可口可樂 (KO) 2007 Q3 法說會逐字稿

Good morning.

My name is Dennis and I will be your conference facilitator.

At this time I would like to welcome everyone to the Coca-Cola Company's third quarter 2007 earnings results conference call.

All participants will be in 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 investors and therefore questions from the media will not be addressed.

Media participants should contact Coca Cola's Media Relations Department if they have questions.

I would like to now introduce Ann Taylor, Vice President and Director of Investor Relations.

Good morning and thank you for being with us today.

I am joined by Neville Isdell, our Chairman and Chief Executive Officer, Muhtar Kent, our President and Chief Operating Officer, and Gary Fayard, our Chief Financial Officer.

Following prepared remarks this morning, we will turn the call over for your questions.

Before we get started 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 statements contained in our earnings release and in the Company's most recent SEC report.

In addition, I would also like to note that we have posted schedules on our Company website at the cocacolacompany.com under the financial information tab in the investor section which reconcile our reports as reported under Generally Accepted Accounting Principals to certain non-GAAP measures which may be referred to by our senior executives in our discussions this morning.

And from time to time in discussing our financial performance.

Please look on our website for this information.

Now let me turn the call over to Neville.

Thank you, Ann, and good morning everyone.

I will start this morning with just a few brief observations about the third quarter results and then Muhtar will provide details on operational performance and Gary will follow with a review of the financials.

Today we report another quarter of solid business results.

The strength of our brand portfolio, the breadth of our global system and the culture of winning increasingly exhibited by our talented people right across the Company and the system continue to drive our business forward.

The investments that we have made in our brands, our early and continued focus on revitalizing the culture through our manifesto for growth, and our commitment, together with our bottling partners, to re-energize our marketing and improve operational execution are all working.

They're driving high quality, balanced growth in volume, revenues, profits, and cash flow.

This is the third consecutive quarter in which we have achieved 6% global unit case growth.

Notably this is our tenth consecutive quarter of delivering at least 4% volume growth.

And top-line growth continues to be robust, reflecting our ability to capture the highest value opportunities across the whole non-alcoholic Ready-To-Drink industry.

Revenues increased 19% in the quarter.

Now the acquisition of bottlers contributed about eight points of this growth, so even excluding this impact revenues grew a very strong 11%, demonstrating the success of the continued system-wide focus on revenue growth management and segmented execution strategies.

We delivered our fourth consecutive quarter of double-digit comparable EPS growth, up 15% versus the prior year.

Ongoing operating income for the quarter increased 12% and year-to-date increased 13%.

Cash from operations for the quarter increased 18% on solid underlying business performance.

Importantly, our focus on productivity is resulting in operating expense leverage for our core business.

Our effective management of commodity cost pressures is also reflected in the results.

Our international operations again led the way, posting unit case volume growth of 8%, and once again driving strong top-line performance.

And the growth continues to be sourced from both developed and emerging markets.

All international operating groups, with the exception of the European Union, which as anticipated had a challenging prior year quarter this cycle, delivered strong growth.

We're also on track with our plans for North America, which recorded sequential volume improvement.

In North America, I would like to highlight the continued execution of our three cola strategy.

In particular, Coca-Cola Zero, and also our ability to drive our still portfolio, which now of course includes Glaceau.

In terms of our global portfolio performance, we achieved continued volume growth in sparkling beverages, while expanding our footprint and enhancing our offerings in still beverages.

Today we're reporting an increase of 4% in sparkling beverages.

And within sparkling, continued emphasis on our three cola strategy resulted in 4% global growth in Trademark Coca-Cola.

Coke Zero, now launched in 51 countries, continues to drive the expansion of the sparkling category and gain share.

Given the strong repeat rates for Coca-Cola Zero, we're focused on driving trial by a sampling programs to continue to recruit new consumers and retain core Coca-Cola drinkers with real Coca-Cola taste and zero sugar and calories.

In still beverages, globally strong performance from our water portfolio but also from POWERade and Minute Maid led to a 14% increase.

This solid growth across the portfolio resulted in our gaining non-alcoholic Ready-To-Drink volume and value share globally, driven by share increases in sparkling and still beverages, both internationally and importantly in North America.

I would note that value share is growing faster than volume share, as we focused on the highest value opportunities.

Overall, therefore, I am very pleased with the strong performance in the quarter and year-to-date.

As we enter the final quarter of the year, we will continue to leverage our leading brands, our global footprint, and our strategic acquisitions.

We'll build our innovation pipeline and all the while driving productivity to continue to deliver sustainable growth and shareholder value.

Now let me turn the call over to Muhtar to provide the details.

Muhtar.

Thank you, Neville, and good morning everyone.

Overall, this was another strong quarter for the Coca-Cola Company, both financially and strategically.

Importantly, we continue to deliver on our commitment.

We achieved balanced geographic and portfolio growth, further solidifying our foundation for sustainable long-term performance.

Our international operations continue to drive results for the Company through the strength of our bottling system and the power of our brands around the world.

The aggressive actions we continue to take to restore growth in North America are starting to bear fruit.

Our system-wide productivity efforts are allowing us to focus on driving top-line growth and creating operating expense leverage.

And finally, we continue to push the envelope with innovation in product, packaging, delivery and customer service.

Today, I would like to share with you details on our progress this quarter and add some perspective for the remainder of the year.

Even with a very strong third quarter of 2006 to cycle in Europe, our international operations increased unit place volume by 8% for the quarter, following our 9% growth in the first half of the year.

Broad-based growth across each of our international operating groups has enabled year to date volume growth of 6%.

This speaks to the power of our global reach and the execution capabilities of our bottling partners.

Volume growth in our international operations was once again led by the emerging markets.

We achieved double-digit growth in such markets as China, Russia, India, Brazil, Turkey, the Philippines, Pakistan, Eastern Europe and southern Eurasia.

Africa also experienced solid growth across all business units.

And additionally we experienced robust growth across Latin America.

Mexico delivered 7% growth in the quarter, a particularly strong performance reflecting the success of our strategies to drive growth in sparkling beverages led by Trademark Coca-Cola.

While it is clear that we're maintaining our focus and winning internationally, there are a few key markets that I would like to highlight where best practice sharing is leading to world class execution.

In China, we once again achieved double-digit growth this quarter.

We are aggressively and strategically investing in that infrastructure and our route to market initiatives to continuously adapt to a rapidly changing marketplace.

Year-to-date we have activated over 120,000 outlets, placed approximately 175,000 new coolers and we surpassed the one billion cases sold benchmark earlier than any other year in our history.

Sprite in China continues to perform exceptionally well, growing nearly 30% in the quarter and year-to-date.

As we start the one year countdown to the Beijing summer Olympics, our focus will be on leveraging our leading brands to become a staple in the local communities and ensuring our full portfolio is readily available in every outlet.

Let me turn now to the Philippines, where our efforts have led to improved execution and seamless integration.

After two quarters of managing the bottling operations, our double-digit volume growth is ahead of our expectations.

We have a first class management team in place that has a deep commitment to and understanding of the marketplace.

We are investing in the market there, adding 2,000 additional front end sales force associates, while driving supply chain efficiency.

Next, in India, strong double-digit volume growth reflects the benefits of the initiatives we put in place in 2006 to rebuild the fundamentals of the franchise.

Our marketing initiatives continue to gain traction supported by improvements and investments made in the bottling operations, including a specific focus on the right route to market supply chain and people capability.

As a result, we recorded share gains in the quarter for both sparkling beverages led by Trademark Coca-Cola, as well as still beverages led by our juice brands.

Russia is another example of how we're working with our bottling partner to invest in a market with tremendous opportunity and growth potential.

The Multon juice business, including the leading Dobriy brand, continues to provide a solid platform for growth in our still beverages.

Also during the quarter, our bottler demonstrated a commitment to this market by expanding capacity with the acquisition of a brand new plant.

Japan delivered another solid performance in the quarter.

The team there is effectively executing our strategy of leveraging our core brands, particularly Trademark Coca-Cola, to drive progress.

Overall in the quarter, we gained share in non-alcoholic Ready-To-Drink beverages, a validation that our strategy is working.

In the quarter, we delivered more than 4% increase in unit case volume, our fourth consecutive quarter of growth, with August and September achieving record breaking sales levels.

Performance driven by Trademark Coca-Cola with year-to-date volume growth at its highest growth rate in 30 years.

From a marketing perspective the Coke Side of Life campaign and promotion behind Coke Zero are having measurable success.

Year-to-date, we have attracted nearly five million new drinkers to the Trademark versus the prior year.

We also leveraged our successful work that we have underway in Europe linking Coke and iTunes by launching a similar program in Japan that utilizes all brands and packages.

Our still beverage portfolio in Japan grew in the quarter as well.

Sokenbicha tea, Aquarius sports drink and both of our water brands drove the results with each gaining share.

Whilst the favorable warm weather benefited most areas of our business, it did have an adverse effect on the coffee category.

Results for Georgia coffee in the quarter were disappointing as gains in the recently introduced Vintage label did not fully offset declines in other flavors.

We remain focused on driving growth in the coffee category through innovation, new promotions and continued marketing investments behind the brand.

We have gained significant traction in Japan and it is reflected in the year-to-date results.

But we do recognize we still have more work to do.

As expected, the European Union faced difficult 2006 comparables that had benefited from World Cup activation and acquisition.

In the current quarter, solid unit case volume growth in central and southern Europe was offset by a volume decline in Western Europe, resulting from unfavorable summer weather across Western Europe and the difficult cycling.

I am satisfied that we have the right strategies in place and the initiatives taken by the EU leadership team over the last two years have built a solid foundation for balanced, sustainable, long-term growth in Europe.

Year-to-date, volumes in the EU have increased 4%.

For the third quarter after removing the impact of acquisitions, the two-year compound organic growth rate is 2%.

The performance of both our sparkling beverages and the ongoing expansion of our still footprint are two strong indicators of the improvements we have made.

Additionally, as a result of our successful programs, we've outperformed the industry in the quarter and year-to-date across the EU.

We have made broad improvements in sparkling beverages through innovation and targeted execution led by the implementation of our three cola strategy and the success of Coke Zero.

The roll-out strategy has delivered year-to-date Trademark Coca-Cola growth of 3% and Coke Zero, which is now available in Europe in 20 countries, has become approximately a three share brand across the EU and has achieved as high as an eight share in markets like Denmark and Greece.

That is a direct result of the close alignments we have with our bottling partners as we execute this key strategy.

Additionally, we are driving expansion of our still platform across Europe, both organically and through acquisitions.

Minute Maid, along with Nestea, Aquarius, POWERade and Burn, all achieved growth year-to-date driving still category share gain.

In Germany, we had a particularly challenging quarter this cycle as we achieved volume growth of 15% in the third quarter of 2006.

While volume was down in Germany for the quarter, during the year we've been able to stabilize share performance and we continue to make progress in executing our plans for long-term growth.

We also continue to improve channel penetration as we broaden our offerings to discounters, enhancing our position in a growing channel where we have historically been under-represented.

And also during the quarter, we finalized an agreement to consolidate the German bottlers.

Our focus has now turned to improving our speed and flexibility with our customers and over time driving supply chain efficiency.

Overall, I'm very pleased with the performance of our international operation and our operators continue to deliver high quality, broad-based growth while maintaining investments to solidify the foundation for sustainable growth in the future.

Let me now discuss the progress we're making in North America.

In the quarter, we achieved 1% unit case volume growth, the first quarter of growth in five quarters.

While this reflects the benefit of acquisitions and an improved trend in sparkling beverages, we are not satisfied with our performance.

However, I am confident that our North America system is executing against the right priorities and is fully committed to restoring sustainable growth in our home market.

We continue to focus on revitalizing the sparkling beverage category with our three cola strategy, Red, Black and Silver.

Coca-Cola Zero, which achieved a 1.3 share in the quarter, delivered strong double-digit unit case volume growth.

And along with Diet Coke, drove sparkling category share gains in the quarter.

We believe there is still significant opportunity for increased awareness and penetration for Coke Zero.

Building on our success in Asia and Latin America, we introduced the new contour grip bottle in the U.S.

for all three cola brands.

While only launched in early September, we have already achieved approximately 75% availability.

The new bottle not only allows us to further leverage our iconic image, but the package also contains 5% less weight than the prior 20-ounce bottle, reducing our carbon footprint and manufacturing cost.

This is just the first of many exciting package innovations that we'll be pilot testing in different North America markets over the coming months.

The Glaceau acquisition continues to perform ahead of our expectations as we have been able to leverage the strength of the system while maintaining the culture and innovation capabilities of the Glaceau team.

In the quarter, brand growth continued to accelerate driven by both sales velocity and increased availability.

We expect Glaceau to continue to be a catalyst for driving growth across the entire North American business.

Last quarter I mentioned that we were working with our bottlers and distribution partners to develop a hybrid operating model that would take advantage of the strength of the system and leverage existing routes to market.

As we announced during the quarter, I am pleased to report that we have finalized an agreement with nearly 100% of our U.S.

bottlers of this front.

This is real progress and speaks to the effective alignment with our North America bottling partners.

We believe the new operating model will benefit our system, will bring value to our customers and will deliver attractive returns to our share owners.

During the fourth quarter, we will be working to ensure seamless transition to this new operating model.

Additionally, as part of the agreement, we gained brand alignment for the next three years and agreed on our 2008 business plan priority.

Overall, we remain relentlessly committed to our goal of re-energizing our business in North America and becoming the preferred beverage partner for our customers.

In the fourth quarter we will continue to expect sequential improvement as further evidence of our progress as we execute against our key priorities.

Finally, I would like to discuss some of the initial progress we have made in driving productivity to improve margin performance.

Our objective is simple, improve our speed of execution and drive operating expense leverage.

When we organize around our three pillars, namely consumer marketing, customer leadership and franchise leadership, not only do we drive our top-line growth, but we improve efficiencies as well.

After successfully delayering our international operations during the first half of the year, we transitioned the process to North America.

Central to the new operating framework in North America is the creation of three business units, sparkling beverages, still beverages and the emerging brands, along with Glaceau, to support our consumer leadership pillar.

The new model defines roles in the organization and allows for greater clarity and accountability for our priority.

As a result, we will be better equipped as a total organization and as individual managers to win the marketplace and to claim leadership with consumers, customers and bottlers.

In terms of the supply chain, we have made several initial steps across the organization.

As I mentioned earlier, as part of our restructuring in the Philippines bottling operations, we're investing to grow our front end sales force by more than 2,000 people as we take costs out of our supply chain to fund additional customer facing roles.

Additionally we announced initiatives to drive productivity in our Irish concentrated operations resulting in our plan to close one of our concentrate plants.

By executing lean productivity initiatives, we were able to increase the capacity of our remaining two concentrate plants and remove the cost associated with the third plant.

Efforts are under way to drive cost savings through ingredient and packaging harmonization, along with projects to optimize processes for the most efficient production of our product.

Ultimately, we are building a productivity based culture where employees feel engaged in the process.

We're changing behavior across the system and making productivity a core part of the way we approach our business every single day.

As we reinvigorate the organization and realize the productivity gains, we will selectively reinvest behind our three pillars to drive further top-line growth.

In summary, I am very pleased with these results which validate the progress we're making against our strategic agenda.

The consistent, balanced results we're achieving are a culmination of the entire system working together seamlessly, which has been a key focus for us and is essential to our long-term success.

The foundation for sustainable growth is built and I'm confident that we will continue to deliver on our promises and create long-term value for our share owners.

Now let me turn the call over to Gary.

Thank you.

Thanks, Muhtar and good morning, everyone.

As Neville and Muhtar indicated, we delivered another quarter of strong financial results.

As you saw in the release, we reported earnings per share of $0.71 on a diluted basis for the third quarter, an increase of 15%.

This included a net charge of $0.03 per share, primarily related to restructuring charges, which was offset by a $0.03 per share gain, primarily related to the sale of a portion of our investment in Coca-Cola Amatil.

Therefore, after considering items impacting comparability in both the current and prior year, adjusted EPS for the quarter and year-to-date increased 15%.

In addition, we lowered our expected underlying effective tax rate on operations for 2007 to 22% from the previous estimate of 22.5%.

To bring the effective tax rate for the year in line with the current estimate, we recorded income tax expense at a rate of approximately 21.7% in the third quarter, which resulted in a tax benefit of $0.01 for the quarter.

For 2008 we expect the underlying effective tax rate to be between 22% and 22.5%.

Net revenue in the quarter increased 19%, which included an 8% benefit from structural changes related to our acquisition of bottlers.

Excluding the impact of these bottler acquisitions revenue growth was 11%, driven by 6% increase in concentrate sales, a 1% benefit from price mix and a 4% increase from currency.

Price mix benefit on the core concentrate business was positive in the low single digits.

However, this was partially offset by bottling investments primarily due to the volume decline in Germany.

We grew operating income by 10% on a recorded basis.

After considering factors impacting comparability in the current and prior years, operating income increased 12%, which includes a 3% benefit from currency.

So on an ongoing currency neutral basis we grew operating income 9%.

SG&A increased 16% in the quarter, so let me take a minute to walk you through the increase.

About 12 points of the increase were due to currency bottler acquisitions and increased selling and service expenses in our consolidated bottling operations and behind acquired brands as we invested for growth.

The remaining four points reflect continued solid investment behind our brands, and similar to our year-to-date results, G&A expenses increased low single digits, reflecting the early results of our productivity initiatives and disciplined expense management.

So while the quarter's reported operating margins are 23.8%, this includes a significant impact due to the lower margin bottling operations, including the recent bottler acquisitions.

Underlying margins on the core business remain healthy as we drive top-line growth and deliver operating expense leverage.

We repurchased $1.6 billion of our stock year-to-date and we still expect to repurchase a total of $1.75 billion to $2 billion for the full year 2007.

Cash from operations year-to-date increased 18% on strong underlying business performance and a decrease in working capital primarily as a result of cycling the higher net taxes paid in 2006 related to the repatriation of foreign earnings from 2005.

Now let me address some of the factors that we see impacting the remainder of 2007.

We recognize that there is some uncertainty as it relates to the U.S.

economy.

However, as Muhtar said, we remain committed to restoring growth in our home market.

We continue to expect sequential improvement in our North America performance as we finish out 2007.

We also remain positive on the global macroeconomic outlook, especially in many of our emerging markets.

We will continue to manage our country portfolio as we expect solid performance in most of our markets.

We feel confident in our progress and have built a solid foundation, strategically, operationally and financially as we finish out the year.

Given the recent focus on commodity cost, I would like to provide you with some insight into our point of view.

In 2007 we have seen headwinds across several key input costs.

Globally we have seen significant increases in orange juice cost, which we have effectively managed.

The result has been year-to-date mid-single digit unit case volume growth in our juice and juice drink brands, while driving volume and value share globally.

The other significant commodity cost increases in 2007 have been in corn sweetener and aluminum, which was primarily impacting the North America bottling system and has been reflected in retail pricing.

However, we are starting to see a moderation in commodity cost impacting beverage companies, both globally and in North America, and we believe the worst is behind us.

While commodity cost volatility remains a risk, our current assumption is that commodity costs overall for the system in 2008 will be essentially flat with 2007.

And for the Company we expect commodity cost to be flat to down slightly versus 2007.

From a capital expenditure standpoint, as we stated last quarter, we expect total Company net capital expenditures for this year to be in the range of $1.5 billion to $1.6 billion as we make investments in recently acquired bottling operations.

Now let me move to currency.

As I mentioned, we saw a positive impact from currencies for the quarter on operating income of 3%.

Benefits from the Euro, Brazil Real and Sterling are being partially offset by weakness in the yen.

We are effectively covered for the full year on the yen and the Euro.

Based on current spot rates and the expected impact of the coverage in place, we expect a mid-single digit favorable impact of currency on the fourth quarter results.

We're in the process of finalizing our 2008 business plan, so we'll provide our outlook for 2008 on our year-end call in February.

That's it for the topics I wanted to cover this morning, so we can now turn it over for your questions.

Operator?

(OPERATOR INSTRUCTIONS).

In respect of the number of individuals with questions, we request only one question per participant.

Thank you.

Your first question will come from the line of Christine Farkas with Merrill Lynch.

Okay, just a little bit closer.

Can you quantify at all how much Glaceau infuse added in terms of basis points to your growth?

And in the past, water had been a drag in terms of the larger volumes.

Is that now cycling itself and no longer a factor?

Thank you.

Christine, good morning.

This is Muhtar.

Certainly we have had a very, very good solid performance with Glaceau.

It added about two points overall.

In terms of the bottom-line, actually, we are very pleased with the North America performance, even without Glaceau, it still had a double-digit growth in the quarter.

So that's basically how I would phrase that.

And in terms of the water?

Water I think we're pretty much through the cycling.

There's still a little bit of impact but nothing like in the first two quarters.

Great.

Thanks a lot, Muhtar.

Yes, sure.

Your next question will come from the line of Kamil Gajrawala with UBS.

Please go ahead with your question?

I'm sorry.

Hello?

Yes, sir, your line is open.

Please go ahead with your question.

Hi, everybody.

Can you talk a little bit about productivity and if any of that will fall to the bottom-line?

Well, it already is because we had one point of operating leverage if you go down to the core business this quarter.

And Muhtar focused on the really consistent drive that we have with regard to creating a much more effective, a much more efficient system.

You are going to see that continuing and it will evidence itself obviously in operating leverage.

But it will also allow us, where we selectively choose to do it, to invest behind the brands and invest in terms of overall for top-line growth.

And you see that virtuous cycle actually in this quarter where we've got the operating leverage, we have reinvested behind the brands and that investment, continuing investment behind the brands drives the top-line growth.

So that's the balance that we'll continue to strike and we certainly see that continuing going forward.

Got it.

Thank you.

Your next question will come from the line of John Faucher with JPMorgan.

Please go ahead with your question.

Yes.

You talked about the flattish commodity cost as we head into 2008.

And so I guess the question is how does that impact your feeling on concentrate pricing, given the fact that particularly with CC you took less net concentrate pricing in 2007 because of the commodity environment?

Well, John, we're still obviously in our budget cycle and we haven't finalized that at this point in time.

So it's premature to speculate on that.

However, I would go back to a broader statements that I've made in the past, and that is that we will be increasing concentrate around about inflation or slightly less.

And also reflecting on the fact that as you look at the health of the overall bottling system and the recalibration that we have had to do really over the last seven, eight years, that we now have a very healthy system so a more normal situation will prevail into the future.

But it is too early for me to give you any real guidance on that for '08.

Okay.

Thank you.

Your next question will come from the line of Bonnie Herzog with Citigroup.

Please go ahead with your question.

-- the unit case volume growth that you've reported this quarter since your total worldwide volume growth you mentioned was up 6% and that was certainly led by the international unit case volume growth which was up 8%, I believe you mentioned North America was up 1%, so I'm quite frankly just simply trying to do the math and understand how that works or where do I exclude the acquisition?

We may have missed just the beginning of your question, Bonnie, because it didn't come out -- there was interruption in the line.

This is Muhtar.

Good morning.

I'll try and -- tell me if I haven't answered it properly.

Internationally, as you said, we've grown 8% and in terms of both international as well as U.S.

volume we're increasing still beverages double digits, in both international as well as in our North American operations.

And overall international we've grown 8% and in the U.S.

we've grown overall 1%, that generates the average of 6% globally in the quarter.

I think you may have answered it.

You're right, I just was trying to make sure I understood the math correctly, Muhtar, because what you just stated, worldwide is up 6%, international is up 8% and North America is up 1%.

So I'm just --

That's right.

And in both operations we've increased still beverages double-digit growth in both international and North America.

Bonnie, just to the other part of your question is how much of that is acquisition.

Yes.

It's actually 1% on a global basis and 2% for North America.

So the underlying --

That helps.

Okay.

Underlying North America we minus 1, this is what you're looking for I think.

I guess the plus 1% and global would be -- is plus 6% and plus 5% if you exclude acquisitions.

Neville, that helps.

That's exactly what I was looking for.

I appreciate it, thank you.

Your next question will come from the line of Bill Pecoriello with Morgan Stanley.

Morning, everybody.

On North America, as you're looking out to '08, do you see most of the focus on the integration and continuing the momentum behind Glaceau, which is going to be a big undertaking for the system, or do you also see a strong innovation pipeline and efforts to improve the core sparkling business?

You had had mentioned in the past leveraging Glaceau benefits to re-energize the core and you briefly mentioned some package innovation in your prepared comments.

Bill, this is Muhtar.

Certainly Glaceau is going to be a very important catalyst for sustainable growth in North America and really this new agreement is really a milestone with our bottling partners, almost unanimous agreement with our bottling partners going forward, which is completely in line with our three key goals, which is leading growth in sparkling beverages led by Trademark Coca-Cola, delivering our fastest volume growth in the still portfolio for North American, being the preferred partner for our customers.

What this agreement has done is aligned our 2008 business plan agreement and it's given us agreement on brand alignment, very importantly, for the next three years and it's also had very important impact on capability assessments going forward for reinvestment into our total business in the United States.

Now, having said that, our key focus is still to stabilize and regenerate growth in sparkling beverages and you'll see us innovating both from a package point of view and our three cola strategy is really working well, driving growth in the diet category and sparkling beverages and we will continue to focus on that and we will also certainly be coming out with a lot of innovation in packaging and in also sales equipment as we move forward and a key focus on the point of sale going forward in the United States with our bottling partners where we're fully aligned for quarter four onwards.

One other thing I would add, Bill, that I think gives us a lot of confidence in our statements around sequential improvement and winning in our home market is we have talked about in the past that we've been doing some tests around segmented execution and really ramping up those capabilities and one of those is in Philadelphia.

We've seen the results of that coming through this year and in fact in the quarter Philadelphia was positive in volume terms in sparkling.

We know what we can do and have great confidence that the entire bottler system can now execute behind what we're seeing and really continue to improve our North America business.

Great.

So on that you plan to take the learnings from Philadelphia and extrapolate that out to the balance of the system?

Yes, we certainly do.

We have many plans around leveraging the best practice out of markets like Philadelphia as well as some other markets and drive that through across the system with a key focus, as I said, on execution at the point of sale and driving packaging innovation at the point of sale.

Thank you.

Just to give you the example of the grip bottle, which has been a really important addition to our packing portfolio in the United States, it's already in 50 international markets and it's driving results for both -- across Trademark Coca-Cola in all the markets that it's been introduced and it's achieved about 75% availability already.

Thank you.

(OPERATOR INSTRUCTIONS).

Your next question will come from the line of Mark Swartzberg with Stifel Nicolaus.

You step back and look at the volume that this company has been producing compared to what it might produce over the next year or so, if you take a mathematical view you could just say the compares are getting tougher.

If you take a qualitative view, you could say the momentum really picking up here.

What in your mind, if you had to rank the key drivers of no material slowdown and unit volume growth where we assuming you're managing the mix as well as you have been, what in your mind ranks at the top here?

Mark, I would actually say consistency, execution and partnership with the global bottlers.

And you know from day one I have talked about executing for the long-term and that that then builds a momentum of its own.

I also have said that don't judge us quarter by quarter, judge us over a period of time, because we will certainly have difficult quarters.

That happens.

Now, cycling the summer of '06 in Europe, we managed to be able to do that because of the strength of the rest of our portfolio.

You may recall that that didn't occur when there was a very bad summer in Europe in '04, cycling a very strong summer in '03.

So I think that underscores the fact that we have momentum and that that momentum is going to continue.

And it -- it is broad-based.

It is based on sparkling and the complete reinvigoration that we have of the sparkling category.

Muhtar has outlined where we are with regard to that in North America.

And how he feels that that will certainly be a recovery and we will have an absence of the headwinds with regard to the cost pressures that we experienced in '07 and '08 as well.

So I would really use the words consistency and continuing execution, execution, execution.

In a way, it's steady as she goes.

There is nothing new we are going to say about a new initiative, it's all of the key drivers of growth that we're going to continue to execute much better as we go forward and I think you see that happening with this management team as it's come together very successfully.

Great.

And one quick follow-up, Neville.

Coke Zero, you've got a level of detail globally we don't have.

Kind of the same question.

Obviously it's been an important contributor to growth but there's real kind of buy-in at the consumer level there.

How do you think about that brand as either a risk in terms of lapping or really continuing to act as a driver of growth?

I'll give you a headline and let Muhtar give you some granularity.

Every piece of evidence we have is that that growth continues as we lap very successful launches.

Muhtar?

We're now in more than 50 countries.

By the end of the year it will be close to 60 in terms of launches.

Everywhere, whether broad-based, Asia, Latin America, Eurasia, Europe and North America, everywhere the brand is performing tremendously well, high-double digits.

But I'll give you one piece of statistic that may help you.

If you take the total global Diet Coca-Cola and Coca-Cola Zero volume, we have a double-digit growth versus prior year.

So that's I think -- because the important thing is that in most, in almost all markets Coca-Cola Zero drives substantial amount of incremental volume.

Great.

Thank you.

Of course there is some cannibalization.

But if you take the two in terms of Coca-Cola Zero as well as Diet Coca-Cola and add the two together versus prior year, right now we have double digits and very high repeat and high velocity in all markets.

So we expect this momentum to continue going forward in terms of -- and you can see that from our business where we're lapping, there's still tremendous velocity in the brand and horizontal expansion taking place.

That also is true for North America.

We see tremendous potential right here in North America for further expansion of the brand.

So it sounds like even the oldest market you're seeing that double-digit relationship?

Yes.

Excellent.

Thank you, gentlemen.

Your next question will come from the line of Lauren Torres with HSBC.

Please go ahead, Lauren.

(Technical Difficulty) Solid results this quarter from some of your previously troubled markets.

I guess that would be Japan, India and the Philippines.

Outside of just cycling easier comps, can you talk about what's fundamentally changed in each of these markets.

I know, Muhtar, you talked about it in your prepared remarks.

Why should we expect some of this positive momentum to continue?

Well, first as a focus, the important thing is that we have now out of our top 22 markets, 19 of them are growing and growing with an increased momentum.

That's the key.

And we certainly have had, as you put, issues around four large markets last year.

Those were Japan, India, certainly Philippines, Nigeria and all of those are showing positive growth right now.

Now, as I said, out of the top 22 markets 19, there's still three of them that are not performing.

And there will always be some in our portfolio across 200 markets that need fixing.

I can assure you that we focus on those religiously and with intensity and we fix them.

You see all those four markets today that were not performing that I mentioned to you now growing.

I think the key here is -- and we're certainly -- all of them had different issues.

We had indicated a plan to restore -- to stabilize Japan.

I think we have stabilized Japan now.

From here on we will continue to execute in Japan and it is a very high per capita market and we will return to traditional growth rates in Japan.

In the case of Philippines, in the case of India, in the case of Nigeria, they're emerging markets which we'll continue to drive our volume and gain share in those markets.

Let me just add one other thing which I think is important, because it comes from the whole strategy of the formation of the bottler investment group.

We now have very skilled bottling professionals within the company and you see that in the results in India and the Philippines, where we are able to go into those sort of markets and very aggressively, particularly with the Philippines, turn around in a very short period of time.

Now, we have bottlers who are able to do that with markets as well.

But the strategic point is that what that does is it means that we take a systemic view.

We are able to think about the whole value chain, we're doing that of course obviously when it comes to productivity as well.

But we've got executives who now not only think about a concentrate side at the exclusion of the bottling side or vice versa.

We now have a total systemic view.

And when you're able to do that and link that together effectively, that's when you get the execution and that's when you get the results.

So that move has given us the intellectual capital within the business to be able to execute the way we are doing and to be able to execute rapidly.

Thank you.

(OPERATOR INSTRUCTIONS).

Your next question will come from the line of Bryan Spillane with Banc of America Securities.

Good morning.

Just wanted to ask a question about productivity and I guess the potential to start thinking about increasing the co-mingling of beer and soft drink distribution in some markets.

If my memory is correct, this has been sort of a platform that's been in and out of favor at Coke over the years.

But it appears like there's a few markets where that is effective right now and I would like to get an update on your current thinking, if it's changed at all as to whether or not that's a viable option in terms of creating some leverage in some markets around the world.

Bryan, let me just firstly just say that we -- our strategy and efforts around productivity are to ensure that we have a realigned organization that can make decisions with speed, that we can drive value in key spend areas across our organization on our system, build the foundation for sustainable growth going forward in key processes and then of course the culture piece.

In some exceptional situations, there may be distribution and there may be synergies in the back office.

But clearly, we are focused to ensure that we have exclusive management of the market development at the point of sale across the world and this is critical for us.

Developing outlet by outlet, impulse creation across the world and that requires an exclusive focus.

So our thinking is very clear.

Where there may be some opportunities on exceptional basis, I think the bottlers -- the bottling system finds those.

It's not a strategy that we look to develop across the world from here and certainly our strategy on productivity is those that I've outlined to you.

Great, thank you.

This morning's final question will come from the line of Mark Swartzberg with Stifel Nicolaus.

Please go ahead, Mark.

Thanks again.

Muhtar, quick question on Glaceau North America.

Any difference in the contract, the distribution contracts you have with CCE versus other Coke bottlers?

No, essentially we have, as I said, an agreement, really I would call it an historical agreement, almost unanimous participation by all our bottlers that essentially focuses on the areas that I've already outlined before.

And it is the same as distributors.

It's the same across distributors?

Yes.

Great.

Thank you.

Okay.

Thank you very much indeed everyone.

Thanks Muhtar and Gary.

Just to conclude, it's good to be with you again this morning.

I just want to reflect on the fact that for decades the Coca-Cola company, we've stood for positivity, we've stood for happiness.

One of the things I feel as I walk around the corridors, the hall Atlanta and also in our field locations, because we all spend a lot of time out there around the globe, is that our employees are engaged and, just as importantly, they're having fun again.

So I'm confident that our strategies are working.

And we remain resolute about delivering against our strategic agenda in order to continue to create sustainable growth and value for our shareholders.

Thank you very much indeed.

Ladies and gentlemen, this does conclude the Coca-Cola Company's third quarter 2007 earnings results conference call.

You may now disconnect.