Net Revenues Declined 1%; Organic Revenues (Non-GAAP) Were Even

Operating Income Declined 2%; Comparable Currency Neutral Operating Income (Non-GAAP) Grew 11%

Operating Margin Was 27.7% Versus 28.0% in the Prior Year; Comparable Operating Margin (Non-GAAP) Was 30.7% Versus 28.2% in the Prior Year

EPS Grew 65% to $0.64; Comparable EPS (Non-GAAP) Grew 8% to $0.51

ATLANTA--(BUSINESS WIRE)-- The Coca-Cola Company today reported first quarter 2020 results and provided insight into how the company is navigating through the ongoing coronavirus pandemic. The Coca-Cola system continues to work to ensure the safety and support of its employees, consumers, customers and communities during this challenging time.

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"We sincerely thank those who have been working to keep all of us safe through the crisis, particularly those on the front lines in the healthcare community. I also want to recognize our system associates, who are ensuring we can continue to supply beverages around the world," said James Quincey, chairman and CEO of The Coca-Cola Company. "Our approach to navigating the pandemic is grounded in our company’s purpose, which ensures that we continuously strive to make a difference for people in the communities we serve around the world. We’ve been through challenging times before as a company, and we believe we're well positioned to manage through and emerge stronger. The power of the Coca-Cola system is our greatest strength in times of crisis. The resilience of our people, the equity of our brands and the strength of our bottling partners continue to be competitive advantages in the market."

Highlights

Quarterly Performance

• Revenues: Net revenues declined 1% to $8.6 billion. Organic revenues (non-GAAP) were even. Revenue performance included even concentrate sales and even price/mix. The quarter included one less day, which resulted in an approximate 1-point headwind to revenue growth.
• Margin: Operating margin, which included items impacting comparability, was 27.7% versus 28.0% in the prior year, while comparable operating margin (non-GAAP) was 30.7% versus 28.2% in the prior year. Solid underlying operating margin (non-GAAP) expansion was partially offset by currency headwinds.
• Earnings per share: EPS grew 65% to $0.64, and comparable EPS (non-GAAP) grew 8% to $0.51.
• Market share: The company continued to gain value share in total nonalcoholic ready-to-drink (NARTD) beverages.
• Cash flow: Cash from operations was $556 million, down 29%. Free cash flow (non-GAAP) was $229 million, down 43%, primarily driven by the impact of one less day in the quarter, currency headwinds and cycling the supplier payment term extensions in the prior year as part of ongoing working capital initiatives.

Business Environment Update Amid Coronavirus Pandemic

The company entered 2020 with solid momentum, coming off strong results in 2019. Through the end of February, the company was growing volume 3%, excluding China, and was on track to achieve its previously provided full year 2020 targets.

In March, as the coronavirus pandemic spread globally, countries meaningfully increased social distancing and shelter-in-place mandates. In markets around the world, the company subsequently saw significant changes in consumer purchase patterns, notably substantial declines in away-from-home channels. In at-home channels, the company witnessed early pantry loading in certain markets, followed by more normalized demand levels, along with a sharp increase in e-commerce. Given that away-from-home channels represent approximately half of the company’s revenues, the company expects the net effect of these consumer purchase patterns to have a significant impact on second quarter results. For context, since the beginning of April, the company has experienced a volume decline globally of approximately 25%, with nearly all of that decline coming in away-from-home channels.

The ultimate impact on the second quarter and full year 2020 is unknown at this time, as it will depend heavily on the duration of social distancing and shelter-in-place mandates, as well as the substance and pace of macroeconomic recovery. However, the impact to the second quarter will be material.

The company believes the pressure on the business is temporary and remains optimistic on seeing sequential improvement in the back half of 2020. The company, along with its bottling partners, is continuing to adapt quickly to the current environment, with a focus on mitigating the near-term impact while positioning for success coming out of the crisis.

Company Updates

• Delivering on key priorities amid the coronavirus pandemic: The health and safety of Coca-Cola system employees remains the company's highest priority. Around the world, local teams continue to follow guidance from authorities. These measures include additional cleaning and sanitization routines in system facilities and requiring most office-based employees to work remotely. After health and safety, business continuity is of utmost importance. The Coca-Cola system has developed knowledge-sharing routines and processes, including how to manage potential supply chain challenges. At this time, the system does not foresee material disruptions in finished goods production or distribution.
• Supporting communities around the world: The Coca-Cola system has made contributions to support relief efforts in markets impacted across the globe. The system is committed to contributing more than $100 million and is focused on community relief programs, medical supplies and equipment during the outbreak phase, as well as on developing other actions for the recovery phase in markets hit hardest by the pandemic. The commitments to date include $40 million in charitable grants from The Coca-Cola Foundation.
• Adapting business strategy: The company is moving with speed to continue to best serve its customers and consumers while reviewing every aspect of its business and redirecting spending to areas where it can be the most effective. In partnership with bottlers and retail customers, the company is working to ensure adequate inventory levels in key channels, in addition to prioritizing core brands and key packages. The company is also increasing investments in e-commerce to support both retailers and meal delivery services, shifting toward package sizes that are fit-for-purpose for online sales, and redeploying consumer and trade promotions toward digital.
• Business & Sustainability Report: In 2019, the company laid out its vision to craft the brands and choice of drinks that people love, to refresh them in body and spirit, and to do so in ways that create a more sustainable business and better shared future. As the world faces unprecedented challenges, the company's purpose and vision is more important than ever. On April 22, the company will publish its 2019 Business & Sustainability Report, reflecting a continued journey toward driving sustainable business practices.

Operating Review – Three Months Ended March 27, 2020

Revenues and Volume
Percent Change	Concentrate Sales1	Price/Mix	Currency Impact	Acquisitions, Divestitures and Structural Changes, Net	Reported Net Revenues		Organic Revenues2		Unit Case Volume
Consolidated	0	0	(2)	1	(1)		0		(1)
Europe, Middle East & Africa	(1)	0	(3)	1	(3)		(1)		0
Latin America	5	8	(10)	0	4		13		0
North America	3	1	0	2	6		4		3
Asia Pacific	(3)	(4)	(1)	2	(5)		(7)		(7)
Global Ventures3	(3)	1	0	0	(2)		(2)		(2)
Bottling Investments	(4)	(2)	(1)	(1)	(8)		(6)		(5)

Operating Income and EPS
Percent Change	Reported Operating Income	Items Impacting Comparability	Currency Impact	Comparable Currency Neutral2
Consolidated	(2)	(10)	(4)	11
Europe, Middle East & Africa	(2)	0	(3)	1
Latin America	9	0	(12)	21
North America	(34)	(38)	0	4
Asia Pacific	(6)	0	(1)	(5)
Global Ventures	(71)	0	0	(71)
Bottling Investments	(37)	(310)	49	223
Percent Change	Reported EPS	Items Impacting Comparability	Currency Impact	Comparable Currency Neutral2
Consolidated EPS	65	57	(2)	10

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.

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

Consolidated

• Price/mix growth was even for the quarter primarily due to unfavorable channel and category mix in key markets impacted by the coronavirus outbreak. Concentrate sales were 1 point ahead of unit case volume, largely due to bottler inventory build related to the uncertain environment, partially offset by the impact of one less day in the quarter along with cycling the Brexit inventory build in the prior year.
• The company's unit case volume growth through the end of February was 3%, excluding China. For the quarter, however, unit case volume declined 1%, as solid growth in North America was more than offset by a decline in Asia Pacific due to the impact from the coronavirus. Category cluster performance was as follows:
  • Sparkling soft drinks declined 2% in the quarter led by a decline in Asia Pacific, primarily due to China. For the quarter, trademark Coca-Cola grew 1%, led by strong performance for Coca-Cola® Zero Sugar.
  • Juice, dairy and plant-based beverages were down 6%, as solid performance in the North American portfolio and Chi® in West Africa was more than offset by a decline in Minute Maid Pulpy® in China.
  • Water, enhanced water and sports drinks grew 2%, led by Cristal® in Latin America and strong growth in the sports drinks portfolio in North America, partially offset by a decline in China.
  • Tea and coffee volume declined 6%, driven by broad-based softness across multiple markets, as well as a decline in the doğadan® tea business.
• Operating income declined 2%, which included a headwind from items impacting comparability in addition to currency headwinds. Comparable currency neutral operating income (non-GAAP) grew 11%, benefiting from the timing of certain expenses in corporate and solid operating expense leverage in Latin America.

Europe, Middle East & Africa

• Price/mix was even for the quarter as solid pricing across most key markets was offset by negative geographic mix, which includes the impact of cycling the Brexit inventory build in the prior year. Concentrate sales ran 1 point behind unit case volume, as bottler inventory build related to the uncertain environment was more than offset by the impact of one less day in the quarter, along with cycling Brexit stocking last year.
• Unit case volume was even as strong growth through February was offset by the coronavirus-related impacts in March. In terms of markets, strong growth across Nigeria, Middle East and North Africa was offset by declines in Western Europe and South Africa.
• Operating income declined 2%, primarily due to a 3-point currency headwind. Comparable currency neutral operating income (non-GAAP) grew 1%, primarily due to effective cost management.
• For the quarter, the company gained value share in total NARTD beverages in addition to all category clusters, except the water, enhanced water and sports drinks category cluster, where the company maintained share.

Latin America

• Price/mix grew 8% for the quarter, led by price realization and package initiatives in Mexico. Concentrate sales ran 5 points ahead of unit case volume, as bottler inventory build related to the uncertain environment was partially offset by the impact of one less day in the quarter.
• Unit case volume was even, as growth in key Latin Center markets was offset by declines in Brazil, Mexico and Argentina, primarily due to the impact from the coronavirus in late March. Volume growth benefited from acquired brands in Central America.
• Operating income grew 9%, which included a 12-point currency headwind. Comparable currency neutral operating income (non-GAAP) grew 21%, primarily due to solid operating expense leverage across most business units.
• For the quarter, the company lost value share in total NARTD beverages, driven by soft performance in Argentina and the water, enhanced water and sports drinks category cluster in Brazil.

North America

• Price/mix grew 1% for the quarter, driven by pricing initiatives and solid growth in the juice, dairy and plant-based beverages category cluster, partially offset by unfavorable category mix resulting from strong sales in packaged water.
• Unit case volume grew 3%, driven by strong growth in the water, enhanced water and sports drinks category cluster, including premium brands BODYARMOR® and smartwater®, along with solid growth in the juice, dairy and plant-based beverages category cluster. Growth in trademark Coca-Cola was driven by continued strong growth in Coca-Cola® Zero Sugar.
• Operating income declined 34%, which included a headwind from items impacting comparability. Comparable currency neutral operating income (non-GAAP) grew 4%, benefiting from pricing initiatives and premium product launches, partially offset by the timing of expenses.
• For the quarter, the company gained value share in total NARTD beverages led by strong performance in sparkling soft drinks and the water, enhanced water and sports drinks category cluster.

Asia Pacific

• Price/mix declined 4% for the quarter due to unfavorable channel and category mix in key markets. Concentrate sales ran 4 points ahead of unit case volume, as bottler inventory build related to the uncertain environment was partially offset by the impact of one less day in the quarter.
• Unit case volume declined 7%, as strong growth in January was more than offset by a decline in China in February and across all key markets in March, due to the impact from the coronavirus.
• Operating income declined 6%. Comparable currency neutral operating income (non-GAAP) declined 5%, driven by unfavorable channel and category mix, partially offset by lower selling, general and administrative expenses.
• For the quarter, the company gained value share in total NARTD beverages, in addition to all category clusters.

Global Ventures

• Reported and organic revenues (non-GAAP) both declined 2%, primarily driven by the impact from Costa retail store closures across China and the United Kingdom to help prevent the spread of the coronavirus.
• Operating income and comparable currency neutral operating income (non-GAAP) both declined 71%, primarily driven by the impact from Costa retail store closures across China and the United Kingdom to help prevent the spread of the coronavirus.

Bottling Investments

• Price/mix declined 2% for the quarter, largely driven by the company's bottling operations in Africa.
• Unit case volume declined 5% driven by India, due to the impact from the coronavirus.
• Operating income declined 37%, which included items impacting comparability. Comparable currency neutral operating income (non-GAAP) growth was driven by strong underlying operating expense leverage, primarily in the company's bottling operations in Africa.

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 a mid single-digit currency headwind based on the current rates and including the impact of hedged positions.

For comparable operating income (non-GAAP), the company expects a high single-digit 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%.

Second Quarter 2020 Considerations

Comparable net revenues (non-GAAP) are expected to include a 4% to 5% currency headwind based on the current rates and including the impact of hedged positions.

Comparable operating income (non-GAAP) is expected to include a 5% to 6% 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 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 first quarter 2020 operating results today, April 21, 2020, at 7:30 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.

View source version on businesswire.com: https://www.businesswire.com/news/home/20200421005411/en/

Investors and Analysts: Tim Leveridge, [email protected]



Media: Scott Leith, [email protected]

Source: The Coca-Cola Company

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