Net Revenues Declined 9%, Due to Bottler Refranchising; Organic Revenues (Non-GAAP) Grew 6%
Operating Margin Expanded Approximately 600 Basis Points; Comparable Operating Margin (Non-GAAP) Expanded 575 Basis Points
EPS from Continuing Operations Grew 62% to $0.54; Comparable EPS from Continuing Operations (Non-GAAP) Grew 14% to $0.58, Impacted by an 8% Currency Headwind
ATLANTA, Oct. 30, 2018 – The Coca-Cola Company today reported continued momentum in its business for 2018, with strong financial results for the third quarter. While reported net revenues for the quarter declined due to refranchising, the company delivered broad-based organic revenue (non-GAAP) and volume growth across all operating groups, while gaining value share globally.
Strong organic revenue (non-GAAP) growth in the quarter was driven by continued innovation and revenue growth management initiatives within sparkling soft drinks, as evidenced by double-digit volume growth of Coca-Cola Zero Sugar across all groups. In addition to sparkling soft drinks, the company saw strong performance for brands like Fuze Tea and smartwater. Coca-Cola also announced several strategic actions, including a number of acquisitions and investments, and continued to lift, shift and scale brands around the world. The company's disciplined growth strategies and an ongoing focus on productivity led to double-digit profit growth for the quarter.
"We continue to be encouraged by our performance year-to-date as we accelerate our evolution as an even more consumer-centric, total beverage company," said James Quincey, President and CEO of The Coca-Cola Company. "The recent leadership appointments are intended to help accelerate the transformation of our company."
- Revenues: Net revenues declined 9% to $8.2 billion, impacted by a 13-point headwind from the refranchising of company-owned bottling operations. Organic revenues (non-GAAP) grew 6%, driven by concentrate sales growth of 4%, which benefited from the timing of shipments, and price/mix growth of 2%.
- Volume: Unit case volume grew 2%, led by Trademark Coca-Cola.
- Margin: Operating margin, which included items impacting comparability, expanded approximately 600 basis points. Comparable operating margin (non-GAAP) improved 575 basis points, driven by divestitures of lower-margin bottling operations and the company's ongoing productivity efforts. These drivers were partially offset by an approximate 130 basis point headwind from the adoption of the new revenue recognition accounting standard and the impact of currency.
- Market share: The company continued to gain value share in total nonalcoholic ready-to-drink (NARTD) beverages.
- Cash flow: Year-to-date cash from operations was $5.5 billion, down 7%. The decline was largely due to the impact of refranchising North American bottling territories and increased tax payments, partially offset by solid cash generation in the underlying business. Year-to-date free cash flow (non-GAAP) was $4.6 billion, down 2%.
- Share repurchases: Year-to-date purchases of stock for treasury were $1.6 billion. Year-to-date net share repurchases (non-GAAP) totaled $707 million.
- Announcement of key leadership appointments: The company recently announced several changes in top leadership, including the election of a new president and chief operating officer (COO) and a succession plan for the chief financial officer (CFO). Brian Smith will serve as president and COO, reporting to Quincey. The appointment will allow more time for Quincey to focus on the overall long-term strategic direction and success of the company. Smith is well-equipped to lead the company’s field operations and bring an accelerated focus on executing against key strategies. John Murphy, who currently serves as president of the company’s Asia Pacific group, will become senior vice president and deputy CFO on Jan. 1, 2019. He will be elevated to executive vice president and CFO on March 16, 2019, following the retirement of Kathy Waller. Waller will retire from the company after 32 years of service to Coca-Cola, where she built a career that was marked by significant impact and contributions. The company also announced that Nancy Quan has been elected senior vice president and appointed Chief Technical Officer, reporting to Quincey.
- Entering a $500 billion global market with hot beverages: During the quarter, the company announced the expected acquisition of Costa Limited, which will provide the capabilities to build a global coffee platform. Costa will also give the company strong expertise across the coffee supply chain, including sourcing, vending and distribution, which will complement and leverage existing capabilities within the Coca-Cola system. The acquisition is expected to close in the first half of 2019.
- Expanding and innovating with successful brands: The company continues to lift, shift and scale leading brands around the world, including the ongoing expansion of smartwater. With more than 20 markets launching in 2018, smartwater will be present in 32 countries by the end of this year. In its flagship U.S. market, smartwater announced two innovations – smartwater antioxidant and smartwater alkaline. These offerings will help meet the needs of U.S. consumers who continue to reach for more enhanced hydration options.
- Adding brands with an edge in the marketplace: During the quarter, the company announced a strategic relationship with BODYARMOR, one of the fastest-growing beverage trademarks in the United States. BODYARMOR distribution will complement the Coca-Cola system's growing hydration portfolio, including Powerade, vitaminwater, smartwater and Dasani. The company also announced the addition of other brands with an edge in the market, including MOJO in the fast-growing kombucha category in Australia and Tropico fruit-flavored beverages in France.
- All references to growth rate percentages and share compare the results of the period to those of the prior year comparable period.
- All references to volume and volume percentage changes indicate unit case volume, unless otherwise noted. All volume percentage changes are computed based on average daily sales, unless otherwise noted. "Unit case" means a unit of measurement equal to 24 eight-ounce servings of finished beverage. "Unit case volume" means the number of unit cases (or unit case equivalents) of company beverages directly or indirectly sold by the company and its bottling partners to customers.
- "Core business" represents the combined performance from the Europe, Middle East & Africa; Latin America; North America; Asia Pacific; and Corporate operating segments offset by intersegment eliminations.
- "Concentrate sales" represents the amount of concentrates, syrups, beverage bases, source waters, and powders/minerals (in all instances expressed in equivalent unit cases) sold by, or used in finished beverages sold by, the company to its bottling partners or other customers. In the reconciliation of reported net revenues, "concentrate sales" represents the percent change in net revenues attributable to the increase (decrease) in concentrate sales volume for the geographic operating segments (expressed in equivalent unit cases) after considering the impact of structural changes. For the Bottling Investments operating segment, this represents the percent change in net revenues attributable to the increase (decrease) in unit case volume after considering the impact of structural changes. The Bottling Investments operating segment reflects unit case volume growth for consolidated bottlers only.
- "Price/mix" represents the change in net operating revenues caused by factors such as price changes, the mix of products and packages sold, and the mix of channels and geographic territories where the sales occurred.
- First quarter 2018 financial results were impacted by one less day, and fourth quarter 2018 financial results will be impacted by one additional day as compared to the same periods in 2017. Unit case volume results for the quarters are not impacted by the variances in days due to the average daily sales computation referenced above.