Coca-Cola Reports Third Quarter 2020 Results, Provides Update on Strategic Actions to Emerge Stronger from the Pandemic

Global Unit Case Volume Declined 4%

Net Revenues Declined 9%;
Organic Revenues (Non-GAAP) Declined 6%

Operating Income Declined 8%; Comparable Currency
Neutral Operating Income (Non-GAAP) Grew 7%

Operating Margin Was 26.6% Versus 26.3% in the Prior Year;
Comparable Operating Margin (Non-GAAP) Was 30.4% Versus 28.1% in the Prior Year

EPS Declined 33% to $0.40; Comparable EPS (Non-GAAP) Declined 2% to $0.55

ATLANTA--(BUSINESS WIRE)--The Coca-Cola Company today reported third quarter 2020 results and updated its progress on several strategic initiatives that are designed to accelerate a return to growth. The Coca-Cola system continues to focus on emerging stronger from the pandemic with a portfolio of the right brands, high-impact marketing, effective innovation and a highly networked organizational structure.

"Throughout this year's crisis, our system has remained focused on its beverages for life strategy. We are accelerating our transformation that was already underway, shaping our company to recover faster than the broader economic recovery," said James Quincey, chairman and CEO of The Coca-Cola Company. "While many challenges still lie ahead, our progress in the quarter gives me confidence we are on the right path."

Highlights

Quarterly Performance

• Revenues: Net revenues declined 9% to $8.7 billion. Organic revenues (non-GAAP) declined 6%. Revenue performance included a 4% decline in concentrate sales and a 3% decline in price/mix. The company reported improvement in trends versus the prior quarter, with revenue declines versus the prior year driven by ongoing pressure in away-from-home channels partially offset by sustained growth in at-home channels.
• Margin: Operating margin, which included items impacting comparability, was 26.6% versus 26.3% in the prior year, while comparable operating margin (non-GAAP) was 30.4% versus 28.1% in the prior year. Operating margin expansion was primarily driven by effective cost management, partially offset by top-line pressure and currency headwinds.
• Earnings per share: EPS declined 33% to $0.40, and comparable EPS (non-GAAP) declined 2% to $0.55.
• Market share: The company lost value share in total nonalcoholic ready-to-drink (NARTD) beverages as an underlying share gain was more than offset by negative channel mix due to continued pressure in away-from-home channels, where the company has a strong share position.
• Cash flow: Year-to-date cash from operations was $6.2 billion, down 20%. Free cash flow (non-GAAP) was $5.5 billion, down 17%.

Business Environment and Strategic Actions Update

Since the company's last earnings update in July, global unit case volume trends have continued to improve. The pace in the third quarter was more gradual than the second quarter, and the percentage decline in global unit case volume for October month-to-date was low single digits. The company is seeing an elevated level of sales in at-home channels being more than offset by ongoing pressure in away-from-home channels, which are affected by the level of lockdown in a particular market.

While the company is pleased with the sequential improvement, given the uncertainty remaining surrounding the coronavirus pandemic including a resurgence in various markets, the ultimate impact on its near-term results is unknown. Importantly, the company's balance sheet remains strong, and the company is confident in its liquidity position as it continues to navigate through the crisis.

The recent strategic actions of portfolio optimization, disciplined innovation, increased marketing effectiveness and efficiency, enhanced system collaboration and evolving the organizational structure have given the company increased confidence in emerging stronger.

Company Updates

• Building a networked organization designed for growth: The company is establishing a networked structure that is comprised of operating units, category teams, Platform Services and the center. Operating units will be highly interconnected and will sit under the four existing geographic segments, with a focus on local execution. Category teams will drive innovation, marketing efficiency and effectiveness in partnership with operating units. Platform Services will focus on world-class services and capabilities globally to the system, while the center will provide strategy, governance and scale for global initiatives. The company's new, networked organization will combine the power of scale with local execution. The changes to the company's structure will result in a reallocation of some associates along with a reduction in the number of associates, which is underway through a combination of voluntary separation programs and involuntary reductions.
• Shaping a winning growth portfolio: The company continues to pursue its beverages for life ambition by calibrating a portfolio with an optimal set of global, regional and local brands with the strongest potential to grow their consumer bases, increase frequency and drive system margins. The company expects to offer a portfolio of approximately 200 master brands, an approximate 50% reduction from the current number, and phase out some products, such as ZICO® and TaB®.
• Expanding consumer-centric innovation: The company is committed to exploring new products in dynamic beverage categories. In the third quarter, the company launched Topo Chico™ Hard Seltzer, which blends purified sparkling water, a gluten-free alcohol base and natural flavors, with minerals added for taste. Topo Chico™ Hard Seltzer is inspired by Topo Chico® sparkling mineral water, a 125-year-old brand with a rich heritage. The new product is currently available in select cities in Latin America. In the United States, the company entered into an agreement with Molson Coors Beverage Company to manufacture, market and distribute the product. This relationship will allow Topo Chico™ Hard Seltzer to launch with scale in the U.S., which we anticipate will occur in the first half of 2021.

   

Operating Review – Three Months Ended September 25, 2020

Revenues and Volume
Percent Change	Concentrate Sales^1	Price/Mix	Currency Impact	Acquisitions, Divestitures and Structural Changes, Net	Reported Net Revenues	Organic Revenues^2	Unit Case Volume
Consolidated	(4)	(3)	(3)	0	(9)	(6)	(4)
Europe, Middle East & Africa	0	(6)	(1)	0	(7)	(6)	(3)
Latin America	(2)	(1)	(19)	0	(23)	(4)	(4)
North America	(7)	4	0	1	(2)	(3)	(6)
Asia Pacific	(4)	(4)	(1)	0	(9)	(8)	(4)
Global Ventures^3	(14)	(7)	2	0	(19)	(20)	(11)
Bottling Investments	(9)	2	(5)	(1)	(12)	(6)	(10)

Operating Income and EPS
Percent Change	Reported Operating Income	Items Impacting Comparability	Currency Impact	Comparable Currency Neutral^2
Consolidated	(8)	(7)	(8)	7
Europe, Middle East & Africa	2	(4)	(3)	9
Latin America	(20)	(4)	(28)	12
North America	14	(5)	0	18
Asia Pacific	(5)	1	(2)	(4)
Global Ventures	—^4	—	—	—
Bottling Investments	662	617	(25)	69
Percent Change	Reported EPS	Items Impacting Comparability	Currency Impact	Comparable Currency Neutral^2
Consolidated EPS	(33)	(31)	(7)	5

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 based on total sales (rather than average daily sales) in each of the corresponding periods after considering the impact of structural changes.
^2	Organic revenues, comparable currency neutral operating income and comparable currency neutral EPS are non-GAAP financial measures. Refer to the Reconciliation of GAAP and Non-GAAP Financial Measures section.
^3	Due to the combination of multiple business models in the Global Ventures segment, the composition of concentrate sales and price/mix may fluctuate materially on a periodic basis. Therefore, the company places greater focus on revenue growth as the best indicator of underlying performance of the segment.
^4	Reported operating loss for Global Ventures for the three months ended September 25, 2020 was $31 million. Reported operating income for Global Ventures for the three months ended September 27, 2019 was $77 million. Therefore, the percent change is not meaningful.

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

Consolidated

• Price/mix declined 3% for the quarter driven by negative channel and package mix due to the impact of the coronavirus pandemic. Price/mix was also impacted by negative segment mix from Global Ventures and Bottling Investments. Concentrate sales were in line with unit case volume. Year-to-date concentrate sales were 2 points behind unit case volume, impacted by one less day and cycling the timing of certain shipments from the prior year related to the Brexit bottler inventory build.
• Unit case volume declined 4%, as continued strength in at-home channels was more than offset by coronavirus-related pressure in away-from-home channels. Category cluster performance was as follows:
  • Sparkling soft drinks declined 1%, led by a decline in the fountain business in North America and in Mexico due to pressure in away-from-home channels. Trademark Coca-Cola grew 1%. Coca-Cola® Zero Sugar grew 7% in the quarter and 4% year-to-date.
  • Juice, dairy and plant-based beverages declined 6% as solid performance by Simply® and fairlife® in North America was more than offset by pressure in the Asia Pacific and Latin America operating groups.
  • Water, enhanced water and sports drinks declined 11%, led by a broad-based decline across operating groups, primarily due to a decline in lower-margin water brands.
  • Tea and coffee declined 15%, primarily driven by coronavirus-related pressure on Costa® retail stores, along with some pressure on the doğadan® tea business in Turkey.
• Operating income declined 8%, which included a headwind from items impacting comparability in addition to a currency headwind. Comparable currency neutral operating income (non-GAAP) grew 7%, driven by effective cost management across operating groups, partially offset by top-line pressure due to the coronavirus.

Europe, Middle East & Africa

• Price/mix declined 6% for the quarter, driven by negative channel and package mix in Europe. Price/mix was also impacted by negative geographic mix due to better performance in emerging and developing markets versus developed markets. Concentrate sales ran 3 points ahead of unit case volume, largely due to the timing of shipments in the Middle East, North Africa and Turkey.
• Unit case volume declined 3%, primarily related to coronavirus-related pressure in away-from-home channels in Western Europe and South Africa, partially offset by growth in Western Africa.
• Operating income grew 2%, impacted by a headwind from comparability items and a 3-point currency headwind. Comparable currency neutral operating income (non-GAAP) grew 9% driven by effective cost management.
• The company gained value share in total NARTD beverages, driven by a share gain in sparkling soft drinks.

Latin America

• Price/mix declined 1% as pricing in the market was more than offset by the timing of deductions from revenue. Concentrate sales ran 2 points ahead of unit case volume, largely due to cycling the timing of shipments from the prior year in Brazil.
• Unit case volume declined 4%, led by declines in Mexico and Argentina primarily due to the impact of the coronavirus, partially offset by solid performance in Brazil.
• Operating income declined 20%, which included a headwind from items impacting comparability and a 28-point currency headwind. Comparable currency neutral operating income (non-GAAP) grew 12%, primarily due to effective cost management across all business units.
• The company gained value share in total NARTD beverages, driven by share gains in sparkling soft drinks and the water, enhanced water and sports drinks category cluster.

North America

• Price/mix grew 4% for the quarter, as solid growth in premium offerings and pricing in the marketplace was partially offset by pressure in the fountain business and away-from-home channels.
• Unit case volume declined 6%, as strong growth in sparkling soft drinks in at-home channels along with continued strength in AHA®, fairlife® and Topo Chico® was more than offset by pressure in the fountain business.
• Operating income grew 14%, which included a headwind from items impacting comparability. Comparable currency neutral operating income (non-GAAP) grew 18%, driven by pricing and effective cost management.
• The company lost value share in total NARTD beverages due to coronavirus-related restrictions in away-from-home channels, where the company has a strong share position.

Asia Pacific

• Price/mix declined 4%, due to negative channel mix in key markets, partially offset by positive geographic mix. Concentrate sales were in line with unit case volume.
• Unit case volume declined 4%, primarily due to coronavirus-related restrictions in India and Japan. The unit case volume performance included solid growth in sparkling soft drinks in China.
• Operating income declined 5%, which included a tailwind from items impacting comparability and a 2-point currency headwind. Comparable currency neutral operating income (non-GAAP) declined 4%, driven by top-line pressure due to the coronavirus across most markets, partially offset by effective cost management.
• The company lost value share in total NARTD beverages, primarily driven by a share loss in sparkling soft drinks.

Global Ventures

• Net revenues declined 19%, which included a 2-point currency tailwind. Organic revenues (non-GAAP) declined 20%. The revenue declines were primarily driven by the coronavirus-related pressure on the Costa® retail stores, partially offset by strong performance in Costa® Express machines in the United Kingdom.
• The operating loss was primarily driven by the coronavirus-related pressure on the Costa® retail stores.

Bottling Investments

• Price/mix grew 2% in the quarter due to trade promotion optimization in most markets.
• Unit case volume declined 10%, driven by India and South Africa due to the impact of the coronavirus.
• Operating income growth included a tailwind from items impacting comparability and a headwind from currency. Comparable currency neutral operating income (non-GAAP) grew 69%, driven by effective operating expense management.

Operating Review – Nine Months Ended September 25, 2020

Revenues and Volume
Percent Change	Concentrate Sales^1	Price/Mix	Currency Impact	Acquisitions, Divestitures and Structural Changes, Net	Reported Net Revenues	Organic Revenues^2	Unit Case Volume
Consolidated	(9)	(2)	(3)	0	(13)	(11)	(7)
Europe, Middle East & Africa	(10)	(5)	(2)	0	(16)	(15)	(7)
Latin America	(6)	4	(13)	0	(15)	(2)	(4)
North America	(8)	2	0	2	(4)	(6)	(7)
Asia Pacific	(10)	(3)	(1)	1	(13)	(13)	(10)
Global Ventures^3	(17)	(8)	0	0	(25)	(25)	(15)
Bottling Investments	(16)	1	(4)	(2)	(20)	(15)	(19)

Operating Income and EPS
Percent Change	Reported Operating Income	Items Impacting Comparability	Currency Impact	Comparable Currency Neutral^2
Consolidated	(16)	(7)	(5)	(4)
Europe, Middle East & Africa	(11)	(1)	(3)	(7)
Latin America	(10)	(2)	(20)	12
North America	(17)	(17)	0	0
Asia Pacific	(7)	0	(1)	(6)
Global Ventures	—^4	—	—	—
Bottling Investments	(43)	(42)	15	(16)
Percent Change	Reported EPS	Items Impacting Comparability	Currency Impact	Comparable Currency Neutral^2
Consolidated EPS	(9)	2	(5)	(6)

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 based on total sales (rather than average daily sales) in each of the corresponding periods after considering the impact of structural changes.
^2	Organic revenues, comparable currency neutral operating income and comparable currency neutral EPS are non-GAAP financial measures. Refer to the Reconciliation of GAAP and Non-GAAP Financial Measures section.
^3	Due to the combination of multiple business models in the Global Ventures segment, the composition of concentrate sales and price/mix may fluctuate materially on a periodic basis. Therefore, the company places greater focus on revenue growth as the best indicator of underlying performance of the segment.
^4	Reported operating loss for Global Ventures for the nine months ended September 25, 2020 was $114 million. Reported operating income for Global Ventures for the nine months ended September 27, 2019 was $216 million. Therefore, the percent change is not meaningful.

Outlook

Full Year 2020 Considerations

As the coronavirus pandemic continues to evolve, there is uncertainty around its ultimate impact; therefore, the company's full year financial and operating results cannot be reasonably estimated at this time.

For comparable net revenues (non-GAAP), the company expects an approximate 3% currency headwind based on the current rates and including the impact of hedged positions.

For comparable operating income (non-GAAP), the company expects an approximate 6% currency headwind based on the current rates and including the impact of hedged positions.

The company’s underlying effective tax rate (non-GAAP) is estimated to be 19.5%.

Fourth Quarter 2020 Considerations

Comparable net revenues (non-GAAP) are expected to include an approximate 3% currency headwind based on the current rates and including the impact of hedged positions.

Comparable operating income (non-GAAP) is expected to include an approximate 9% currency headwind based on the current rates and including the impact of hedged positions.

Full Year 2021 Considerations

For comparable net revenues (non-GAAP) and comparable operating income (non-GAAP), the company expects minimal currency impact 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 192 U.S. fluid ounces of finished beverage (24 eight-ounce servings), with the exception of unit case equivalents for Costa® non-ready-to-drink beverage products which are primarily measured in number of transactions. "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 or consumers.
• "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. For Costa® non-ready-to-drink beverage products, "concentrate sales" represents the amount of coffee beans and finished beverages (in all instances expressed in equivalent unit cases) sold by the company to customers or consumers. 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 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 2020 financial results were impacted by one less day as compared to the same period in 2019, and fourth quarter 2020 financial results will be impacted by two additional days as compared to the same period in 2019. 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 third quarter 2020 operating results today, October 22, 2020, 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 certain supplemental information and 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.