talk about what are really the drivers of the weakness. Is it purely just a consumer weakness? Is there any concern that these segments are now becoming a bit more mature and that the growth rate is slowing down in some of these segments? Because it looks like the total LRB segment has seen a slowdown and it really seems to be coming from the slowdown from some of these higher growth segments.

Muhtar Kent

Good morning. Firstly, just reiterating that our strategic focus is to ensure that we are the fastest growing still beverage company in North America and our still beverage portfolio is outperforming the industry. Total still beverages for us grew 10%, double-digits, in the quarter. Warehouse chill juices, led by simply trademark and Minute Maid enhanced juices grew and gained share. Glaceau and Fuse are continuing to perform ahead of our expectations and we do still see growth ahead in those categories, in the still categories and the challenges around North America, as I said before, are about the food service side and about the immediate consumption side and those are -- we are addressing those as I said with refocus programs.

Gary P. Fayard

Judy, I would add a couple of things. We have always said that our food service business is a leading indicator of the U.S. economy and that’s what we’re seeing now. It by the way as a leading indicator will be one of the things that tell us actually that we are coming out of the economic issues that we are currently seeing in the U.S., so you are seeing a lot of channel driven issues, food service, and it’s just traffic is down. And you are also seeing the impact of the price of gasoline and people are staying at home, more future consumption versus immediate consumption, and that is truly just the economic conditions that we are seeing.

Judy Hong - Goldman Sachs

Okay, and then Gary, if I could just get a clarification on your comment about the outlook for the remainder of the year, I think you said that you are confident that you can achieve the long-term growth targets. I think in the beginning of the year, you’ve talked about your picture of success this year being -- exceeding those long-term growth targets and I’m just trying to see if there is any change in the thinking there.

Gary P. Fayard

No, in fact -- thank you for asking that. We were, in all candor, debating before the call whether we put it in the script and told you or waited for you to ask the question, so I’m glad you asked the question.

Our picture of success is that we should exceed our long-term growth targets and I’ll go further and tell you, without telling you exactly what they are, the metrics in our incentive plans for our compensation are in excess of our long-term growth targets.

Judy Hong - Goldman Sachs

Okay, and then just final question, Gary, on your corporate expense line, it was down significantly year over year. Is that basically driven by some of the cost-savings initiatives bearing fruit and is that a pretty good run-rate to use going forward?

Gary P. Fayard

It’s a good run-rate for this year and it is definitely part of our productivity initiatives. A lot of that is coming through in some health costs that we’ve taken some real initiatives around that to control some of those benefit costs. We’ve been doing -- and we are doing that in all areas of the business, so you’ll see us continuing with a real focus on controlling G&A expenses as we go forward.

Muhtar Kent

Judy, just to add on to that, what we strive for always in all the productivity initiatives is that they result in some leverage on our P&L and if you look at the core business, you see that we have achieved leverage on our P&L quite substantially also in the quarter, so that’s how -- that’s the measure of success, in a way.

Gary P. Fayard

And I would add -- let me just add one thing to that -- as we continued to drive productivity in G&A, we continued very solid investment in the brands globally everywhere, so we are continuing with very solid investment on the brands and marketing.

Neville Isdell

Let me just add to that as well in that when there are times of economic difficulty, it’s the weaker competitors that tend to suffer more. That’s why we are continuing with the investment. And just as we’ve outlined that food service often is an indicator of what’s happening in the broader economy, one of the early indicators of our ability to grow share is economic difficulty because other companies will pull back on their investment in marketing. The noise level broadly in the marketplace, not just with regard to non-alcoholic ready-to-drink, goes down and therefore the impact of our investments is greater. And we’ve seen that over many cycles and we would anticipate that to be the case as we go ahead, so that is the mitigating factor for us as we meet the same headwinds that everyone else does and that is why we are maintaining that confidence behind our marketing programs and investing behind them.

Operator

Your next question will come from the line of Mark Swartzberg with Stifel Nicolaus.

Mark Swartzberg - Stifel Nicolaus

Thanks. Good morning, everyone. Muhtar, trademark Coke, it’s your largest trademark. If I have my facts right, it slowed appreciably in the quarter to up 2% after accelerating to up 4 in ’07. I guess first, do I have the facts right and if I do, to what extent do you think that’s purely a function of North America and to what extent are there other factors at work here?

Muhtar Kent

No, I think actually we’re pleased with the growth of our sparkling beverages overall, as well as trademark Coca-Cola. I think what you have to take into consideration is that now we are cycling an international that’s up 4% and we are cycling now Coca-Cola Zero and in fact, despite cycling Coca-Cola Zero, we are still growing trademark Coca-Cola, which is really the litmus test for success for us. And you’ve got two factors that happen in the quarter. One is that North America is down but also Africa, for specific reasons related to South Africa, which is a big trademark Coca-Cola market, was down as a result of the specific shortages for CO2 resulting from energy shortages in the country and we are taking mitigating action to correct that.

So we feel good about the results overall, both internationally and overall as a total global basis.

Mark Swartzberg - Stifel Nicolaus

And the interaction between Coke Zero and the other trademark Coke names continues to be as favorable as you have seen it in the past?

Muhtar Kent

Positive and the same kind of dynamics in terms of incremental growth.

Mark Swartzberg - Stifel Nicolaus

Great. Thank you.

Operator

Your next question will come from the line of Bryan Spillane with Bank of America.

Bryan Spillane - Bank of America

Good morning. I just wanted to follow-up to John Faucher’s question about the bottling assets. In India, Neville, when you first came back to the company there was a lot of work that had to be done to fix that business and it seems like it is on the right track, at least volumetrically. So if you could talk a little bit about the profitability of the bottling operations in India now relative to where they were.

And then also, I understand you made a management change there during the first quarter, so if you could talk a little bit about the thinking behind that management change and what happens going forward there.

Neville Isdell

Well, the Indian bottling operations were profitable in 2007. We see that profitability expanding in 2008. I’ve just spend 12 days in India, actually, and I was out in a number of markets. Some of them are CBO markets and the quality of execution against what we had four years ago is actually chalk and cheese, which is what we are trying to do around the world.

We are still not there yet in India. There is still a great deal to be done. I think that’s true of all of the CBOs. Again, I think that comes back to the question that we answered earlier on CBOs. We’ve made an awful lot of progress. Generally profitability is improving. It is masked somewhat by the new acquisitions and the drag that they bring to it. You don’t see it within that but if you look at the ones that we’ve been working on for some time, every single one is reacting positively to the new management that we’ve brought in four years ago in terms of Irial and the people that he’s brought in. So we have a really strong professional team now that’s doing an excellent job.

On the management change, Muhtar can comment on it as well but that essentially was just a normal cycling. We sent John [Ustavson] there on a specific period of time to really put an expert in to change many, many things in a short period of time. John’s a very experienced executive. But that was the agreement with John. We have an Indian executive who’s been trailing him who has now taken over, so we have local management.

And what happens with a turnaround, the first real big difficult piece is the first tranche. You need a really strong individual to do that. Then once it’s in place, you can bring someone who sees the strategies are all there and can continue to do that, and I’ve spent some time with him actually in India and we are confident we’ve got very good Indian management leading that business.

Muhtar, I don’t know if you want to add to that.

Muhtar Kent

The only add-on would be that I am also very pleased to see in India that it’s not just the CBOs, that the company-owned bottling operations that are performing but it’s the franchise bottlers and their increasing appetite to continue to invest in the marketplace is driving results in every part of the country in all markets, so it’s not just the CBOs that are performing but also the franchise business is performing very well and all the -- we have a much stronger brand portfolio in India. We’ve launched organically some still beverages that we believe will do very well in the area of juice and juice containing beverages. We have a very good trademark in juice in Maaza as well as Minute Maid, so we think that India is on track but as Neville said, a long way to go before we can be pleased about -- it’s still very low per capita when you think about it. So we’ve got a long road ahead of us in terms of sustainable growth.

Neville Isdell

I just want to build off Muhtar’s comment because there is a very important piece here, and that is the new level of respect that the bottlers have for our ability to run bottlers and what that actually does in terms of the overall system. And I will give you some anecdotal stories but let me go back to India; four years ago, I met a very, very unhappy group of franchise bottlers. I was with all the franchise bottlers, as I say, a couple of weeks ago. I have never seen them more bullish. Muhtar has given you some facts around that.

We were with the Mexican bottlers a few weeks ago. I can tell you four years ago I had a very difficult meeting with the Mexican bottlers. We had a very good meeting with the Mexican bottlers and that -- I can tell you stories of those sort of pictures around the world, so -- it’s A, what we are doing with the portfolio, what we are doing with the marketing, what we are doing on the franchise leadership side but also the confidence that we actually know what to do with regard to our bottling investments as well. I think there really is a positive synergy that comes out of this.

Bryan Spillane - Bank of America

Thank you.

Operator

Your next question will come from the line of Ann Gurkin with Davenport.

Ann Gurkin - Davenport & Co. Of Virginia

Good morning. As you look at many of your faster growing international markets, is there any reason right now to change your economic outlook for those markets? Any reason to suggest a slowdown? And then, is there any likelihood you’ll use greater cash flow to buy back more than expected shares?

Muhtar Kent

Let me take the first part, Ann, and then I’ll hand it over to Gary on the share purchase. As far as -- we had again a very, very good quarter in terms of how we grew both in the BRIC markets with China leading the way, but also in Brazil, also in Russia, very good results in Russia, both in the sparkling category, trademark Coca-Cola and also in the still beverage category in Russia, in India, as we just talked about. But also in key emerging markets, such as Ukraine and such as Turkey and such as some other Asian markets. I mentioned Korea also, that we had some growth for the first time in many quarters.

So in general, we are very, very happy with the results and with the market conditions, with the investments, with the portfolio, with the alignment with our bottling partners and with the programs that we have in place for the balance of the year and going into the future.

In terms of economic contagion and what happens, we haven’t seen any results right now. What will happen in terms of the impact of the food prices around the world, we’ll have to wait and see. You know as well as I do that there’s a lot of current dislocation in terms of the staple goods, wheat and rice and corn, and we’ll see how all of that plays out.

Gary P. Fayard

Ann, as we go through that and because -- well, we are seeing obviously, IMF last Friday I believe revised downwards some GDP growth estimates in a lot of the markets. Our expectation is you will see some slowdown in GDP around the world but I think those countries we continue to believe will still remain healthy and continue to grow maybe a little slower.

But recognizing that fact, that’s why we said at the beginning of the year that our share repurchase would actually be in the $1.5 billion to $2 billion range, because it is kind of uncertain economic times.

So each quarter we’ll revise that number based on what we see. We’re still at the 1.5 to 2, but obviously cash flow is coming in significantly ahead of what we would have expected even six weeks ago, just from the currency upside that we’ve seen and we’ll be revising that as we go through the year.

Muhtar Kent

And just one last comment on the macroeconomic situation; based on my experience from past previous macroeconomic headwinds, what we do have a difference of this time is that across the world in terms of BRIC countries, in terms of the macroeconomic indicators of the emerging markets, the fiscal discipline and the monetary dynamics and ratios of all the economies have never been better. In other words, all the emerging market economies are going into this economic environment with actually better fiscal discipline in terms of budget deficits, inflation, et cetera, than they’ve ever, ever faced such a situation in past years. So there is that piece to consider also.

Ann Gurkin - Davenport & Co. Of Virginia

Great. Thank you.

Operator

Your next question will come from the line of Anthony [Vocallo] with Credit Suisse.

Anthony Vocallo - Credit Suisse

Good morning, everyone. On the expected currency benefit reinvestment, you touched on that in your press release and I think Gary touched on that in his comments. Are those plans in place? Are they being created now? And if so, how and where could we expect those to materialize for your company and for your --

Neville Isdell

Well, the headline is they are not in place yet. We are still working on them. Let me make -- let Muhtar make some additional comment.

Muhtar Kent

I think the important thing is where we see opportunities, we will proactively make decisions to ensure that we continue to reinvest behind our brands for sustainable growth. That’s the real bottom line that I’d like to underline.

We don’t have plans in place but we see this as an opportunity and therefore you will see us taking those opportunities where we see they will deliver long-term, continue to deliver long-term sustainable growth. Gary.

Gary P. Fayard

That’s exactly what I would say. On every opportunity that we see, we are being very rigorous as we go through, looking at long-term returns, the things you would expect us to look at. We do have an opportunity but we are going to be very prudent and review everything -- is it a valid investment that we think we should make?

Neville Isdell

I just want to keep emphasizing the word long-term that you hear because I’m sure the fear might be that we take short-term actions because of the currency gains that we have, by just pricing actions, which are non-replicable as we go forward, and I just want to point out that that is what we are not going to do. You heard the words -- we’ll only do it if it is expenditure that is going to benefit the long-term.

Anthony Vocallo - Credit Suisse

So there’s no specific broken bone that you are going to treat this year?

Muhtar Kent

No, I mean, we’ve addressed our issue markets rapidly in past periods and you won’t see us doing that. I think the two areas that you will see us focusing on opportunities will be investing in certain programs that will give us sustainable growth, long-term sustainable growth and secondly also some productivity initiatives, behind some productivity initiatives that may require some investment up front.

Anthony Vocallo - Credit Suisse

Great. Thank you very much.

Operator

Your next question will come from the line of Marion [Montagne] with [inaudible].

Marion Montagne

At the European Union, you seem to have some pretty good numbers versus year-ago, at least on the volume side. And as I look further down, I’m wondering if that’s an area where you’ve started to put it more into marketing. Could you give us a little more color around that area?

Muhtar Kent

Yeah, what I’d like to say is that as I mentioned, we’ve cycled a very strong quarter from previous year and the good news is that all our major countries -- Great Britain and also France and Italy and Germany, Spain, they all grew in volume and we also gained both volume and value share across the categories in Europe.

I think that the key word here is that we have the foundation in place to continue to generate long-term growth. We are cycling many programs, particularly Coca-Cola Zero, very successful launches from previous year, and we’ve got great programs ahead with the European Football Championship happening in two key locations in Central Europe this year, with most of the summer, particularly early summer will be soccer fever. And we’ve got good programs across the Olympics and we feel that we can continue to generate long-term growth in this very key geography.

Marion Montagne

Okay, since you threw out the word Olympics, can I ask is the marketing going to directed towards the -- what was it, a universal table kind of theme and then local theme? Is that how you are going to approach this?

Muhtar Kent

It’s going to be local from market to market, with customer -- specific customer related programs as well as brand related programs mainly across trademark Coca-Cola.

Marion Montagne

Okay. Thank you.

Ann Taylor

We have time for one last question.

Operator

The last question will come from the line of Mark Swartzberg with Stifel Nicolaus.

Mark Swartzberg - Stifel Nicolaus

Muhtar, on vitamin water, clearly as you’ve noted here, it’s outperforming your expectations. I was hoping we could get a little bit more update on where the -- from a North America perspective, where the ACV in convenience for vitamin water and smart water is versus the 50 and 15 you had at the start of the year.

And then also when you look at same-store sales growth for that particular brand or family of brands, in some of the older markets like New York and L.A., what are you seeing there versus some of the newer markets?

Muhtar Kent

I think that we, as I said, we see some very robust consumer reaction to vitamin water. We’ve got basically ACV up to now 98% in the supermarkets, up from about 90% in pre-acquisition. Both vitamin water and smart water increases in velocity. The hybrid distribution system is really working well and you’ve seen us in the quarter almost doubling the business versus prior year and again, sourcing volume from across the board and generally creating a very good category platform for active lifestyle beverages, sourcing volume from the sports category, from energy and very, very powerful again in particularly the convenience channel, as well as the supermarket channel and also with some customer-specific distribution in some food service, selected food service customers as well as airlines, as well as almost now 40 extra campuses around the country, et cetera.

Mark Swartzberg - Stifel Nicolaus

And when you look at the more -- I wouldn’t call them developed but some of the older markets like New York and L.A., how are they performing on a same-store sales basis?

Muhtar Kent

Very good vertical growth continuing, organic vertical growth.

Mark Swartzberg - Stifel Nicolaus

Excellent. Okay, thank you, Muhtar.

Neville Isdell

Well, that being the last question, I just want to say thanks to Muhtar and Gary and also to each of you for joining us this morning. As you hear from our tonality and I guess even the tonality of your questions, we are off to a very good start in 2008. I know what you are focused on is is this going to continue through 2008 and we are actually confident that our strategies are working and as I mentioned earlier, that we expect 2008 to be another successful year for the Coca-Cola Company.

Just as a headline, we’re going to just continue to leverage our leading brands, our global footprint, and also our strategic acquisitions to continue to drive growth and, most importantly, long-term value for our shareowners. Thank you very much indeed.

Operator

Ladies and gentlemen, this does conclude the Coca-Cola Company’s first quarter 2008 earnings results conference call. You may now disconnect.

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