可口可樂 (KO) 2008 Q2 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 second quarter 2008 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).

Participants will be announced by their name and company name in the order they are received.

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'm joined by Neville Isdell our Chairman, Muhtar Kent our President and Chief Executive Officer, Gary Fayard our Chief Financial Officer and Sandy Douglas, our North American Group President.

Following prepared remarks this morning, by Neville, Muhtar and Gary, 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 like to note that we have posted schedules on our Company website at www.thecoca-colacompany.com under the financial information tab in the investor section, which reconciles certain non-GAAP financial measures that may be referred to by our senior executives in our discussion this morning and from time to time in discussing our financial performance to our results as reported under Generally Accepted Accounting Principles.

Please look at our website for this information.

Now let me turn the call over to Neville.

Thank you Ann and good morning, everyone.

As you all know this has been my final quarter as CEO of this outstanding company.

Before I turn the call over to Muhtar, who will provide context around the results of the second quarter and the outlook going forward and to Gary who will give you an overview of the perspective of 2008, I want to make a few opening comments.

The Coca-Cola Company has made significant progress since our turnaround began in 2004.

We have revitalize the sparkling beverage category globally and continue to grow trademark Coca-Cola.

We've addressed key issues, markets and taken decisive actions.

We have reconnected with our customers and consumers through effective marketing and innovation strategies and we have re-engaged our associates who are absolutely key to our winning in the marketplace.

And importantly we have successfully implemented a seamless CEO transition plan for the next leg of our journey.

Clearly, our strategies are working as we continue to expand our volume and value shared leadership position in the non-alcoholic, ready to drink beverage industry as well as in sparkling and key still beverage categories.

And our financial performance continues to be strong as we deliver our seventh consecutive quarter of double digit comparable earnings per share growth.

As I depart as CEO, I am pleased with our accomplishments and solid performance.

We have put in place a strong foundation, and I remain confident in our outlook for 2008 as we continue to invest and build share.

Our balanced geographic mix and broad portfolio, along with a talent and experience of our people across the system, positions us well to continue to be successful, delivering growth and value for our share owners for the long term.

And now I'd like to turn the call over to our new CEO, my good friend, Muhtar.

Muhtar Kent please.

Thank you Neville and good morning everyone.

First, I'd like to take this opportunity to thank Neville for his extraordinary leadership and the support that he's provided to me for the past two decades.

I am truly honored by the confidence both he and our board of directors have shown in my ability to lead this great company.

Before I get into the specifics of our operating performance, I'd like to reiterate that our business is a true, great business to be in.

The nonalcoholic beverage industry is the fastest growing segment of the consumer products industry and we have been leading positions in almost all categories we compete in.

The Coca-Cola Company offers an affordable luxury, connecting with our consumers one and a half billion times every day, but I know what is top of mind for all of you, the current macroeconomic environment and its impact on our results.

Based on our volume performance of 3% of the quarter, it is clear we were faced with some challenges around the globe.

Our results in the quarter were impacted primarily by a number of one-time events, including strikes in Europe and natural disasters in Asia, as well as unfavorable weather in a number of our markets.

Moreover, we are certainly operating in a more challenging environment, particularly as rising food and energy cost weigh on consumer confidence.

Internationally GDP forecasts are coming down, however growth is still expected to remain at healthy levels and it is no surprise that we continue to face challenges also in North America due to the U.S.

economy.

We continue to invest aggressively in our portfolio with new products, marketing platforms and a consistent strategy in very close coordination with our bottling partners, to offer our customers the best beverage choices for consumers.

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% unit case volume growth, cycling 9% growth in the prior year despite some one-off events and a more challenging macroeconomic environment.

For the past few years we've been rebuilding our foundation and solidifying our tradition as a leading global non-alcoholic, ready-to drink beverage company.

We believe that our broad and balanced geographic mix positions us very well to navigate through any headwinds as we continue to focus on operating efficiencies and execution strategy.

Our actions are allowing us to win in the market.

Globally, we accelerated our volume and value share gains in total nonalcoholic beverages.

Importantly we gained share in most of our key markets as well as key categories.

And this illustrates the strength of our brand and the strength of our system to operate successfully in tough environments.

By continuing to invest in difficult economic times, our system is seeking to build a stronger bond with consumers and a stronger share position for the long term.

We clearly recognize that there are short-term challenges in the marketplace related to economic trends and we will maintain our disciplined approach of analyzing and understanding the impact of these challenges to our business and adjust our plans accordingly.

Now let me turn to our operating performance for the quarter.

We increased our unit case volume by 3% in the quarter and 4% year-to-date, successfully cycling 6% growth in the prior year quarter and year-to-date periods.

While the growth was not where we would have like it to be, it is not unexpected given the headwinds we faced from national disasters including earthquakes and floods, as well as unseasonably cold and wet weather in certain markets.

Additionally, we will challenged as I said with strikes in European markets and continued softness in consumer trends in North America.

In the quarter, our financial results remained strong.

We achieved double digit comparable earnings per share growth of 19%, now our seventh consecutive quarter of double digit EPS growth.

Revenue growth was solid increasing 17% with the acquisition of bottlers contributing two points of growth.

This performance illustrates that our strategies to drive top-line growth are working.

Ongoing operating income increased 20% with currency contributing 11 points of growth.

So our currency neutral operating income was 9%, even as we have continued to make solid strategic investments for long-term sustainable growth.

Moving now on to our geographies.

Latin America continues to be a bright spot for our system, once again achieving solid results.

Unit case volume increased 7% with all business units delivering growth and the group also continued to achieve share gains in key countries.

Additionally the successful integration of Jugos del Valle into our system, is contributing to still beverage growth and share gain.

In Mexico, unit case volume increased 10% led by the continued strong performance of brand Coca-Cola up 3% and the benefit of Jugos del Valle also contributing three point to growth.

All leading to volume and value share gain in sparkling as well as still beverages.

Brazil increased 1% in the quarter reflecting the slowdown in industry grow particularly in April as consumers spending shifted to durable goods as a result of continued credit expansion.

Despite challenges in the marketplace, Brazil gained volume and value share in total nonalcoholic ready-to-drink beverages also as well as in sparkling and still beverages.

In Africa we achieved unit case volume of 5%.

South Africa's unit case volume was even with last year's cycling 12% growth in the prior year quarter and reflecting the continued effects of CO2 shortages.

We expect to have the CO2 shortages in our business resolved during the second half of this year.

Eurasia delivered unit case volume growth of 7% led by solid results in India, Turkey Eastern Europe, Southern Eurasia and the Middle East.

Growth was solid across sparkling and still beverages with sparkling beverages growing 3% and still beverages led by the expansion of Minute Maid in India and Multijuice in Russia growing 24%.

In Russia unit case volume growth was 2% primarily reflecting the impact from poor weather conditions particularly in the second half of the quarter.

Despite the slowdown of volume growth in Russia, our volume and value share in nonalcoholic beverages in the quarter reached an all time high.

The pacific group grew unit case volume 4% in the quarter led by China which continued to deliver double digit growth despite being negatively impacted by significant flooding and earthquakes in certain regions of the country.

We continue to drive growth by leveraging our Olympic activation programs centered around brand Coca-Cola expanding Minute Maid Pulpy and successfully launching our new Original Leaf Tea brand.

In Japan, volume declined 1% in the quarter.

However, we achieved share gains in nonalcoholic ready-to-drink beverages.

Sparkling beverages continued to grow led by trademark Coca-Cola, as we continue to invest behind our three-cola strategy and the introduction of a new Fanta product, [Fufuru] a unique innovative sparkling jelly fusion shaker.

Additionally Georgia Coffee grew 4%, the highest growth rate for Georgia in more than five years.

Core Georgia flavor contributed to more than 50% of the growth, proving our strategies to innovate the brand through marketing initiatives, new packaging and new flavors are working well.

Georgia is now in its third consecutive quarter of growth and gaining category share.

Adverse weather conditions resulted in volume declines for Sokenbicha and Aquarious volume decline.

Together with our bottling partners our outlook for Japan remains positive with an expectation of low single digit unit case volume growth over time.

In Japan we have a clear formula for success and we'll continue executing against our strategies.

In the Philippines, results were impacted by severe typhoons in the early part of the quarter.

Additionally we saw slowdown in overall consumer spending in all staple goods including beverages, due to inflation pressures.

Unit case volume grew 3% cycling 11% growth from prior year.

We continue to gain sparkling and total volume and value share during the quarter.

We remain committed to investing in the marketplace focused on affordability and availability initiatives to drive future growth.

In the European union group, our volume declined 1% cycling 5% growth from the prior year.

Our operations were impacted by strikes in several of our key markets and the shift of the Easter holiday into the first quarter.

Volume declined in April, but returned to grow in May and June.

Despite these challenges we are winning in the marketplace, gaining overall volume share and value share across the group, as well as share gains in sparkling and still beverage categories.

Coca-Cola Zero remains strong with presence in 26 countries now in the group and growing double digits in the quarter.

We continue to expand our still beverage offering to generate more balance grow and launched Vitamin Water in Great Britain, with early signs showing good progress.

We are consistently making solid strategic investments behind our brands with marketing initiatives around Europe 2008 and the Olympics, focusing on revitalizing the sparkling category with the expansion of our zero range portfolio and broadening of footprint in still beverages.

In Europe, we have a solid foundation in place and remain committed to executing against our strategies.

In North America, results were clearly impacted by the worsening economic environment which as we know may continue for sometime.

The economic environment is reflected in the nonalcoholic beverage industry declining 2% in the quarter.

However, we remain confident we have the right strategies in place to deliver long-term sustainable growth, working alongside closely with our bottling partners and customers.

Our unit case volume growth was even in the quarter despite the challenging environment.

Importantly, we continue to gain total beverage volume and value share.

Sparkling beverages declined 4% in the quarter reflecting the continued weakness in our food service business and other on premise channels.

However, our red, black and silver portfolio Coca-Cola Classic, Coca-Cola Zero and Diet Coke continued to gain volume and value share.

Coca-Cola Zero delivered strong results growing more than 40% in the quarter cycling double digit growth.

Our still beverages portfolio performed strongly as unit case volume increased 9% in the quarter.

Warehouse juices grew double digits led by trademark Simply Juices and continued to gain volume and value share.

Importantly for Glaceau, performance remains solid up strong double digit with strong performance in immediate consumption and non-measured channels.

Additionally Fuse continues to perform very well and for the still beverage category we continue to gain total volume and value share.

In this difficult economic environment looking forward, we have a strong marketing calendar and our bottling system and customers across sparkling and still brands, but we expect the back half of 2008 to remain challenging in North America.

We are accelerating productivity initiatives to focus investment in consumer and customer facing program and remain committed to winning in this important market.

Now let me cover productivity.

Driving effectiveness and efficiency across our entire system continues to be a key lever in our ability to consistently deliver long-term sustainable results.

Recognizing the challenges we are facing, in my first two weeks of CEO I have accelerated several initiatives which were already underway focusing the system on three primary areas.

First, supply chain optimization, where we are working within our own supply change and our bottling partners to improve operating efficiencies to drive margin enhancing opportunities.

Second, marketing and innovation effectiveness.

We are aggressively reviewing marketing spend, to reduce non-consumer facing programs through greater use of global campaigns, leveraging best practices on creative design and execution as well as optimizing our use of agencies and other third party providers.

As an example we renegotiated a global marketing research agreement that will generate savings versus the numerous local agreements in place, as well as provide additional services.

These are just a few of the many steps we are taking to optimize investments behind our brands and leverage global best practices.

Our objectives is to reinvest marketing efficiencies we realize -- that we realize into brand building activity to drive the long term health of our business.

And third, operating effectiveness and efficiency which will provide us with ongoing flexibility to invest in additional initiatives to drive top-line growth and also to support the foundation for future performance as well as drive more streamlined decision making.

I've talked to you about these opportunities before.

We are now ready to share with you a range of expected monetary benefits.

Our target is to generate annualize operating savings in the range of 400 to $500 million by the end of 2011.

We have already began to implement several initiatives to realize these savings including, first to aggressively managing expense budget and concentrate supply chain operations to eliminate inefficiency and weight, supported by lean techniques across our operations.

Second, by redesigning processes to drive standardization and effectiveness and third, by identifying opportunities to leverage our size and scale including shared service operations.

And also, last but not least, driving savings in our indirect expense area through the implementation of procured to pay purchasing program first in North America and Europe, which is really going to cover approximately 80% of our total indirect spend globally.

So overall, while our volume growth in the quarter was weaker than we would like, I am pleased that we successfully managed the numerous one-off factors, as well as the more challenging economic environment by delivering solid financial results and winning in the market as evidenced by our share gains globally in our key categories and also across all our markets.

Our system has proven that it is taking the right actions to be successful in the market and we will continue to do that.

Going forward, we will remain relentless in becoming more efficient, leaner and adaptive to the changing market conditions, while continuing to invest behind our brands building a strong position for the future.

Both the fundamentals of our business and the strength of our brands continue to be solid.

Through our focus on superior system execution and driving productivity, I remain confident we are building a stronger Coca-Cola system for the future.

With that, let me turn the call over to Gary.

Thanks, Muhtar and good morning everyone.

As Neville and Muhtar indicated we once again delivered strong financial results.

As you saw in the release we reported $0.61per share on a diluted basis in the quarter.

However this included a net charge of $0.40 per share, $0.38 of the net charge was related to our proportionate share of the non-cash impairment charge recorded by Coca-Cola enterprises.

The remaining $0.02 was related to restructuring charges and some tax matters partially offset by the gains from the sell of assets primarily the sale of our [remile] bottler in Brazil to Coca-Cola [Fimza].

Therefore, our adjusted earning per share was $1.01 per share, an increase of 19% after considering items impacting comparability in both the current and prior year quarter.

As Muhtar said our seventh consecutive quarter of double digit comparable earnings per share growth.

Net revenue in the quarter increased 17% which included a 2% benefit from structural changes primarily relate to acquisition of certain bottlers.

The growth was driven by 3% increase in concentrate sales, a 9% increase from currency and a 3% favorable impact from price and mix.

In the quarter, unit case volume increased 3% cycling 6% growth in the prior year quarter.

Additionally unit cases and concentrate sales are in line for the quarter and year-to-date.

We grew operating income by 18% on a reported basis, after considering items impacting comparability in the current and prior year quarters, operating income increased 20%, which includes an 11% benefit from currency.

Total SG&A on an ongoing basis increased 16% in the quarter.

About 14 points of the increase was due to bottlers and brand acquisitions increased sale and service expenses, as we invested for growth in our bottling operations and because of currency.

The remaining two points reflected continued investment behind our brands at a rate approximating gross profit growth, while tightly controlling general and administrative expenses as we focus on expense management and productivity initiatives.

We are maintaining a disciplined approach to marketing our brands particularly in the current environment.

As Muhtar mentioned earlier, we are continuing the support our brands building our stronger share position for the future.

We are achieving this through a slight step up in our total direct marketing spend versus our original plans, while at the same time reinvesting marketing productivity savings.

We are also strategically reallocating resources against geographies and initiatives to drive sustained growth.

Additionally we continue to see margins improve in both our core business and in our bottling investment group.

Our continued focus on driving efficiencies and effectiveness throughout our organization, generated four points of expense leverage on our core business in the quarter.

For the remainder of the year we would expect to continue to achieve expense leverage, but at a more moderate rate as we start to cycle some of the programs put in place late last year.

Our interest expense decreased in the quarter, reflecting the impact of a $17 million gain from terminating interest rate locks put into place in anticipation of a long-term debt issuance later this year which is now being deferred given the current market environment as well as lower interest rates.

We repurchased approximately a billion dollars of our stock year-to-date and we continue to expect to repurchase 1.75 and two billion for the full year 2008.

Now let me address some of the factors that we see impacting us in the remainder of this year.

We remain confident in our ability to achieve long-term sustainable growth, despite a more challenging short-term environment given our balanced geographic mix and brand portfolio.

We will continue to portfolio manage globally, as we expect solid performance in most of our markets, with softness in North America as our business in North America will continue to be impacted by the difficult economic environment in the near term.

Globally, we have strong plans in place with our bottling partners and customers for the remainder of the year, which reflects the realities of each market's economic condition.

From a commodity cost perspective given the continued rise in oil prices and the impact on PET, we would expect a slight increase for the company this year.

From a capital expenditures standpoint, we purchased 850 million in net property plant and equipment year to date for 2008 the full year we expect total company net capital expenditures will be approximately $1.8 to $1.9 billion, that is versus our prior estimate of 1.6 to 1.7.

About half of the increase is due to currency movements since the time we set our budgets and the remainder is to support the growth in our bottling investments group.

With regard to taxes, we ended up the quarter with an underlying effective tax rate of 22% and we expect to remain at that underlying effective tax rate for the remainder of the year.

Moving now to currency, as I mentioned we saw a positive impact from currency in the quarter on operating income of 11%.

We are effectively covered for the full year on the Yen and the Euro and based on market expectations for the remainder of the year and benefits of coverage in place, we would expect currency benefits on operating income for the full year to be at least mid-single digits.

With most of the benefit occurring in the first three quarters of this year.

Finally let me turn to productivity.

As you saw from our release and as Muhtar mentioned we expect to achieve 400 to $500 million of annualize operating savings from our productivity initiatives by the end of 2011.

In realizing the savings the company expects to incur total nonrecurrent costs by 2011 approximately equal to the annualized savings.

Starting in 2008, we expect the phasing of the savings and cost to be approximately 25% per year through 2011.

That's it for the topics I wanted to cover.

So operator, now for the questions.

(OPERATOR INSTRUCTIONS).

Your first question will come from the line of Judy Hong with Goldman Sachs.

Good morning, everyone.

Muhtar, I was just wondering if we look at your volume growth of 3% in the quarter, I'm wondering if there's a way to kinds of quantify how much of that was really one-off factors like the labor strike et cetera versus the more challenging macro conditions that you've cited?

And related to that issue, if you look at markets around the world, can you compare and contrast markets where you are seeing more negative impact from challenging macroeconomic conditions versus markets where you are not?

And whether going forward you are looking for broader slowdown in markets where you haven't really seen the weakness in some of these markets at this point?

Yes, good morning, Judy.

I think as I've said, I talked about the one-off events.

Again, just to reiterate, China certainly experienced earthquakes, flooding, also unseasonal weather.

That certainly had an impact early in the quarter.

Philippines experienced typoons.

Europe experienced unseasonal weather, very unseasonal weather in April and also we experience labor strikes in both France, Greece and Spain.

And Japan and Russia were again impacted very significantly in terms of the unseasonal weather.

Now, it is again very difficult to quantify.

We do know that these had an impact on our business.

No question.

And then you see countries like the Philippines where the food inflation is having an impact on consumer sentiment and we are going to see that continuing.

But I think overall it is -- we know that had those one-off events had not taken place that our volume growth would have been higher in certain markets like Russia, certainly in markets like China and also for sure in Europe where we have a very solid foundation of our business.

So I think you can isolate some of those things into the quarter, and then Brazil where the economy is very, very robust, we saw again a significant expansion of credit endurables that had an impact in our business early in the quarter, but again that was also a one-off because we don't see that continuing going into the balance of the year.

So those are sort of the comments that I would give you.

I think we see that although at a slightly slower rate the macro economies in the brick countries are going to continue to grow and the emerging markets are going to continue to grow.

The difference between what you see today and the economic environment versus what you saw perhaps a decade ago in the crisis was -- is that the current macroeconomic -- current economies of the emerging countries are much better positioned from a fiscal discipline, monetary disciplined points of view to weather some of these current challenges and again we will all see and live through.

But I want to reiterate that certainly the business that we are in is a business that -- where we sell essentially a very affordable luxury billions of times every day is one where we are very confident that we can continue to grow going forward.

Okay.

And just a clarification on this year's outlook because I think Gary mentioned that you guys are confident in achieving the long-term growth target this year.

Are you backing off on your comment before about the picture of success this year being exceeding those long-term targets?

We have reiterated that our long-term targets of 3% to 4% volume growth, 6% to 8% operating income growth and high single digit earnings growth and the picture of success for us is to exceed those, and I think we currently will be disappointed if that is not the case.

That is still the case this year?

We would not disappointed if that is not the case.

Yes.

Thank you.

Your next question comes from Bill Pecoriello with Morgan Stanley.

Morning everybody.

Question on, as the bottlers are beginning to raise price further in the second half of '08 due to commodity increases in the U.S., maybe as high as mid to high single digit in the U.S.

I think [Holenic] had talked about mid-single digit.

Will you be raising concentrate prices more than historically to offset any of the volume impact that you might suffer?

Would you wait for January to raise the concentrate again?

Are you trying to evaluate more say incident based pricing type models in these developed markets due to the inflationary outlook versus past practice?

Thanks.

Hi Bill.

I don't think I want to go into the details of our concentrate arrangements with our bottlers but you can rest assure that I think firstly please it's important to understand that our bottlers financials architecture today is much stronger than it used to be three four years ago in terms of their rate, in terms of their cash position, in terms of their willingness and appetite to invest in the market place.

And again the commodity increases are impacting our bottlers in very different ways in different geographies.

So don't -- it's wrong to assume that it's all going to be looking like the U.S.

picture across the world in terms of its relationship to the revenue that the bottlers are generating out of the cases that they are selling.

But we have very good equitable arrangements in place with our bottlers to ensure that we remain very disciplined in the way we continue to invest in the marketplace, to continue to ensure that our brands are healthy and continue to ensure that we gain volume and value share as we move forward in this environment.

But in certain regions where the bottlers might have to take higher pricing if you look at what we are seeing with the Proctor & Gamble's other companies that are raising prices in your case, as the bottlers would be raising you might take more of the impact in your P&L.

But you obviously have leverage whether it would be market support in concentrate, but you would be working with the bottlers on adjusting those levers so you won't suffer any harder impact from those increases?

Absolutely.

The key word is to optimize volume and value and also the key word is equitable.

Thank you.

Your next question comes from the line of Marc Greenberg with Deutsche Bank.

Thanks.

Good morning Muhtar.

Today's results said CCE, weak volumes $5 billion impairment indication of another comprehensive business review.

Bare all the markings of a bottlers that belong in the hospital ward.

Does Coke still believe the best go-to-market approach in the U.S.

is with an independent bottler and what might cause your point of view to change there?

Well, firstly, I think we are continuing to work with CCE, all our bottlers to optimize our value and price to the consumer and customer in this challenging -- it is a challenging cost environment, and that the going forward to grow value in a sustainable way to balance volume and share as well as operating income and we are aligned on many aspects.

Of course, I want to just reiterate that we are working very closely with CCE, and all our bottlers.

There is no question that we feel that this market has tremendous potential and that we will realize that potential.

We have a much stronger portfolio.

We have a very close working relationship and I want to just reiterate if your question is going that way, that we have no plans in place to I've said it before or any intention in acquiring the bottler that you've talked about.

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

Yes.

Good morning.

Thank you.

As you talked about these one time items, I guess the question would be is as you cycle through some of them they should dissipate and can you give us a clue, have you seen any acceleration as we sort of cycled some of these?

Talk as you went through the second quarter but also give us an idea, I realize it's a couple of weeks into the third quarter, would you say the run rate is improving as you've move past some of these factors?

Well John, first we don't provide mid-quarter updates, but I just want to say that we remain confident in the long-term prospect of the business recognize that we are facing uncertain economic conditions, but remain fully committed to delivering on our commitments.

We do closely monitor the economic environment market by market and I can tell you that we have very flexible plans in place to adjust our plans where appropriate in terms of packaging price points and as I reiterate our picture of success continues to meet or exceed our long-term targets.

And in terms of -- I believe in statistics and probability, and I do believe that the one-offs should not continue going forward.

We may have other one-offs, but I don't think that all of those will come together all in one quarter in that intensity.

And Gary, you want to add to that?

Yes, John let me see if I can add a little bit of context to it in two different ways.

One, you really have to talk about different countries because there is a lot of volatility in the macroeconomic environment today, but let me give you a couple of examples.

Brazil, if I told you about Brazil for a minute and focused on it, it was 1% growth in the quarter, but it was a really bad April, but actually returned a nice growth in May and June.

If I look at Europe at Germany or Great Britain very bad April, returned to growth in May and June but I can give you some examples that go the other way.

It depends on the country.

So we think a lot of it is telling us kind of these one-off items but sure there are some macroeconomic environmental factors as well.

But to try to quantify any of those, would be kind of speculation on our part.

That is why we feel comfortable.

I guess the other point I'd make though is we have a management team that has seen this before.

We have been through this before.

In the late '90s if you remember when it was much worse and the emerging markets were so tied to the U.S.

and thank God they are not any longer, we've been through this before and we know what to do.

And that is why we feel very confident where we are and why we are gaining share and we would expect in this kind of environment with our system and with our brands, we plan to come out of this much stronger actually than other companies in the industry.

Thanks.

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

Thank you very much.

Good morning.

Muhtar and Gary, I had just a housekeeping question.

I was wondering if you can tell us how much Glaceau added to your North American volumes and were there any other ongoing or lingering issues with your large format water and then I want to understand whit your SG&A growth in the quarter.

You talked about the bottler and brand acquisitions impacting that a lot.

As we are cycling through this if your acquisitions of bottlers slow, what kind of leverage could we hope to see there or would you continue to expect the same kind of leverage once we cycle that impact?

Yes.

I'll ask Gary to comment on the second piece of the question, but in terms of Glaceau.

That added 2% points for the quarter for our North America business going forward.

So that's the number that I think you were looking for and then Gary you want to take the piece on the SG&A?

Yes, on the SG&A what you would -- basically for the quarter let me go through that again first.

SG&A was up 16%, about eight points of that was currency, four points of it was structural and about two points for brand acquisitions.

So if you strip all that stuff out apples to apples, OpEx was up about 2% within that marketing up in line pretty much in line with gross profit, so you are seeing some pretty good leverage coming from tight control on G&A spend within that.

Now related to that, we put some of those programs into place late last year, so we'll start cycling those.

We'll continue to see leverage, but it will be left at what we've seen in the first half of this year, which was about four points of leverage in the quarter.

Okay.

Great.

And then on your currency Gary, have you indicated what you plan to spend that back on or is that embedded into your plans of what you've discussed?

It's embedded in the plans.

We actually are aggressively managing portfolio managing.

And we have increased spend in some areas, but at the same time we are being very discipline on spending back that it needs to have a long-term return for us, and so we are very discipline in what we are spending.

So that is why you see a lot of the currency benefit coming through dropping right to the bottom line because we are continuing to spend in line with our plans.

We've increased that somewhat as we portfolio manage as well, but our plans already had significant marketing spend behind the Olympics and Euro 2008, so I think we are very well positioned in marketing where we see opportunities we'll jump on it, but at the same time if it is not a good financial long term financial decision, we are very disciplined and hope it'll flow through, as it did this quarter.

Thank you.

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

Good morning.

Gary a question on the restructuring charges and savings.

A couple of questions.

First just all the spending, will be all cash?

So were there any writedowns or the amount that you are going to spend to generate the charges going to be all cash?

Brian I would say most of it will be cash.

There would be some write downs on facilities, et cetera, that we close.

Example -- the current example would be that we just closed one of our concentrate plants in Ireland.

We announced that last fall.

It actually closed in June.

So last month.

And in that you had kind of cash restructuring charges as well as write-down of the plant itself, all within that restructuring.

So you'll have some -- some of both, but I would say tend more toward cash side both on the savings and on the restructuring charges to achieve those savings.

And then would there be any capitalized spending associated with this as well?

Not, not really anything of any significance, no.

Okay.

And then in terms of just how we flow what you are spending versus the savings, is the 25% per year the way we should think about the spending or are you going to spend more up front and the savings come through more gradually?

We are going to do this one the way you would really like it to be done.

It's almost we are trying to achieve it 25% per year for both sides.

So it will be fairly well matched.

Okay.

Great.

Thank you.

Great.

Thanks.

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

Good morning, everybody.

First thing if we can talk about marketing a bit.

Can you comment if given what is happening to the economy if you are shifting some of your marketing strategies potentially from advertising over to promotions in areas like the United States?

And also as it relates to the economy as we think about western and eastern Europe where private label is a little stronger, can you talk about if you are seeing any trading down?

Yes, Kaumil.

Not just in the United States or Europe, but everywhere we remain very flexible and in fact you see us shifting some of our emphasis in our marketing programs but not just in marketing programs but also in the area of packaging ensuring that we remain affordable and ensure that we can continue to capture all beverage opportunities around the world and I think what you see us doing is to make sure that we remain relevant to the consumer and also that our key partnerships with all our key customers small or large continue around the world.

I think we will do whatever is necessary to ensure that we can keep maximizing our growth and also gaining volume and value share in all our markets.

In Europe, specific to your question about discounters, what you see us actually is that we are gaining availability in discounters quarter by quarter in Europe including not just in little, but in all key discounters.

So you see us being more relevant now with our different formats across East as well as across Western Europe.

What we see that in these times consumers find it easier to make decisions to buy affordable luxuries like our products and I think that our strategies are working because we are gaining market share across all our key markets in 17 of our top markets we've gained both volume and value share, and I think that you will see that continuing as we move into the balance of the year.

Great.

Thank you.

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

Good morning.

Thanks.

Gary, just a clarification.

I didn't understand your comment about the productivity savings in the Q&A with Brian.

When you said on both sides matching were you saying you plan to spend back those savings pretty much at a 125 per annum or 100 per annum depending on the total number between now and 2011?

Yes, Mark.

Basically as the savings come through, the costs will come through at about the same amount.

So --

That was a reference to the charges I got you.

But what about where those savings actually -- they hit the bottom line.

Let me just reflect on that.

What you'll see us doing is -- we are realizing some of those savings as we speak and what you see us doing is ensuring that we spend some of it against our brands to keep our brands healthy and relevant and some of it will go into leverage on our P&L.

So you'll see us spending some of it and then using it to ensure that we continue our leverage our P&L, but what Gary was explaining was the cost to realize those savings as opposed to how we were going to spend the money.

Got you.

Thank you, guys.

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

Good morning.

You updated us on your commodity cost guidance for the Coca-Cola Company for this year, I was just wondering if you wanted to make some comment just with respect to the Coke system.

Obviously costs are getting that much tougher.

What is your expectation for the system and just also if you can be a bit more specific about what you are doing with your bottlers really just to manage these cost pressures?

Thanks.

I think we see a fairly big difference between how the outlook looks in the United States and around the world.

I think I made a brief comment on that earlier when I was answering an earlier question.

But what you see is that in the United States clearly we see a much higher number than we've experienced in the past maybe around 5-6% this year and then double digits next year.

But certainly in terms of the international environment I think you see very different, huge difference in different countries but certainly much smaller amount in terms of how we see in 2008 and also how we see going forward.

Both -- what you see in Eastern Europe or Western Europe, it is much, much lower than the numbers in the United States.

So the system what we see low single digits in 2008, and it is still difficult to assess exactly where it's going to land in 2009.

With that in mind thinking about your relationship and how you are working with your U.S.

bottlers this year, what initiatives, what support, how do we think about your relationship and support with respect to these cost increases and how you can help offset that in partnership with your bottlers?

As I said, we are continuing to work very very closely with CCE and our bottlers to optimize value and price to the consumer and customer.

It is a challenging environment, and I think we are basically aligned in how we go forward on the importance of immediate consumption to build our brands on the importance of investment packaging differentiation and capabilities and on the continued investment in customer capabilities.

So you see us having significant number of initiatives also on supply chain optimization and maybe I'd like to turn to Sandy to give you a little more detail on that.

Good morning, everyone.

The principal focus of our plan this year with our bottlers has continued to move aggressively on productivity initiatives and to bring support forward to support both packaging and marketing programs to drive growth.

We expect the system to look for pricing improvement in the balance of the year in a balanced way to try to begin to recover margins while at the same time protecting consumer value in all of our investment is helping achieve that in a balanced way while at the same time growing the health of the brands.

I just want to reiterate in the United States we have a much richer portfolio, much better architecture in our portfolio and brands in our stable in the still beverage categories our three-cola strategy is gaining traction.

And i think we certainly will continue to build on our rich still beverage portfolio growing the fastest growing to remain the fastest growing beverage portfolio led by Glaceau and Fuse and Simply Juices, but also to ensure that we continue to drive relevance to our consumer base with our three-cola strategy in the sparkling category.

Thank you.

Your next question will come from the line of Carlos Laboy with Credit Suisse.

Good morning, everyone.

Muhtar, I was hoping you can give us a more detailed update on your company owned bottlers.

Who is the best performing bottler of these past quarter, what is working there and similarly who is still in deep trouble and for Gary, does this macro environment risk putting those company owned bottling earnings advances back into reverse or for those growth rates to stall out on us here?

Hi Carlos.

I think that all our actual company bottling operations are gaining traction, they are enhancing margin.

They are growing.

They are gaining market share in their territories and both China, Philippines improving distribution, gaining market share in both those environments as well as in Germany.

I think we are gaining very good traction and leveraging the current architecture of the single bottling system working much closer with customers.

Germany is an area where we've gained tremendous traction with all retailers, including discounters, where we are very successful with our different packaging and formats and portfolio.

Across Latin America the CBO's are doing very well.

Scandinavia again, where we are gaining traction and doing very well and across the financial improvement, the performance continues to improve and our volumes are very much in line or better than the general market in all the territories.

Yes, and relative to those let me just echo basically what Muhtar just said as well Carlos.

The volume within the bottling investments group in fact organic volume was up 6%.

So they are performing really well in this environment.

Income is up significantly, and ongoing operating income margins increased 120 basis points, kind of ongoing.

So these bottlers while they were in the hospital ward the BIG group is doing a very good job of managing them across the world and in fact we are seeing improving results everywhere.

So I don't anticipate any big issues there.

Thank you.

Your next question will come from the line of Todd Duvick with Banc of America Securities.

Good morning.

Gary, I guess this question is primarily for you.

The financial markets have been very difficult and some of the financial firms have had to raise additional capital and SunTrust has been one of those that's been speculated.

Given that they own a significant number of shares, can you just refresh our memory in terms of what the policy is towards buying back shares directly from SunTrust?

Is there an agreement in place?

Thanks,Todd for the question.

SunTrust does own directly about 44 million shares of the company's stock going back to the original IPO of the company.

They have announced plans during this quarter that they are looking at ways to enhance their capital position and one of the ways to do that could involve either the sale of or some kind of other type transaction involving the Coke shares that they directly own.

They have not announced what if anything they've done at this point.

I believe their earnings release and quarterly call is on I think Tuesday of next week.

So I would expect -- I think they had said that they expect to have something in place by the end this quarter.

So I would expect all of us to learn on Tuesday exactly where they are.

Okay that's helpful and just a follow-up.

With respect to your comments in the prepared remarks about deferring long term issuance that you had planned for this fall.

Is that primarily to pre-finance some long-term debt that matures next spring or are you planning to term out additional debt that is currently in short-term debt?

We were actually looking at terming out some of the acquisition debt from the Glaceau transaction.

It's just we have a commercial paper program in place that we are in the market basically every day.

We have not had a single issue at all in our commercial paper program.

We are probably paying lower than almost anybody else in the world.

We have a great program there.

As we look -- as the interest rates have come down, but as we look at the spreads on longer term debt, we just have concluded that it's not worth paying those kinds of spreads and we are going to stay short as we have for the last year or so and because of that we have put this interest rate lock-in, in anticipation of probably issuing some debt this summer.

We are not going to do that.

We'll defer that as we continue to watch the spreads over treasuries, and we made $17 million on the deal.

Okay.

Fair enough.

Thank you very much.

Great.

Thank you.

Operator we have time for one last question.

Thank you.

This morning's final question will come from the line of Karen [LaMark] with Federated Investors.

Good morning.

I wonder if you can give us more color on the step up on the non-currency related CapEx as well as maybe what changed or what made you realize that you wanted to step up the investments?

Thanks.

Yes.

Thanks, Karen.

About $200 million step up.

About half of that, about 100 million of that is really just due to currency.

The other hundred is really about the timing around our bottler investment group.

If you think about it, they are growing nicely as I've said a few minutes ago when I was talking to Carlos.

They are growing nicely.

We continue to invest in the bottling investments group.

Because of the planning cycle, we are going ahead and spending some money now in orders so that we have equipment, lines, et cetera in place for the summer selling season next year.

So we are accelerating some plans really from placing orders in January to now.

And additionally we are starting to build a new concentrate type facility as well and that's going to add a little bit of cost in this fall.

Great.

Thanks very much.

Thank you.

Thank you Neville, Gary and Sandy and thanks to each of you for joining us this morning.

I am excited to lead this great company and I am confident our strategies are working.

The fundamentals of our business and the strength of our brands remain strong.

We are focused on the initiatives that will drive our results, execution in the marketplace and outward focus on our customers and consumers and diligence with capital and expense allocation.

I am very excited about the next phase of our journey to create a true sustainable growth company.

Thank you very much.

Ladies and gentlemen, this concludes the Coca-Cola Company's second quarter 2008 earnings results conference call.

You may now disconnect.