The Coca-Cola Company Reports Second Quarter and Half Year 2008 Results

Atlanta, Jul. 17 - The Coca-Cola Company today reported second quarter earnings per share of $0.61, a decrease of 24 percent versus the prior year on a reported basis, and $1.01 after considering items impacting comparability, an increase of 19 percent.

Earnings per share for the quarter included a net charge of $0.40 per share primarily related to a non-cash impairment charge at Coca-Cola Enterprises Inc. (“CCE”), an equity investee. Earnings per share for the second quarter of 2007 were $0.80 and included a net charge of $0.05 per share, primarily related to restructuring charges and a non-cash impairment charge at an equity investee.

“Our results in the quarter underscore our ability to continue delivering volume growth and double-digit comparable earnings per share growth, despite the combined impacts of several one-off events and a more challenging economic environment,” said Neville Isdell, chairman of the Board, The Coca-Cola Company. “We continue to manage the business for the long term by investing in brand building and innovation with an unrelenting focus on improving our effectiveness and efficiency. We have made significant progress since the turnaround began in 2004 and I am confident going forward under Muhtar’s leadership that the business will continue to be managed by investing for long-term sustainable growth and value.”

President and Chief Executive Officer Muhtar Kent said, “Our second quarter performance demonstrates our ability to leverage the strengths of our system to achieve balanced growth. Our results were once again led by our international operations, which delivered 5 percent unit case volume growth, and we maintained volume in North America despite significant challenges. Latin America continues to be a key contributor to our results, along with solid performance in many of our emerging markets including China, Turkey, India, Eastern Europe, Southern Eurasia, North and West Africa and the Middle East. We have accelerated our global volume and value share gains as consumers connect with our brands and our system executes in the marketplace.

“We are clearly operating in a more challenging macroeconomic environment. A strength of our system is the ability to work with our bottling partners and customers to understand the local factors impacting consumer behavior, adjust our plans where appropriate, while continuing to invest and build share for the long term. Both the fundamentals of our business and the strength of our brands remain solid. Through our focus on superior execution and driving productivity, I remain confident we are building a stronger Coca-Cola system for the future.”

(All references to growth rate percentages and share compare the results of the period to those of the prior year comparable period.)

Financial Highlights

• Second quarter net operating revenues increased 17 percent. Revenue growth reflected a 3 percent increase in concentrate sales, a 2 percent increase from structural changes primarily resulting from acquisitions of certain bottlers, a 3 percent benefit from pricing and mix and a 9 percent positive currency impact.
• Operating income in the quarter increased 18 percent on a reported basis and 20 percent after considering items impacting comparability. Items impacting comparability negatively affected second quarter pre-tax operating income by $97 million in 2008 and by $48 million in 2007. Currency benefited operating income in the quarter by 11 percent.
• Year-to-date, the Company repurchased $1.0 billion of its stock and intends to repurchase a total of $1.75 to $2.0 billion of its stock for the full year.
• The Company is targeting $400 to $500 million in annualized savings from productivity initiatives by year-end 2011 to provide additional flexibility to invest for growth.

Operational Highlights

(All references to unit case volume percentage changes in this section are computed based on average daily sales.)

Total Company

• Unit case volume increased 3 percent in the second quarter and 4 percent year-to-date, successfully cycling 6 percent growth in the prior year quarter and year-to-date periods. Acquisitions contributed 1 point of unit case volume growth for both the quarter and year-to-date.
• International operations delivered 5 percent unit case volume growth in the quarter, successfully cycling 9 percent growth from the prior year quarter. Solid growth across Latin America and in key emerging markets including China, Turkey, India, Eastern Europe, Southern Eurasia, North and West Africa and the Middle East continued to drive the results. North America unit case volume was even in the quarter, while unit case volume in Japan and the European Union Group were each down 1 percent.
• The Company continued to achieve growth in sparkling beverages, which increased unit case volume 1 percent in the quarter. Trademark Coca-Cola unit case volume was slightly positive in the quarter and Trademarks Fanta and Sprite increased unit case volume 1 percent and 3 percent, respectively.
• Still beverage unit case volume increased 13 percent in the quarter, led by strong growth across the Company’s still brand portfolio, including juice and juice drink brands, tea brands and water brands.
• Globally, the Company gained volume and value share in nonalcoholic ready-to-drink beverages as well as in sparkling beverages and key still beverage categories including bottled water and juice and juice drinks.

• The Africa Group’s unit case volume increased 5 percent in the quarter, with most key markets contributing to growth. South Africa’s unit case volume was even in the quarter, cycling 12 percent growth from the prior year and reflecting the lingering effects of carbon dioxide shortages. Nigeria unit case volume increased 4 percent in the quarter. Net revenues for the quarter increased 6 percent, reflecting a 2 percent increase in concentrate sales, positive pricing and mix and a slight negative currency impact. Operating income increased 61 percent in the quarter reflecting the increase in net revenues, effective management of operating expenses and the cycling of restructuring charges in the prior year quarter, partially offset by the continued investment in key marketing initiatives.

• The Eurasia Group’s unit case volume increased 7 percent in the quarter, successfully cycling 15 percent growth in the prior year quarter. Solid unit case volume growth in India, Turkey, the Middle East, Eastern Europe and Southern Eurasia drove the results. Russia’s unit case volume increased 2 percent in the quarter, primarily reflecting the impact from adverse weather conditions late in the quarter, and resulted in volume and value share gains in nonalcoholic ready-to-drink beverages. Net revenues for the quarter increased 30 percent, benefiting from a 13 percent increase in concentrate sales, positive pricing and mix and a high single-digit currency benefit. Operating income growth in the quarter of 21 percent reflected the benefit of the net revenue increase and the continued investment in key business initiatives.

• Unit case volume in the European Union Group declined 1 percent in the quarter, cycling 5 percent growth from the prior year. The group gained volume and value share in nonalcoholic ready-to-drink beverages as well as in sparkling beverages and key still beverage categories in the quarter. Unit case volume results in the quarter were negatively impacted by labor strikes in several key markets, the shift of Easter into the first quarter as well as unfavorable weather early in the quarter. Net revenues for the quarter increased 13 percent, reflecting a 2 percent decrease in concentrate sales, positive pricing and mix and a low double-digit currency benefit. Operating income increased 16 percent in the quarter primarily reflecting the higher net revenues while continuing to invest behind key marketing initiatives across the group.

• The Latin America Group continued to deliver strong unit case volume growth of 7 percent in the quarter, successfully cycling 9 percent growth in the prior year quarter. Solid unit case volume growth across the group and the benefit of acquisitions drove the results for the quarter and led to volume and value share gains in both sparkling and still beverages. Net revenues increased 23 percent in the quarter, reflecting a 5 percent increase in concentrate sales, positive pricing and mix and a low double-digit currency benefit. Operating income increased 29 percent in the quarter, reflecting the net revenue increase while continuing to invest in key marketing initiatives.
• In Mexico, unit case volume increased 10 percent in the quarter. The growth was led by brand Coca-Cola, which increased unit case volume 3 percent and the successful integration of Jugos del Valle, which contributed 3 points of the overall unit case growth. Strong performance in sparkling and still beverages led to share gains in sparkling beverages, energy drinks, packaged water, juices and sports drinks.
• In Brazil, unit case volume growth for the quarter was 1 percent, successfully cycling 22 percent growth in the prior year. Performance in the quarter was impacted by a volume decline in April resulting from a slowdown in industry growth as consumers used the availability of credit to drive durable goods growth. Trademark Coca-Cola unit case volume increased 1 percent in the quarter, and both sparkling and still beverages gained volume and value share in the quarter.

• In Argentina, strong sparkling beverage growth, led by Trademark Coca-Cola, contributed to unit case volume growth of 7 percent in the quarter, successfully cycling 7 percent growth in the prior year quarter and driving sparkling beverage share gains.

• Unit case volume in the North America Group was even in the quarter, reflecting a continued difficult U.S. economic environment and a shift in the impact of holidays out of the second quarter. Retail unit case volume increased 1 percent, including a benefit from acquisitions, and Foodservice and Hospitality declined 3 percent, reflecting the continued challenging foodservice industry environment. Net revenues for the quarter increased 8 percent, reflecting a 3 percent decrease in concentrate sales, positive pricing and mix of finished goods businesses and an increase from acquisitions. Operating income decreased 9 percent in the quarter reflecting the growth in net revenues, including the benefit of acquisitions, offset by higher input costs in the finished goods businesses, unfavorable mix and continued investment in key business initiatives.
• Sparkling beverage unit case volume declined 4 percent in the quarter, primarily reflecting the decline in foodservice and other on-premise businesses. The continued successful execution of the three-cola strategy resulted in Coca-Cola Classic, Diet Coke and Coca-Cola Zero combined gaining volume and value share in the U.S. Coca-Cola Zero continued to deliver strong performance, increasing unit case volume more than 40 percent in the quarter, cycling strong double-digit growth in the prior year quarter.
• Still beverage unit case volume increased 9 percent in the quarter and achieved volume and value share gains, reflecting the continued strong performance of glacéau and Fuze as well as strong growth in juices and juice drinks. The growth in juices and juice drinks was led by double-digit unit case volume growth of warehouse-delivered juices, which continued to gain volume and value share, reflecting the success of Trademark Simply and Minute Maid Enhanced Juices.

• The Pacific Group increased unit case volume 4 percent in the quarter, cycling 9 percent growth in the prior year quarter, and reflected the impact from natural disasters and unfavorable weather. Net revenues increased 13 percent, reflecting a 3 percent increase in concentrate sales, positive pricing and a low-teens currency benefit, partially offset by unfavorable country mix. Operating income increased 19 percent reflecting the increase in net revenues while investing in key business initiatives, including the Olympics activation.
• In Japan, unit case volume declined 1 percent in the quarter, cycling 4 percent growth in the prior year quarter, while achieving share gains in nonalcoholic ready-to-drink beverages. Trademark Coca-Cola continued to deliver unit case volume growth driven by the success of Coca-Cola Zero and the execution of the three-cola strategy. Georgia Coffee unit case volume increased 4 percent in the quarter and 3 percent year-to-date, its third consecutive quarter of growth and its highest growth rate in more than 5 years. Volume declines in Sokenbicha and Aquarius reflected unfavorable weather late in the quarter. Our outlook for Japan remains positive reflecting initiatives to stabilize and return the business to sustainable growth.
• In China, despite being impacted by earthquakes and flooding across various regions, unit case volume increased 13 percent in the quarter led by strong growth in Trademark Coca-Cola, Trademark Sprite and Minute Maid. The strong performance across the brands resulted in share gains in both sparkling and still beverages. Olympic activation through innovative consumer and customer marketing continues with The Coca-Cola Company recently being recognized as the most effective sponsor of the Olympics in China.
• In the Philippines, unit case volume increased 3 percent in the quarter, cycling 11 percent growth in the prior year quarter. While unit case volume was negatively impacted primarily by poor weather conditions in the quarter as well as pressure from the impact of food inflation on consumer discretionary spending, the performance reflected volume and value share gains in nonalcoholic ready-to-drink beverages and in sparkling beverages.

• The Bottling Investments Group’s unit case volume increased 16 percent in the quarter, reflecting unit case volume growth across the group as well as a benefit from the acquisitions of certain bottlers in the prior year. Net revenues increased 30 percent in the quarter as a result of the unit case volume increase, the acquisition of certain bottlers and a mid-teens currency benefit. Operating income more than doubled in the quarter due to the increase in net revenues, the cycling of restructuring charges in the prior year quarter and the continued focus on driving sustained financial performance through investments in market execution capabilities, enhanced supply chain efficiencies and controlled operating expenses.

Financial Review

Operating Results

Net operating revenues for the quarter increased 17 percent, reflecting a 3 percent increase in concentrate sales, a 2 percent increase from structural changes resulting primarily from acquisitions of certain bottlers, a 3 percent benefit from pricing and mix and a 9 percent positive currency impact.

Cost of goods sold increased 16 percent for the quarter, reflecting a 3 percent increase in concentrate sales, a 2 percent increase from structural changes resulting primarily from acquisitions of certain bottlers, an 8 percent increase from currency and increases in commodity-based input and freight costs.

Selling, general and administrative expenses for the quarter increased 16 percent, with structural changes primarily related to bottler acquisitions, increased costs from brand acquisitions and currency increasing selling, general and administrative expenses by 14 percent. The Company continued to achieve expense leverage through investing in marketing to support brand growth while effectively managing general and administrative expenses through productivity initiatives.

The Company had other operating charges in the quarter of $97 million related to restructuring charges, contract termination costs and asset write-downs.

Operating income for the quarter increased 18 percent, reflecting the growth in gross profit, the investments in marketing and increased sales and service expenses. After considering items impacting comparability, operating income increased 20 percent. Currency increased operating income in the quarter by 11 percent. Based on current expectations of market rates for the remainder of the year and benefits of hedging coverage in place, the Company currently expects a favorable currency impact on 2008 operating income of at least mid-single digits.

Equity income declined in the quarter primarily as a result of our proportionate share of the non-cash impairment charge recorded by CCE.

In the quarter, the Company recorded gains on the sales of assets of $102 million primarily related to the sale of a Brazilian bottler to Coca-Cola FEMSA, S.A.B. de C.V.

Effective Tax Rate

The reported effective tax rate for the quarter was 25.0 percent and the underlying effective tax rate on operations for the quarter was 22.0 percent. The variance between the reported rate and the underlying rate was due to the tax impact of various separately disclosed items impacting comparability.

The Company anticipates that its underlying effective tax rate on operations for the full year 2008 will be 22.0 percent. The Company’s estimated underlying effective tax rate does not reflect the impact of discrete events, which, if and when they occur, are separately recognized in the appropriate period.

Productivity Savings

The Company is targeting $400 to $500 million in annualized savings from productivity initiatives by year-end 2011 to provide additional flexibility to invest for growth. The savings are expected to be generated in a number of areas, including aggressively managing operating expenses supported by lean techniques, redesigning key processes to drive standardization and effectiveness, better leveraging our size and scale, and driving savings in indirect costs through the implementation of a “procure-to-pay” program. In realizing the savings, the Company expects to incur total nonrecurring costs by 2011 approximately equal to the annualized savings.

New Operating Structure

As previously communicated, effective July 1, 2008, the Company made certain changes to its operating structure to align geographic responsibility. The European Union Group was reconfigured to include the Adriatic and Balkans Region and was renamed the Europe Group; and the remaining Eurasia Group was combined with the Africa Group into the new Eurasia & Africa Group. The changes in operating structure did not impact the other existing geographic operating segments, Bottling Investments or Corporate. Reporting on the new structure will start with third quarter 2008 results. Reclassified operating segment information will be published during the third quarter of 2008.

Items Impacting Prior Year Results

In 2007, the second quarter results included a net charge of $0.05 per share primarily related to restructuring charges and a non-cash impairment charge at an equity investee. In 2007, the first quarter results included a net charge of $0.02 per share primarily related to an asset write-off in the Philippines bottler, partially offset by gains on the sales of the equity interest in a Brazilian bottler and real estate in Spain.