Coca-Cola Reports Solid Operating Results in First Quarter; Remains Confident in Full Year Guidance

Net Revenues Grew 5% in First Quarter; Organic Revenues (Non-GAAP) Grew 6%, Including a 2% Benefit from Timing

Operating Income Grew 29%; Comparable Currency Neutral Operating Income (Non-GAAP) Grew 16%

Operating Margin was 29.1%; Comparable Operating Margin (Non-GAAP) was 30.5%, Including the Impact from Currency Headwinds and Acquisitions

EPS from Continuing Operations Grew 24% to $0.38; Comparable EPS from Continuing Operations (Non-GAAP) Grew 2% to $0.48, Impacted by 11% Currency Headwind and a 2 Cent Benefit from Timing

ATLANTA--(BUSINESS WIRE)--The Coca-Cola Company today reported a solid start to 2019, with continued momentum that included gaining global value share. Reported net revenues grew 5% in the first quarter, and organic revenues (non-GAAP) grew 6%, with positive performance across all operating groups, in addition to a benefit from timing.

"We're encouraged by our first quarter results as our disciplined growth strategies continue to deliver strong underlying performance," said James Quincey, CEO of The Coca-Cola Company. "We remain confident in our full year guidance as we continue to make progress on our transformation as a consumer-centric total beverage company."

Highlights

Quarterly Performance

• Revenues: Net revenues grew 5% to $8.0 billion. Organic revenues (non-GAAP) grew 6%. An estimated 2 points of revenue growth was attributable to timing, primarily related to bottler inventory build in order to manage uncertainty related to Brexit. Additionally, the quarter included one less day, which resulted in an approximate 1-point headwind to revenue growth.
• Margin: Operating margin for the quarter, which included items impacting comparability, was 29.1% versus 23.7% in the prior year. Comparable operating margin (non-GAAP) was 30.5% versus 30.7% in the prior year. Strong underlying margin (non-GAAP) expansion was offset by an approximate 260 basis point negative impact from currency headwinds and net acquisitions.
• Earnings per share: EPS from continuing operations grew 24% to $0.38. Comparable EPS from continuing operations (non-GAAP) grew 2% to $0.48, despite an 11-point currency headwind. EPS included an estimated 2 cent benefit from timing, primarily from the bottler inventory build related to Brexit.
• Market share: The company continued to gain value share in total nonalcoholic ready-to-drink (NARTD) beverages.
• Cash flow: Cash from operations was $699 million, up 14%. Free cash flow (non-GAAP) was $335 million, down 1% as strong underlying cash generation was offset by currency headwinds along with an increase in capital expenditures and cash tax payments.
• Share repurchases: Purchases of stock for treasury were $397 million. Net share repurchases (non-GAAP) totaled $243 million.

Company Updates

• Chairman transition and an evolving growth culture: Following the company’s annual meeting on April 24, James Quincey will become the 14^th chairman of The Coca-Cola Company, contingent upon his reelection as a director. Quincey succeeds Muhtar Kent, who is retiring after a Coca-Cola system career that started in 1978. Kent served as chairman and CEO from 2009 until 2017 and then as chairman after Quincey became CEO. Quincey intends to build on the strong foundation Kent has established within the system, including a focus on fostering a growth-oriented culture.
• Pursuing the company's World Without Waste goals: Supporting its commitment to the World Without Waste initiative and improved transparency, the company issued its annual progress report, which cited continued progress globally on design, collect and partner efforts. For example, the company, along with its bottling partners, now has 100% recycled PET bottles in multiple markets and will have them in more than a dozen markets by the end of 2019, driving successful circular solutions for packaging. Much of the system's Latin America business is engaged in a multi-country project to significantly increase the use of refillable packaging, and markets globally are assessing ways to move toward more diverse business models for product delivery.
• Broadening a consumer-centric portfolio: During the quarter, the company completed its acquisition of Costa Ltd., which gives Coca-Cola a significant entry point into hot beverages and a global platform in coffee. In the second quarter, the company will begin to leverage Costa's scalable platform across formats and channels with the introduction of Costa ready-to-drink products. Coca-Cola also closed its acquisition of CHI Ltd., an innovative, fast-growing leader in expanding beverage categories in West Africa, including juices, value-added dairy and iced tea.
• Driving profitable growth under the Leader, Challenger, Explorer framework: Strong innovation within Leader brands included double-digit growth for Coca-Cola Zero Sugar globally for the sixth consecutive quarter. Within the U.S., the company showed strong performance for Orange Vanilla Coke and Orange Vanilla Coke Zero Sugar, which helped drive 6% retail value growth for brand Coca-Cola. The company also launched Simply smoothies in the U.S., while innocent, the company's leading juice brand in Europe, expanded into plant-based beverages. As a Challenger brand, smartwater continues to innovate through the successful rollout of smartwater antioxidant and smartwater alkaline in the U.S. Within Explorer brands, the company continued to capitalize on brands with edge, including Aquarius GlucoCharge, which has shown early signs of success in the fast-growing enhanced hydration category in India.
• Aligned and engaged system investing for growth: The company has established a sustained platform for performance that is focused on disciplined portfolio growth through an aligned and engaged system. Across the bottling system, the company is seeing the right strategic investments in supply chain, cold-drink equipment and sales force capabilities to drive accelerated results. These investments are creating a winning strategy in the marketplace, centered around improved execution that is committed to increasing the availability of core products, in addition to expanding the total portfolio.

Operating Review – Three Months Ended March 29, 2019

Revenues and Volume
Percent Change	Concentrate Sales^1	Price/Mix	Currency Impact	Acquisitions, Divestitures and Structural Items, Net	Reported Net Revenues	Organic Revenues^2	Unit Case Volume
Consolidated	1	5	(6)	5	5	6	2
Europe, Middle East & Africa	4	10	(12)	3	5	14	2
Latin America	(3)	9	(16)	0	(10)	6	(1)
North America	(3)	4	0	0	1	1	(1)
Asia Pacific	6	(2)	(3)	(3)	(2)	4	7
Global Ventures^3	(2)	3	(22)	222	201	1	1
Bottling Investments	6	3	(5)	(9)	(5)	9	16

Operating Income and EPS from Continuing Operations
Percent Change	Reported Operating Income	Items Impacting Comparability	Currency Impact	Comparable Currency Neutral^2
Consolidated	29	24	(11)	16
Europe, Middle East & Africa	7	0	(15)	22
Latin America	(13)	0	(20)	7
North America	16	8	0	9
Asia Pacific	(4)	0	(3)	(1)
Global Ventures	128	0	(8)	136
Bottling Investments	—^4	—	—	—
Percent Change	Reported EPS from Continuing Operations	Items Impacting Comparability	Currency Impact	Comparable Currency Neutral^2
Consolidated	24	22	(11)	13

Note: Certain rows may not add due to rounding.
^1	For Bottling Investments, this represents the percent change in net revenues attributable to the increase (decrease) in unit case volume computed on a reported basis after considering the impact of structural changes.
^2	Organic revenues, comparable currency neutral operating income and comparable currency neutral EPS from continuing operations are non-GAAP financial measures. Refer to the Reconciliation of GAAP and Non-GAAP Financial Measures section.
^3	Costa Ltd. is not included in concentrate sales, price/mix or unit case volume.
^4	Reported operating income for the three months ended March 29, 2019 was $1 million. Reported operating loss for the three months ended March 30, 2018 was $461 million.

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

Consolidated

• Concentrate sales growth of 1% and price/mix growth of 5% were driven by consumer-centric innovation and solid revenue growth management initiatives in the marketplace, in addition to the 2-point benefit related to timing, primarily attributable to bottler inventory build related to Brexit. Additionally, concentrate sales growth of 1% was impacted by one less day in the quarter, which resulted in an approximate 1-point headwind.
• Unit case volume grew 2%, driven by strong growth across key markets within Asia and Europe, partially offset by a decline in Argentina, the Middle East region and North America. The timing of Easter also negatively impacted volume growth in the quarter. Category cluster performance was as follows:
  • Sparkling soft drinks grew 1%, driven by strong global performance in brand Coca-Cola through growth in original Coca-Cola and continued double-digit growth of Coca-Cola Zero Sugar.
  • Juice, dairy and plant-based beverages volume was even as strong performance in the Del Valle brand in Mexico and the Maaza brand in India was offset by a decline in Rani, the leading juice brand in the Middle East.
  • Water, enhanced water and sports drinks grew 6%, driven by strong growth across a number of key markets. Growth was driven by strong performance in smaller, immediate consumption packages, reflecting the company's continued focus on value over volume.
  • Tea and coffee volume was even as continued growth through innovation and new product launches, including Georgia Craftsman in Japan and Authentic Tea House in China, was offset by a decline in the doğadan tea business in Turkey.
• Operating income grew 29%, which included items impacting comparability. Comparable currency neutral operating income (non-GAAP) grew 16%, driven by strong organic revenue (non-GAAP) growth, a benefit from acquisitions and ongoing productivity initiatives.

Europe, Middle East & Africa

• Price/mix grew 10% for the quarter due to strong pricing in the majority of key markets and the benefit from bottler inventory build related to Brexit, which contributed to positive geographic mix and also caused concentrate sales to grow ahead of unit case volume.
• Unit case volume grew 2%, as growth across the majority of markets was partially offset by declines in Zimbabwe and the Middle East. Growth was led by sparkling soft drinks and the continued growth of Fuze Tea.
• Operating income grew 7%, despite a 15-point currency headwind. Comparable currency neutral operating income (non-GAAP) grew 22% in the quarter, driven by double-digit organic revenue (non-GAAP) growth, ongoing productivity initiatives and the cycling of expenses in the prior year, including increased marketing investments from the January 2018 Fuze Tea launch.
• The company gained value share in total NARTD beverages, led by solid share performance across Europe, in addition to the majority of category clusters. The value share gain in NARTD beverages was unfavorably impacted by a value share decline in sparkling soft drinks in Nigeria primarily due to local value brands.

Latin America

• Price/mix grew 9% for the quarter, largely driven by strong performance in Brazil and pricing in Argentina. All business units achieved positive price/mix in the quarter.
• Unit case volume declined 1% as growth in Brazil, Peru and Chile was more than offset by a double-digit decline in Argentina. Mexico volume declined 1% in the quarter, partially due to pricing and package initiatives executed in the market to optimize revenue.
• Operating income declined 13% in the quarter, which included a 20-point currency headwind. Comparable currency neutral operating income (non-GAAP) grew 7%, largely driven by the benefit of strong pricing in the marketplace.
• The company gained value share in total NARTD beverages, driven by solid share performance in Brazil, in addition to the majority of category clusters.

North America

• Price/mix grew 4% for the quarter, driven by strong pricing and mix within the sparkling soft drink portfolio, in addition to a benefit from product mix.
• Unit case volume declined 1%, largely due to the impact of pricing and package initiatives executed in the market, in addition to the timing of Easter. For the total portfolio, transactions outpaced volume performance, reflecting continued focus on value over volume.
• Operating income grew 16%, which included items impacting comparability. Comparable currency neutral operating income (non-GAAP) grew 9% in the quarter, driven by ongoing productivity initiatives and the timing of expenses.
• The company gained value share in total NARTD beverages led by strong performance in sparkling soft drinks, the water, enhanced water and sports drinks category cluster, and the juice, dairy and plant-based beverages category cluster.

Asia Pacific

• Price/mix declined 2% for the quarter, largely driven by geographic mix due to growth in emerging and developing markets outpacing developed markets.
• Unit case volume grew 7% due to positive performance across all key markets, with the exception of Australia. Volume growth was led by China, Southeast Asia and India.
• Operating income declined 4%. Comparable currency neutral operating income (non-GAAP) declined 1% in the quarter, largely from a structural headwind related to intercompany profit elimination from acquiring bottling operations in the Philippines.
• The company gained value share in total NARTD beverages, driven by strong performance within China, India and Southeast Asia.

Global Ventures

• Reported revenue benefited from the closing of the Costa acquisition during the quarter. The company has completed a smooth transition of Costa and is working quickly to leverage the total coffee platform.
• Price/mix grew 3% for the quarter, largely driven by product mix as a result of strong performance in the innocent business.
• Unit case volume grew 1% as strong growth in innocent and the energy category was partially offset by a double-digit decline in the doğadan tea business in Turkey.
• Operating income growth in the quarter benefited from the impact of the Costa acquisition.

Bottling Investments

• Price/mix grew 3% for the quarter, driven by strong price/mix performance in India.
• Operating income was unfavorably impacted by comparability items related to refranchising in the prior year and was favorably impacted by the acquisition of bottling operations in the Philippines.

Outlook

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

Full Year 2019 Revenues:

• Approximately 4% growth in organic revenues (non-GAAP) – No Change
• 12% to 13% growth in comparable currency neutral net revenues (non-GAAP), including an 8% to 9% tailwind from acquisitions, divestitures and structural items – No Change
• Comparable net revenues (non-GAAP): 3% to 4% currency headwind based on the current rates and including the impact of hedged positions – No Change

Full Year 2019 Operating Income:

• 10% to 11% growth in comparable currency neutral operating income (non-GAAP), including a low single-digit tailwind from acquisitions, divestitures and structural items – No Change
• Comparable operating income (non-GAAP): 6% to 7% currency headwind based on the current rates and including the impact of hedged positions – No Change

Full Year 2019 EPS:

• -1% to 1% growth versus $2.08 in 2018 in comparable EPS from continuing operations (non-GAAP) – No Change

Full Year 2019 Other Items:

• Underlying effective tax rate (non-GAAP): Estimated to be 19.5% – No Change
• Cash from operations: At least $8.0 billion – No Change
• Capital expenditures (excluding discontinued operations): Approximately $2.0 billion – No Change
• Net share repurchases (non-GAAP): Share repurchases to offset dilution from employee stock-based compensation plans – No Change

Second Quarter 2019 Considerations – New:

• Comparable net revenues (non-GAAP): 6% tailwind from acquisitions, divestitures and structural items; 4% to 5% currency headwind based on the current rates and including the impact of hedged positions
• Comparable operating income (non-GAAP): 7% currency headwind based on the current rates and including the impact of hedged positions

Notes

• All references to growth rate percentages and share compare the results of the period to those of the prior year comparable period.
• All references to volume and volume percentage changes indicate unit case volume, unless otherwise noted. All volume percentage changes are computed based on average daily sales, unless otherwise noted. "Unit case" means a unit of measurement equal to 24 eight-ounce servings of finished beverage. "Unit case volume" means the number of unit cases (or unit case equivalents) of company beverages directly or indirectly sold by the company and its bottling partners to customers.
• "Concentrate sales" represents the amount of concentrates, syrups, beverage bases, source waters and powders/minerals (in all instances expressed in equivalent unit cases) sold by, or used in finished beverages sold by, the company to its bottling partners or other customers. In the reconciliation of reported net revenues, "concentrate sales" represents the percent change in net revenues attributable to the increase (decrease) in concentrate sales volume for the geographic operating segments and the Global Ventures operating segment (excluding Costa) (expressed in equivalent unit cases) after considering the impact of structural changes. For the Bottling Investments operating segment, this represents the percent change in net revenues attributable to the increase (decrease) in unit case volume computed based on total sales (rather than average daily sales) in each of the corresponding periods after considering the impact of structural changes. The Bottling Investments operating segment reflects unit case volume growth for consolidated bottlers only.
• "Price/mix" represents the change in net operating revenues caused by factors such as price changes, the mix of products and packages sold, and the mix of channels and geographic territories where the sales occurred.
• First quarter 2019 financial results were impacted by one less day as compared to the same period in 2018, and fourth quarter 2019 financial results will be impacted by one additional day as compared to the same period in 2018. Unit case volume results for the quarters are not impacted by the variances in days due to the average daily sales computation referenced above.

Conference Call

The company is hosting a conference call with investors and analysts to discuss first quarter 2019 operating results today, April 23, 2019, at 8:30 a.m. ET. The company invites participants to listen to a live webcast of the conference call on the company’s website, http://www.coca-colacompany.com, in the "Investors" section. An audio replay in downloadable digital format and a transcript of the call will be available on the website within 24 hours following the call. Further, the "Investors" section of the website includes a reconciliation of non-GAAP financial measures to the company’s results as reported under GAAP, which may be used during the call when discussing financial results.