Source: Seeking Alpha
The Coca-Cola Company (NYSE:KO)
Q2 2014 Results Earnings Conference Call
July 22, 2014, 09:30 AM ET
Jackson Kelly – VP and IR
Muhtar Kent – Chairman and CEO
Kathy Waller – CFO
Ahmet Bozer – EVP and President of Coca-Cola International
Sandy Douglas – SVP, Global Chief Customer Officer and President, Coca-Cola America
Irial Finan – EVP and President of Bottling Investments
Judy Hong – Goldman Sachs
John Faucher – JPMorgan
Bryan Spillane – Bank of America Merrill Lynch
Michael Steib – Credit Suisse
Mark Swartzberg – Stifel Nicolaus
Ali Dibadj – Sanford Bernstein
Steve Powers – UBS
Bill Schmidt – Deutsche Bank
Nik Modi – RBC Capital Markets
Kevin Grundy – Jefferies
At this time, I would like to welcome everyone to The Coca-Cola Company’s Second Quarter 2014 Earnings Results Conference Call. Today’s call is being recorded. If you have any objections, please disconnect at this time. All participants will be on a listen-only mode until the formal question-and-answer portion of the call. (Operator Instructions)
Due to the interest in this call, we request a limit of one question per person. I would like to remind everyone that the purpose of this conference is to talk with the investors and therefore questions from the media will not be addressed. Media participants should contact Coca-Cola’s Media Relations Department, if they have any questions.
I would now like to introduce Jackson Kelly, Vice President and Investor Relations Officer. Mr. Kelly, you may begin.
Jackson Kelly – VP and IR
Good morning and thank you for being with us today. I’m joined by Muhtar Kent, our Chairman and Chief Executive Officer and Kathy Waller, our Chief Financial Officer.
Following prepared remarks by Muhtar and Kathy this morning, we will turn the call over for your questions. Ahmet Bozer, Executive Vice President and President of Coca-Cola International; Sandy Douglas, Senior Vice President, Global Chief Customer Officer and President, Coca-Cola America; and Irial Finan, Executive Vice President and President of Bottling Investments will also be available for our Q&A session.
Before we begin, I would like to remind you that this conference call may contain forward-looking statements, including statements concerning long-term earnings objectives and should be considered in conjunction with cautionary statement contained in our earnings release and in the company’s most recent periodic SEC report.
In addition, I would also like to note that we have posted schedules under the Financial Reports and Information tab in the Investors section of our company website at www.coca-colacompany.com.
These schedules reconcile certain non-GAAP financial measures, which may be referred to by our senior executives during this morning’s discussion to our results as reported under Generally Accepted Accounting Principles. Please look on our website for this information.
Now, I’ll turn the call over to Muhtar.
Muhtar Kent – Chairman and CEO
Thank you, Jackson and good morning, everyone.
Earlier this year we established five global strategic priorities to restore our global growth momentum. Halfway through the year, I am pleased to report that we’ve delivered another quarter of sequentially improving performance results.
While I am pleased with this year-to-date progress, we’re conscious of the fact that we still have more work to do. In spite of continued sluggish global economic growth, the beverage industry remains vibrant.
Consumers today have a wide array of beverages to choose from than ever before and our system is responding by evolving the way we operate leveraging our strength to create new competitive advantages.
Our second quarter and year-to-date performance results reflect the steady progress that we are making and that we expect to continue as we further solidify the foundation for long term sustainable growth.
We closed out the second quarter with 3% global volume growth, including global sparkling growth of 2% and importantly price mix increased 2% on a consolidated basis as we strive to deliver balanced volume and revenue growth.
We’re seeing a number of encouraging signs across our global operating system. In the second quarter, brand Coca-Cola grew 1% in North America along with solid 3% sparkling price mix.
We saw improving volume growth across several key markets in Europe. Eurasia and Africa continue to deliver balanced volume growth. Key markets in our Asia Pacific operations delivered strong performance including 9% growth in China, double-digit growth in India and 1% growth in Japan and we saw steady execution in the face of a challenging macro environment in Latin America.
As mentioned, this progress is built on the implementation and execution of our five global strategic priorities, priorities that emerged from a disciplined fact based look at what drives results and long term sustainable growth.
We know for example that great marketing, combined with great in-market execution are fundamental building blocks of our formula for long-term sustainable growth. When we conducted a comprehensive review of our business last year, we identified areas where we could improve and put a focused plan in place to address them.
With that in mind, I will now provide an update on our progress against each of our five strategic priorities. Our first strategic priority is to accelerate global sparkling growth led by brand Coca-Cola. We grew global brand Coca-Cola 1%, a sequential improvement from the first quarter of 2014.
As noted earlier, our global sparkling brands grew 2% in the second quarter, thanks to solid performance across our portfolio of billion dollar sparkling brands including Sprite, Fanta, Coca-Cola Zero and Schweppes. This led our 19th consecutive quarter of core sparkling value share gains.
Diet Coke and Coca-Cola Light declined mid-single digits, while this was a sequential improvement from the first quarter, we do recognize that we have more work to do here. Progress in growing our global sparkling beverages is built on proven strategies that include delivering best-in-class marketing, driving immediate consumption transactions and leading industry innovation.
While I could point to multiple examples of each, I would particularly like to highlight our Share a Coke Campaign as it successfully combines all three strategies and it is being rolled out in more than 80 markets this year. The viral impact of this campaign and the engagement among teens has been more than encouraging.
We’re excited about the campaign’s expansion, not only to new markets, but also its return for an encore in many markets. For example, this year in our Northwest Europe and Nordics business units, we’re extending the program to include all Coca-Cola trademark immediate consumption and future consumption packs and increasing the number of names from 250 to 1,000 per market.
This is a tremendous logistical feat and marketing achievement befitting the world’s most loved beverage brand. The growth of brand Coca-Cola in North America in the second quarter gives us confidence that our focus on driving incidence, delivering best-in-class marketing and evolving our price pack architecture is setting the foundation for well balanced growth in our flagship markets.
Through these efforts we are reviving the romance of brand Coca-Cola driving household penetration and increasing consumption frequency, all of which contributed to growth in the second quarter.
Our smaller size packs contributed significantly to brand Coca-Cola growth in the second quarter and year-to-date. Over 60% of the volume growth in brand Coca-Cola in the second quarter was driven by double-digit growth in our mini can and 16 ounce immediate consumption packages reflecting strong consumer demand for smaller packages of ice cold Coca-Cola.
So we remain optimistic about our sparkling business in North America and around the world and we’re committed to supporting our brands, committed to driving execution and staying at the forefront of evolving consumer needs.
Our second global priority is to strategically expand our profitable still beverage portfolio. We’ve delivered 5% still beverage volume growth in the second quarter and 6% growth year-to-date. Sports drinks, tea, energy, coffee and water, all contributed to global growth and enabled us to gain volume and value share in still beverages year-to-date.
Juice and juice drinks growth slowed year-to-date due to price adjustments primarily to offset cost of goods increases in North America. However, we gained volume and value share in North America and also on a global basis.
Overall, the global juice growth story remains very robust. We are strengthening our leading brands as demonstrated by the double-digit growth of Maaza and Rani year-to-date along with high single-digit growth for Simply and mid-single digit growth for Del Valle.
Our tea volume increased 4% in the quarter growing volume and value share in the second quarter and year-to-date. Importantly our key brands within the U.S. and Japan, our two largest tea markets performed very well. Tea volume grew 6% in North America driven by double-digit Gold Peak and Honest Tea growth while in Japan tea volume grew 5% less by 8% growth of Ayataka the 21st consecutive quarter of strong growth for this dynamic brand.