Coca Cola : Earnings Release Q2 2021

Coca-Cola Reports Strong Results in Second Quarter;

Updates Full Year Guidance

Global Unit Case Volume Grew 18%

Net Revenues Grew 42%;

Organic Revenues (Non-GAAP) Grew 37%

Operating Income Grew 52%;

Comparable Currency Neutral Operating Income (Non-GAAP) Grew 46%

Operating Margin Was 29.8% Versus 27.7% in the Prior Year;

Comparable Operating Margin (Non-GAAP) Was 31.7% Versus 30.0% in the Prior Year

EPS Grew 48% to $0.61; Comparable EPS (Non-GAAP) Grew 61% to $0.68

ATLANTA, July 21, 2021 - The Coca-Cola Company today reported strong second quarter 2021 results and year-to- date performance. "Our results in the second quarter show how our business is rebounding faster than the overall economic recovery, led by our accelerated transformation. As a result, we are encouraged and, despite the asynchronous nature of the recovery, we are raising our full year guidance," said James Quincey, Chairman and CEO of The Coca-Cola Company. "We are executing against our growth plans and our system is aligned. We are better equipped than ever to win in this growing, vibrant industry and to accelerate value creation for our stakeholders."

Highlights

Quarterly Performance

• Revenues: Net revenues grew 42% to $10.1 billion, and organic revenues (non-GAAP) grew 37%. Revenue performance included 26% growth in concentrate sales and 11% growth in price/mix. Revenue growth was driven by the ongoing recovery in markets where coronavirus-related uncertainty is abating, along with the benefit from cycling revenue declines from the impact of the coronavirus pandemic last year.
• Margin: Operating margin, which included items impacting comparability, was 29.8% versus 27.7% in the prior year, while comparable operating margin (non-GAAP) was 31.7% versus 30.0% in the prior year. Operating margin expansion was primarily driven by favorable channel and package mix where coronavirus-related uncertainty is abating, partially offset by a significant increase in marketing expenses versus the prior year.
• Earnings per share: EPS grew 48% to $0.61, and comparable EPS (non-GAAP) grew 61% to $0.68. Comparable EPS (non-GAAP) growth included the impact of a 5-point currency tailwind.

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• Market share: The company gained value share in total nonalcoholic ready-to-drink (NARTD) beverages driven by a share gain in both at-home and away-from-home channels. The company's value share in total NARTD beverages is now ahead of the 2019 level.
• Cash flow: Year-to-date cash flow from operations was $5.5 billion, up $2.7 billion versus the prior year, driven by strong business performance, five additional days in the first quarter and working capital initiatives. Year-to-date free cash flow (non-GAAP) was $5.1 billion, up $2.8 billion versus the prior year, driven by cash flow from operations along with lower capital expenditures versus the prior year.

Company Updates

• Business environment update: Global unit case volume benefited from the ongoing recovery in many markets, partially offset by the impact of a resurgence of the coronavirus in several markets. As a result, when compared to 2019 volume levels, second quarter volume growth was in line with the first quarter of 2021. The company saw away-from-home channels rebound as restrictions eased in certain markets, driving value across the enterprise and leading to second quarter revenues ahead of the 2019 level. While coronavirus-related uncertainty continues, the company remains agile in order to execute on its strategic priorities and build on the work that has been done in the past year to navigate an asynchronous recovery.
• Continuing innovation through loved and scaled brands: The company, with its disciplined approach to scaling big bets, recently announced the launch of a new and improved Coca-Cola® Zero Sugar recipe in the United States that brings it closer to the great taste of original Coca-Cola. New packaging is simplified and celebrates the iconic Coca-Cola logo, beginning with the brand's universally recognized red. The Coca-Cola logo in black Spencerian script signals the Zero Sugar variety. The new, global marketing approach for Coca-Cola Zero Sugar will be supported by scaled advertisements and a 360-degree marketing activation plan that invites consumers to try the product and find out if it's the "Best Coke® Ever?" The new Coca-Cola Zero Sugar previously launched in five operating units across multiple countries, including Japan, Turkey, parts of Latin America and parts of Europe. Overall, Coca-Cola Zero Sugar grew 15% year-to-date, resulting in high single-digit growth versus 2019.
• Transforming the digital ecosystem to create and capture value: The company is leveraging the strength of the Coca-Cola system to drive value for stakeholders. The Wabi™ ecosystem, which leverages the system's unrivaled distribution network and connects businesses to businesses to consumers, continues to accelerate and is now present in 14 countries, with gross merchandising value growing significantly. The company's footprint in e-commerce also continues to expand. The company's direct-to-consumer Coke ON® app in Japan, which connects consumers to the system's vending machines, reached more than 28 million downloads with significant gains in consumer awareness versus the prior year. In North America e-commerce retail, the company continues to be the market leader in the total NARTD category, growing retail value 54% year-to-date. In Europe, our e-commerce is growing retail value faster than 50% across key markets, resulting in a strong value share gain year-to-date.
• Accelerating sustainable business practices: During the quarter, the company continued its sustainability journey, which included announcing its plans to use 100% recycled plastic (rPET) in all on-the-go bottles across its portfolio in Great Britain beginning in September, and announcing that by the end of summer all locally manufactured packages in Belgium and Luxembourg are expected to be 100% rPET. These initiatives will save approximately 43,000 tonnes of virgin plastic each year. The company also announced a partnership with The Ocean Cleanup to help stem the tide of marine waste by intercepting plastic debris in rivers around the world. The partnership brings together the company's scale and global network with The Ocean Cleanup's technology and data-driven solutions to address 15 rivers by the end of 2022. Finally, the company continued its multi-faceted approach to diversity, equity and inclusion by announcing plans to nearly double its spending with minority-owned media companies in North America over the next three years.

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Operating Review - Three Months Ended July 2, 2021

Revenues and Volume

				Acquisitions,
	Concentrate		Currency	Divestitures	Reported Net			Organic			Unit Case
Percent Change	Price/Mix	and Structural
Sales1	Impact	Changes, Net		Revenues			Revenues2			Volume
Consolidated	26	11	5	0	42			37			18
Europe, Middle East & Africa	41	20	6	0	67			61			21
Latin America	29	9	3	0	41			39			12
North America	16	12	1	(1)	28			28			17
Asia Pacific	15	6	6	0	27			21			16
Global Ventures3	60	57	23	0	139			117			48
Bottling Investments	25	3	9	0	38			29			25
		Operating Income and EPS
					Reported		Items	Currency			Comparable
Percent Change					Operating		Impacting			Currency
				Income		Comparability	Impact			Neutral2
Consolidated					52		3			3		46
Europe, Middle East & Africa					60		(2)			6		56
Latin America					35		2			1		32
North America					94		47			1		47
Asia Pacific					17		1			7		10
Global Ventures					-4		-	-			-
Bottling Investments					631		360			(91)		362
					Reported		Items	Currency			Comparable
Percent Change						Impacting			Currency
				EPS		Comparability	Impact			Neutral2
Consolidated EPS					48		(13)			5		55

Note: Certain rows may not add due to rounding.

• 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, if any.

• 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.

• Due to the combination of multiple business models in the Global Ventures operating 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 Global Ventures operating segment.

• Reported operating income for Global Ventures for the three months ended July 2, 2021 was $75 million. Reported operating loss for Global Ventures for the three months ended June 26, 2020 was $102 million. Therefore, the percent change is not meaningful.

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

Consolidated

• Unit case volume grew 18% in the quarter, resulting in even performance on a two-year basis, driven by the ongoing recovery in markets where coronavirus-related uncertainty is abating along with the benefit from cycling the impact of the coronavirus pandemic last year. Both developed and developing and emerging markets led the recovery, and both grew double digits in the quarter. Markets such as China, Brazil and Nigeria grew volume ahead of 2019 levels while other markets, including India, continued to be under pressure versus 2019, driven by the continued impact of the coronavirus pandemic.

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Category performance was as follows:

• • Sparkling soft drinks grew 14%, led by strong growth in the United States, India and Brazil. Trademark Coca-Cola grew 12%, resulting in volume ahead of the 2019 level, led by Europe, Middle East & Africa and Latin America. Sparkling flavors grew 18%, led by solid growth in both Trademark Sprite and Trademark Fanta.
  • Nutrition, juice, dairy and plant-based beverages grew 25% due to solid performance by Minute Maid® and fairlife® in North America, Minute Maid Pulpy in China and Maaza® in India.
  • Hydration, sports, coffee and tea grew 25%. Hydration grew 21%, with double-digit growth across all geographic operating segments. Sports drinks grew 35%, resulting in volume ahead of the 2019 level, primarily driven by Powerade® in North America. Tea grew 18%, led by growth in the United States, Japan and Brazil. Coffee grew 78%, primarily driven by the reopening of Costa® retail stores in the United Kingdom as coronavirus-related uncertainty continued to abate.
• Price/mix grew 11% for the quarter, primarily driven by favorable channel and package mix due to cycling the impact of the coronavirus pandemic last year, along with positive segment mix from Global Ventures and Bottling Investments. Concentrate sales were 9 points ahead of unit case volume in the quarter, primarily due to cycling the rationalization of stock levels in the prior year along with the timing of shipments in the current year. Year-to-date concentrate sales were 6 points ahead of unit case volume primarily due to five additional days in the first quarter, along with cycling the timing of shipments in the prior year.
• Operating income grew 52%, which included items impacting comparability and a 5-point currency tailwind. Comparable currency neutral operating income (non-GAAP) grew 46%, driven by strong organic revenue (non- GAAP) growth across all operating segments, partially offset by a significant increase in marketing expenses versus the prior year.

Europe, Middle East & Africa

• Unit case volume grew 21% in the quarter, driven by the ongoing recovery in markets where coronavirus-related uncertainty is abating, along with the benefit from cycling the impact of the coronavirus pandemic last year. Growth was led by Russia, Spain and Germany in Europe, Nigeria in Africa, and Turkey and Pakistan in Eurasia and Middle East.
• Price/mix grew 20% for the quarter, driven by favorable channel and package mix due to cycling the impact of the coronavirus pandemic last year, along with the timing of deductions. For the quarter, concentrate sales were 20 points ahead of unit case volume due to cycling the rationalization of stock levels in the prior year, along with the timing of shipments in the current year. Year-to-date concentrate sales were 9 points ahead of unit case volume primarily due to five additional days in the first quarter, along with cycling the timing of shipments in the prior year.
• Operating income grew 60%, which included items impacting comparability and a currency tailwind. Comparable currency neutral operating income (non-GAAP) grew 56%, primarily driven by strong organic revenue (non-GAAP) growth across all operating units, partially offset by a significant increase in marketing expenses versus the prior year.
• The company gained value share in total NARTD beverages along with gaining or maintaining share across all categories.

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Latin America

• Unit case volume grew 12% in the quarter, resulting in volume ahead of the 2019 level, primarily driven by the ongoing recovery in away-from-home channels and continued strength in at-home channels. Growth was led by Brazil and Mexico, driven by solid performance of sparkling soft drinks and the hydration category.
• Price/mix grew 9%, driven by pricing initiatives along with favorable channel and package mix. For the quarter, concentrate sales were 17 points ahead of unit case volume due to cycling the rationalization of stock levels in the prior year, along with the timing of shipments in the current year. Year-to-date concentrate sales were 8 points ahead of unit case volume primarily due to five additional days in the first quarter, along with the timing of shipments in the current year.
• Operating income grew 35%, which included items impacting comparability and a 1-point currency tailwind. Comparable currency neutral operating income (non-GAAP) grew 32%, driven by solid organic revenue (non- GAAP) growth, partially offset by a significant increase in marketing expenses versus the prior year.
• The company lost value share in total NARTD beverages as share gains in Brazil and Argentina were more than offset by share losses in Mexico and Ecuador.

North America

• Unit case volume grew 17% in the quarter. Growth was led by the recovery in the fountain business across all categories as coronavirus-related uncertainty continued to abate during the quarter. At-home channel strength continued during the quarter, and at-home channels continued to see volume ahead of 2019 levels.
• Price/mix grew 12% for the quarter, primarily driven by the recovery in the fountain business and away-from- home channels, along with solid growth in premium offerings and juice and dairy finished-goods brands. Year- to-date concentrate sales were 3 points ahead of unit case volume, primarily due to five additional days in the first quarter.
• Operating income grew 94%, which included tailwinds from items impacting comparability and currency. Comparable currency neutral operating income (non-GAAP) grew 47%, driven by strong organic revenue (non- GAAP) growth, partially offset by a significant increase in marketing expenses versus the prior year.
• The company gained value share in total NARTD beverages led by a strong recovery in away-from-home channels along with continued strong performance in at-home channels.

Asia Pacific

• Unit case volume grew 16% in the quarter, driven by growth across all operating units due to the ongoing recovery in markets where coronavirus-related uncertainty is abating, along with the benefit from cycling the impact of the coronavirus pandemic last year. Growth was led by sparkling flavors and the hydration category.
• Price/mix grew 6%, driven by favorable channel and package mix due to cycling the impact of the coronavirus pandemic last year, along with the timing of deductions. Year-to-date concentrate sales were 5 points ahead of unit case volume, primarily due to five additional days in the first quarter.
• Operating income grew 17%, which included a 7-point currency tailwind. Comparable currency neutral operating income (non-GAAP) grew 10%, driven by solid organic revenue (non-GAAP) growth, partially offset by a significant increase in marketing expenses versus the prior year.
• The company gained value share in total NARTD beverages driven by share gains in Japan and Southeast Asia.

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