Highlights From KO's Q4 Conference Call: Volume and Revenue Growth in All Five Geographic Operating Group

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KO Hot Sheet

EPS Growth %: +3.5%

Financial Fact:
AVERAGE SHARES OUTSTANDING (in shares): 2.26B

Today's EPS Names:
CIM, KH, BLOX, More

This morning, Coca-Cola (NYSE: KO) reported Q4 EPS of $0.79, $0.02 better than estimates. Revenue were $11.04 billion vs the consensus estimate of $10.99 billion. Shares are trading up about 1% this afternoon.

Highlights From KO's Q4 Conference Call:

Volume growth in the International segment was 4 percent, while volumes were up about 1 percent in North America.
Expecting to buyback $2.5-$3 billion in common shares during this year.
(Ahmet Muhtar Kent) We delivered volume and revenue growth this quarter in every one of our five geographic operating groups.
We achieved financial results for both the quarter and the full year in line with or ahead of our long-term growth targets, making this the seventh consecutive quarter we have either met or exceeded our long-term growth targets.
Our global sparkling beverage portfolio kept growing, up 2% for the quarter and a solid 4% for the full year. Our global still beverage portfolio is also performing well, up 6% for the quarter and a strong 8% for the full year.
We gained global volume and value share in nonalcoholic ready-to-drink beverages while also gaining global share in both sparkling and still beverage categories.
We achieved these results for both the quarter and the full year against the backdrop of a volatile global economic landscape.
Even as we believe that the unease in the global markets will continue in the near term, the breadth of our global footprint and the strength of our brands create a business that was built for times like these, resilient and resolute to grow.
Coca-Cola was up 3% in both the quarter and the full year. In fact, brand Coca-Cola grew by at least 24 million servings in 24 different countries this past quarter.
We successfully achieved this balance in 2011. For the full year we delivered almost 1 billion unit cases of incremental organic volume growth or the equivalent of adding another Japan to our business.
We delivered positive full year growth in key developed markets like North America, Japan and Germany while also generating double-digit full year growth in key emerging markets like India and China.
Worldwide (Q4) we grew volume 3% this quarter in line with our long-term growth target. For the full year we grew worldwide volume by 5% including the benefit of cross-license brands, primarily Dr. Pepper, in North America. Excluding these brands we delivered strong full year volume growth of 4% also in line with our long-term target.
As for our profit results we grew comparable earnings per share by 10% for both the quarter and the full year, ahead of our long-term target.
North America volume was up 1% in the quarter, making this North America's seventh consecutive quarter of growth. And for the full year, North America's organic volume growth was also up 1%.
As for Coke Zero it was up high single digits in North America this past quarter and up double digits for the full year, making this the fifth consecutive year of double-digit growth. We also drove positive growth for Fanta which was up 3% in 2011, its second consecutive year of positive growth.
Our still beverages in North America delivered 3% growth in the quarter and 4% growth for the full year, while gaining share for the seventh consecutive quarter.
Powerade continues to be a leading driver of the solid growth, up 11% in the quarter and 12% for the full year.
Our key brands delivered double-digit growth in the quarter led by Gold Peak which grew double digits for the 19th consecutive quarter.
Turning now to our Pacific group where in 2011 our business again delivered consistent growth across a diverse set of markets. Overall our Pacific group volume was up 5% in both the quarter and the full year. And these results were led by China up double digits in the quarter, and for the full year, making this nine out of the last 10 years that our business in China has delivered double-digit growth.
Importantly we're seeing strong growth across our entire sparkling portfolio with Coca-Cola, Sprite and Fanta all delivering double digit growth in both the fourth quarter as well as in the full year 2011.
At the same time, our still beverage portfolio brands are sustaining their solid momentum, also delivering double-digit growth for the full year. These results confirm that we are executing the right strategies and have the right capabilities in place in China to deliver sustainable double-digit growth over the long term. Japan's fourth quarter results were up 5% resulting in slightly positive full year growth rounding to even.
Moving now to Latin America, where in 2011, we once again expanded our volume in value share leadership position. Volume in this total region was up 4% in the quarter and 6% for the full year. This strong performance was once again led by Mexico, up 4% for the quarter and 9% for the full year.
Our business in Mexico gained volume and value share in both sparkling and still beverages for both the quarter and the full year. In fact, our still beverage portfolio in Mexico reached nearly 1 billion unit cases in 2011, a short four years after the successful integration of [indiscernible] into our winning portfolio.
Let's now turn to the Eurasia and Africa group. In 2011 we made sound progress against our goal to strategically invest for tomorrow while gaining share today. Volume in this region grew 4% in the quarter and a solid 6% for the full year. Importantly our growth in Eurasia and Africa was driven by the continued strong momentum of brand Coca-Cola, up 5% in the quarter and 7% for the full year 2011. Our overall performance in this key region was once again led by India, which delivered 20% growth for the quarter, resulting in double-digit growth for the full year. 2011 was the 5th consecutive year that India achieved double-digit growth.
Sparkling beverages in India were up over 20% this quarter, while brand Coca-Cola was up a strong 15%. And still beverages in India were up 16% this quarter benefiting from a healthy growth across our juice portfolio including Maza, up 19%.
Russia was down low single digits in the quarter, fourth quarter, cycling last year's last year's strong 31% growth. On a full year basis, our business in Russia was up mid single digits.
Brand Coca-Cola is now more than twice the size of our primary competitors' cola brand in Russia.
Turning to Turkey, we gained volume and value share this quarter in both sparkling and still beverages. For 2011, Turkey again delivered double-digit growth as it did the previous year in 2010.
And despite geopolitical challenges in the region our Middle East and North Africa business unit delivered a solid 7% in the quarter and 8% full year.
Our business in Europe grew 1% in the quarter, making this Europe's sixth consecutive quarter of volume growth resulting in a full year growth rate of 2%.
Our growth in Europe was widespread, with positive fourth quarter and full year growth across several key markets in North West Europe and Spain. And we saw the continued growth of innocence, supported by the successful launch of not from concentrate juice in Great Britain. Our growth in Europe was once again led by Germany, up a very strong 9% for the quarter and up 6% for the full year, representing our best full year growth results in Germany since 1992.
Our top four brands, Coca-Cola, Sprite, Fanta and Diet Coke, all once again exceeded $10 billion in global retail sales in 2011.
In 2011 our immediate consumption beverages were up 4% globally, driven by focused in-store activation efforts and cold drink equipment expansion. In fact, as a global system we have placed over 1.2 million new pieces of cold drink equipment in 2011 and have placed over 2.2 million since 2010, the first year of our 2020 vision.
(Gary P. Fayard) For the quarter comparable currency neutral operating income was up 14%, bringing our full year comparable currency neutral operating income growth to 12%, also ahead of our long-term growth target.
Our business delivered comparable currency neutral net revenue growth of 6% this quarter, in line with our long-term growth target, including a 5% increase in concentrate sales and positive price mix.
On a full year basis our comparable currency neutral net revenue growth came in at 29%, including a 5% increase in concentrate sales, positive price mix and the impact of the CCE transaction.
Our combined international and Bottling Investments Group price product business was a positive 3% for the quarter, and our North American price product mix came in at a positive 2% in the quarter, driven by a 4% increase in our pricing to retailers for our sparkling beverages in North America.
For 2012 we anticipate our consolidated price mix results will remain in this target range of 1% to 2%.
Turning to the rest of our P&L. We expected our consolidated comparable gross revenues to decrease slightly in 2011, which they did, due to increased commodity cost as well as the impact of our acquisition of CCE's North American Bottling operations.
Our comparable currency neutral SG&A expenses were even in the quarter and up 30% for the full year.
The increase in SG&A also reflects our continued investments around the world. On this front for the full year 2011, we grew our direct marketing expenses ahead of unit case growth, sustaining our commitment to invest in the health and the strength of our brands.
Our net interest income came in at a positive $66 million, slightly above the full year forecast we provided in our last earnings call. For 2012 our best estimate is that net interest income will come in between $20 million and $40 million primarily due to lower interest rates in some international locations.
Finally, we closed 2011 with an underlying effective tax rate of 23.9%, and expect our 2012 underlying effective tax rate to follow between 24% and 25%.
Moving to our cash flow from operations, year-to-date this came in at $9.5 billion. As a reminder this cash flow result includes $769 million contribution made to our pension plans in the first quarter of 2011.
With regards to our share repurchase program, our net share repurchases totaled 2.9 billion in 2011 at the high end of the 2.5 to $3 billion range communicated to our last earnings call. And in 2012, we again expect to repurchase a net share amount within the same 2.5 to $3 billion range.
As we indicated in our last earnings call, our incremental commodity costs for 2011 came in at approximately $800 million. As a reminder these costs were related to the raw material and conversion costs associated with sweeteners, metals, juices and PET, plastic. As we look ahead to 2012, we anticipate the underlying commodities related to these inputs will remain somewhat pressured driven primarily by increases in the cost of juices and sweeteners. As a result, we expect the full year 2012 incremental impact of commodity costs on our results to range between $350 and $450 million. Having said that, we believe we have the right strategic plans in place to mitigate the impacts of these incremental commodity costs and remain confident in our ability to achieve our long-term growth targets.
Turning now to currency. These have continued to fluctuate with the dollar strengthening, although more moderately against many key currencies. We're mostly hedged for 2012 on the euro and yen with good coverage on several other currencies. After considering these hedge positions we currently expect currencies to have a low single digit negative impact on operating income for the first quarter of this year. And a mid single digit negative impact for the full year. As for our normal practice we'll update you both on our commodity and currency forecasts on a quarterly basis as we go through the year.
(Q&A) Muhtar, I guess two questions on the overall growth we saw in the quarter. We had been seeing fives and fours in terms of unit volume growth. We saw plus three in the quarter. I know comparisons were a factor. But can we zero in on the emerging markets trends you're seeing? And you highlighted the emerging markets. Markets per capita were below 150. You highlighted that was a plus four in the quarter. It was a plus six for the year. So is it possible to generalize in what's going on in the west developed markets and some of the plans you have to improve on that plus four? (A) Good morning, Mark. You mentioned two questions. The one is on the emerging markets. Is there another one? (Q) Yeah, and the second is - the two parts are A; what's driving that slowdown from a plus six to a plus four. And then B; as you think about trying to see that four become a better number in coming quarters, what are some of the things you think are going to help you do that? (A) Yeah, I think first I don't think you can draw any trend. We're pleased with our volume growth of 3% which is in line with our long-term growth targets. And I think it's important to note the following. We're cycling an organic volume growth of 5% in the prior year. And full year volume is 4% at organically high end of our long-term growth target for the year. And I'm really particularly pleased that all operating groups grew in the quarter. So cornerstone of our vision is to balance growth across all geographies and balanced growth across our portfolio. We achieved that both for the quarter and for the year. And I don't think you can draw any conclusions. And also we achieved this kind of growth in the year, with not only just a very volatile economic environment, volatile commodity environment, but also one-offs like the issue in Japan, the flooding in Thailand, rightsizing in a huge market like China, where now transactions are significantly ahead of our volume which is a testament to the health of the business. And so yes, we've had some - there has been some dislocations in some Middle East markets because of the volatility there because of what's happened like Egypt and like other parts of North Africa. We believe that we see that improving. There's been - southeast Europe has been under tremendous pressure. Again those markets are 150 per capita because of all the volatility that's going on in Europe and around Greece. But I think it's - we shouldn't draw any conclusions. As we look into 2012, we see healthy trends continuing in Latin America, healthy trends continuing in Eurasia and Africa, African continent and also Middle East and Eurasia. We see healthy trends in most of the Pacific Rim, and area and we see healthy trends right here in North America. Right now we see better trends in terms of the consumer mobility, eating out more and just less confusion of the consumer here in North America than we did 12 months ago. And we see that manifesting itself in our food service business. So - and Europe finally I think is going to be more volatile. And I think we will probably see first half of the year being more challenged in Europe than the second half of the year. That's sort of the way I would summit. But I do - in Europe we have some great markets continuing to grow.Like Germany, like Scandinavia, like northwest Europe and then we still have challenging markets in the Southern Rim, although, again we had moderate growth in Spain also in the fourth quarter. So I believe that we will achieve our long-term growth targets over time in terms of volume as well as also in terms of our ability to generate price mix across the world.
That's great and if I could follow up. Zeroing in on some of those externals that you're describing, those dislocations you mentioned in regions like the Middle East and some of the other more recently, more challenging markets. When you think about what's going in some of those markets from a broader consumer standpoint and kind of what the Coca-Cola Company can do about those things how are your packaging initiatives changing and how are you thinking about spending money at the poll level in terms of how you're proposing folks taking added interest in your products in those markets? (A) Number one, Mark, our brands are getting stronger. We're continuing to invest and you will see us continue to invest. What happens in a quarter is not the result of our investments in that quarter or the previous quarter but our investments three or four, five, six quarters ago. And we will continue to invest. Our brands continue to gain share. If you look at our share results overall right now in the world, both in sparkling and in still beverages, they're at an all-time high. Brand metrics for sparkling as well as still beverages are trending in a very healthy manner. So brand health investments, stronger system, better alignment, all basically works in our favor, even in times of volatility and we're seeing that manifest itself.