可口可樂 (KO) 2009 Q2 法說會逐字稿

At this time, I would like to welcome everyone to the Coca-Cola Company's second quarter 2009 earnings results conference call.

Today's call is being recorded.

(Operator Instructions) 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 Jackson Kelly, Vice President and Director of Investor Relations.

Mr.

Kelly, you may begin.

Good morning and thank you for being with us today.

I'm joined by Muhtar Kent, our Chairman and Chief Executive Officer; Gary Fayard, our Chief Financial Officer; and Pancho Reyes, our Latin America Group President.

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 earning objectives.

And should be considered in conjunction with cautionary statements contained in our earnings release and in the Company's most recent periodic SEC report.

In addition, I would also like to note that we have posted schedules in our Company Website at www.thecoca-colacompany.com, under the Reports and Financial Information tab in the investors section, which reconcile 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 on our Website for this information.

Now, let me turn the call over to Muhtar.

Thank you, Jackson and good morning, everyone.

I'm pleased to report another excellent quarter of growth for the Coca-Cola Company, despite difficult global market conditions.

Today, we are positioned better than ever to grow share and build value in the dramatically changing world.

The fundamentals of our business remain strong.

Our Company is growing.

Growing volume, growing revenue, as well as profits on a currency-neutral basis, building share and strengthening brand health.

And importantly, we're delivering against our expectations, with first half results in line or above our long-term growth targets.

For the first half of the year, unit case volume increased 3%, adding another 300 million unit cases, or about the size of our annual volume in Chili, our 18th largest market globally.

On a comparable currency neutral basis, net revenues increased 3% and operating income increased 9%.

For the first half of the year, comparable EPS is down 7% due to the expected currency translation impact.

We continue to invest our robust cash flow and profits into key markets and growth strategies, which in turn enables us to deliver solid performance in fast-growing economies like India, Brazil, Mexico and China.

These investments also give us the ability to expand our footprint in these key market economies.

Consider China, for example, where we just opened two new plants last month and the Pan Asian Innovation Center at the end of last year.

We now have 38 fully operational factories in this growing and dynamic country.

I'm also pleased with how our associates are acting as true owners, running this high margin business with a low margin mentality, while redoubling their efforts to identify areas of cost savings.

Savings that are being prudently reinvested back into the business.

And we're executing on our productivity initiatives and delivering tangible results.

We are on track to achieve our $500 million target by the end of 2011 and expect to deliver more than 50% of the promised savings by the end of this year.

I'm confident that our strong brands and solid business fundamentals are the assets that are being leveraged by our seasoned management teams to meet our long-term target this year.

And while we are on track and performing well in the first half of the year, as I said on our last call, there may be bumps along the way, given the continued global recession and economic volatility.

For the quarter, we continued to deliver consistent and balanced top and bottom line performance results.

Globally, our unit case volume for the quarter increased an outstanding 4% at the top end of our long-term growth targets.

Our international operations remained significant contributors to our solid performance results and increased unit case volume by 5%, cycling 5% from the prior year.

Our franchise system leveraged the strength of our leading brands, geographic footprint and global reach and scale to drive unit case growth around the world.

In Latin America, Mexico and Argentina grew 6% and Brazil was up 5%.

In Europe, northwest Europe is up 6% on strong performance in Great Britain, as well as France.

And in Eurasia and Africa, India was up 33%, Nigeria grew 9%, souther Eurasia was up 5% and Turkey up 4%.

And in the Pacific, China grew 14%, the 20th consecutive quarter of double-digit growth.

Vietnam was up 12%.

Korea and Thailand increased 9%.

And Japan volume grew 2%, despite GDP contracting 8%.

Finally, we continued to gain strength in many emerging markets.

For example, in our 120 countries with per caps less than 150, our volume growth was 8% for the quarter, cycling 6% in the prior year.

Our volume results also underscore the continued efforts of our system to deliver our consumers the right brand, in the right pack, at the right price, in the right channel, for any consumption occasion.

We can do this because of the strength and alignment we have with our bottling partners across the world.

As we have said before, share gains and brand health are key success metrics.

For billions of consumers around the world, Coca-Cola and all our brands remain an affordable luxury.

In fact, once again this quarter, we gained nonalcoholic ready-to-drink volume and value share, marking the eighth consecutive quarter of globally winning share in both.

We've continued to outperform the industry across most key categories and geographies.

And are aggressively looking for opportunities to profitably gain share from competitors.

The same and increasing levels of consumer spending are driving improvements in our brand health scores, which measure consumers' favorite brands.

Our scores have improved in markets that account for over 75% of our current volume.

We are leveraging this growth in brand health by creating the perfect shopper experience, outlet by outlet, with a unique system that visits 20 million customers weekly.

These improvements in share and brand health provide us confidence that we will continue to experience growth across key categories and geographies.

Our system must also continue working together to commercialize innovations faster than ever before and to accelerate growth of trademark Coca-Cola to win with consumers, both today and tomorrow.

This is a wonderful growth business to be in.

Alongside our system partners, we are focused on investing together for growth, to achieve what we call our 20/20 vision.

You will continue to hear more about this throughout this year.

Now, let me move to our strategic initiatives by taking a look back and a look forward from our vantage point halfway through this year.

At the beginning of the year, we told you that we believed there would be continued and even increasing challenges for our global economy.

And that these challenges would create a tough environment for our consumers, our customers and our franchise system.

However, we also told you that we remain resolute in our belief that the unique value and quality of our brands, the strength of our system and the resolve of our people would deliver sound performance, despite these head winds.

Our management's clear focus on a consistent set of strategic initiatives is proving successful and we are taking advantage of all opportunities to emerge stronger from this crisis.

We remain realistic about the risks and excited about the opportunities that we face in the short-term, as well as the long-term.

We must win every day, win with consumers, win with customers and franchise partners, the three pillars of our business.

All of this starts with consumers and winning with our portfolio.

First and foremost, with Coca-Cola and sparkling beverages.

Globally, Coca-Cola, the world's most valuable brand, at almost $80 billion in retail sales, grew volume 3% and Coke Zero grew 11% for the quarter.

Unit case volume for sparkling beverages was led by broad-based international growth of 4%.

Some highlights for sparkling beverage growth from around the world include India, up 35%; China up 14%; Great Britain growing 7%; Japan, 6%; Brazil, 4%; Argentina, 3%; and South Africa, 2%.

Sprite was driven by international growth of 11%, led by China, India and Pakistan.

An interesting highlight is brand Coca-Cola's performance in Latin America.

In what many would consider as one of the world's most developed sparkling geographies, we grew brand Coca-Cola 3% in both Mexico and Argentina and 6% in Brazil this past quarter.

We're often asked how we are able to do this, given the strength of our per caps that already exist in this part of the world.

Simply said, it is the result of the pure strength and momentum of a brand that has been built in Latin America over 100 years.

Revenue growth strategies, based on consumer and customer insights, provide us with the capabilities to clearly segment with packaging, pricing and channel initiatives.

Across Latin America and in close alignment with our bottling partners, we're focused on special price points to drive consumption, adjusting packaging initiatives towards refillable and value propositions, expanding cooler placements to ensure our products are within an arm's reach of desire.

And I know Poncho Reyes, President of our Coca-Coal Latin American Group, looks forward to answering your questions about our business in his geography during our Q&A session this call.

Our integrated Open Happiness campaign is now running in markets that represent 75% of total Coca-Cola volume.

This is the fastest global rollout of a campaign from our Company and it speaks to speed as a strategic initiative, as we operate in a realtime world.

Recruitment, as well as retention, are the focus of strong point of sale execution, targeted towards moms and teens, as well as Coke with meals programming.

If you dialed into the call early enough this morning, you will have heard the number one top song in China, "Open Happiness," the single recently hit number one spot on four leading Chinese music charts.

And the "Open Happiness" music video premiered just last week on MTV in the US.

While traditional marketing avenues will continue to play a critical role as a key medium to connect our brands with consumer passions, we're also shifting to more digital media.

Globally, 90 million consumers, of which over 40% are under the age of 25, are registered in our databases to engage with our brands via loyalty and online brand experiences.

In the United States, My Coke Rewards with 12 million members, is the largest online consumer packaged goods program.

Our still beverage unit case volume increased 8%, as we focused on organic growth and leveraged our recent strategic acquisitions.

Internationally, still beverages were up 12%.

We gained beverage volume and value share globally, driven by Vitamin Water and our global juice, tea, sports drinks and energy brands.

We've continued to provide consumers with innovative product across diverse beverage occasions.

Valle Fruit is delivering significant results in juice drinks across Latin America and building the Jugos Del Valle acquisition, using an innovative product formula developed in the Pacific under Minute Maid Pulpy.

Also, late in the quarter, we launched [Hugo.] This dairy and juice beverage introduced in Chile represents our committment to create new categories that meet new consumer needs.

We're also making strategic investments in exciting new beverages, like Innocent, the premium smoothie and juice brand in the United Kingdom.

Glaceau, led by Vitamin Water and Smart Water, continue to gain volume and value share.

In the US, Vitamin Water 10 is generating incremental transactions and reaching an expanded consumer base, with strong repeat and minimal cannibalization.

We'll be launching four brand-new Vitamin Water 10 flavors early in the third quarter.

Our second pillar is winning with our customers.

When we sit down with our customers, it's a simple conversation.

We want to understand their growth plan and then develop programs for our brands to drive revenues at rates in excess of our customer plans.

We want our customers to be as excited about investing in beverages as we are.

And our conversations are working.

In this difficult environment, larger retailers are the ones taking share and we are winning with our key customers.

Through May, we grew volume 8% in our top 10 global retail customers.

Part of the success is continuing to innovate with equipment that engages consumers and drives traffic for our customers.

Freestyle, our break-through fountain dispensing technology, which enables consumers to select from over 100 branded beverages, continues to test well in field trials.

Our interactive video vending machine won the Gold Award at the 2009 Cannes Lions International Advertising Festival.

This video vendor transforms simple transactions into dynamic brand interactions.

In North America, Fuse is being significantly expanded in a fountain format.

This past quarter, we announced the addition of Fuse in 22,500 subway outlets.

Additionally, McDonald's has agreed to introduce Vitamin Water XXX into the majority of their US restaurants over the next 18 months.

These are just a few examples of our commitment and clear focus on finding the right solutions to grow together with our customers.

Our third pillar is winning with our franchise system.

During the quarter, we continued to deliver balanced growth and perform well in Latin America, with volume up 6%.

And we remain optimistic about growth in Latin America for the remainder of the year.

Also, China and India, both continue to be strong contributors to our growth and we are winning volume and value share in both sparkling and still categories in these important geographies.

To drive continued growth in these critical geographies, we are investing significantly in route-to-market strategies, technology, infrastructure and consumer marketing, as well as in our talented people.

Japan our performed the nonalcoholic beverage industry, resulting in our fifth consecutive quarter of share gains.

Our success in growing sparkling beverages in Japan continues with trademark Coca-Cola up 10%, the 11th consecutive quarter of growth.

This demonstrates that by applying the basic Coca-Cola way of marketing and selling and by executing flawlessly, we can keep growing Coca-Cola in one of our most developed markets in the world.

Additionally, Coca-Cola Zero continued its strong performance in Japan, further winning category share.

Sokenbichia tea rebounded with a 9% growth and we recently launched two high value brands En Cafe and Glaceau Vitamin Water.

Georgia Coffee's results were disproportionately impacted by the economic slowdown in at-work vending channels but we are optimist that this brand will turn around as market conditions begin to improve.

We continue to work hard to ensure that we're delivering solid performance in Japan during this challenging economic climate.

In Europe, we're weathering the storm better than many, despite the fact that the economic crisis is a constant reality for consumers.

Volume in Europe increased 1% for the quarter.

We are winning where it counts, with consumers in the market.

We gained volume and value share across key countries, as the nonalcoholic beverage industry slowed, especially in away-from-home channels.

We are applying consistent global strategies in Europe, with a clear focus on winning at the point of sale, appealing to moms and teens through programs such as Coke with meals, offering value propositions and positive price points and adjusting packaging for the right occasions.

We expect the retail environment in Europe to remain challenging throughout 2009.

But we continue to proactively identify opportunities to capture share and maintain a strict focus on winning behind our key brands, particularly trademark Coca-Cola.

In North America, just like everywhere else in the world, our operations are focused on building healthy brands, healthy consumer and customer relationships and a healthy system, which are the keys for sustainable growth.

During the quarter, volume was down 1%, as we continued to outperform the industry, gaining slight volume share and significant value share.

Separately, our still beverage portfolio led the industry in growth for the eighth consecutive quarter, driving volume and value share gains in sports drinks, active life-style beverages, teas and energy drinks, as well as the continued value share gains in juice.

We have a clear and aligned system strategy for delivering sustainable, profitable growth and we are leading the industry in building value-creating brands.

And in concert with our bottlers, we're building on our successes to get our location, brand, price, pack and channel architecture right.

The implementation of incidence pricing is going well and is being applied to more than 80% of our sparkling volume.

Our new pricing model supports our new sparkling package architecture, including the new immediate consumption recruitment packs.

This enables our Company and bottling partners to jointly focus on building consumer occasions, maximizing brand reach and generating value.

Importantly, having the right pricing architecture in North America, as we do internationally, is part of how we will unlock sustainable profitable growth.

For example, we believe that today's equivalent of the old $0.05 Coke is our $0.99 cold contour bottle.

Today, in 90% of the US, we offer an ice cold contour bottle of Coca-Cola for $0.99.

An affordable price point that recruits new consumers.

This initiative is generating 1 million new and incremental transactions for our system every single week.

Additionally, on the productivity side, Coca-Cola supply is already delivering savings, which are being reinvested by the system to build sustainable, competitive advantages.

We're encouraged about our growth opportunities in North America.

We believe we have the right strategy and a system that is jointly committed to continue being more effective and efficient.

To recap, I'm pleased with the results we've delivered in the first half of the year.

Our business fundamentals remain strong.

We continue to be a consistent and stable cash generator, with increasing dividends and a commitment to investing diligently for the future, while rewarding our shareholders.

We have the brands, the reach and the scale to capture real opportunity, both today and tomorrow.

And we remain relentlessly focused on effectively operating in what I consider to be the world's best consumer business.

And with that, let me now turn the call over to Gary.

Thanks, Muhtar.

And good morning, everyone.

As Muhtar indicated, our Company is growing in volume, revenue, profits and share.

The fundamentals of the business remain strong.

Our further share gains and brand health improvements reflect our experienced management team's ability to utilize the assets of the Coca-Cola system, to deliver tangible results and value for our shareowners.

We delivered on our commitment to growing volume and profits in line with our long-term growth model for the first half of the year, even excluding the impact of the five additional selling days that we had in the first quarter.

For the second quarter, we delivered solid results across a diverse geographic footprint, with unit case volume growth at the top end of our expectations.

This, of course, includes some benefit to our volume growth from the holiday shifts of Easter and the Fourth of July, and the cycling of 3% volume growth in the prior year period.

Reported operating income declined to 9%, primarily related to a 14% currency head wind.

Comparable currency neutral operating income for the quarter came in better than we expected, at 4%, cycling 9% from the second quarter of last year.

For the first half of the year, we exceeded our long-term currency-neutral profit target, increasing operating income 9%.

As outlined in our release, we reported earnings per share of $0.88 per share on a diluted basis for the second quarter of 2009.

As expected, this included charges related to our restructuring and ongoing productivity initiatives, at both the Company and our equity investee bottlers.

In total, we had a net charge of $0.04 per share.

Therefore, our adjusted earnings per share was $0.92 per share, a decrease of 9% after considering items impacting comparability in both the current and prior year and again, significantly impacted by currency head winds in the quarter.

Additionally, $0.01 per share was related to the timing of expenses in corporate, which we expect to reverse in the second half of the year.

Net revenue in the quarter decreased 9%, which included a 9% effect from currency head winds and a 2% drag from structural changes, primarily related to our divestment of bottlers.

At the same time, net revenue was positively impacted by a 3% increase in concentrate sales.

Price mix for the quarter was slightly negative, reflecting our current focus to drive greater affordability initiatives across many markets to ensure we continue building brand relevance and equity with consumers.

Additionally, our Japan business was impacted by shifts away from the at-work vending channel due to the economic environment.

We believe this is temporary and will moderate as more manufacturing facilities in Japan come back online.

As a result, net revenues, excluding the structural changes, were up 2% for the quarter.

Now, let me address some of the factors that we see for the remainder of the year.

First, our picture of success for 2009 remains the same, to meet our long-term growth targets.

On currency, as expected, global currency fluctuations negatively impacted the translation of reported results this quarter.

However, our operators, who are held accountable in their local currencies, are driving local investments to support sustainable growth.

While currency exchange rates have generally improved throughout the year, it's important to look at today's rates relative to the prior year.

For example, the average spot rate was $1.54 for the euro in Q3 '08 versus a current spot rate of around $1.42.

Also, note that the US dollar has appreciated significantly against a basket of emerging market currencies.

Therefore, based on current expectations, including the rates we're cycling and hedges in place for our key hard currencies, we anticipate a 12% to 14% currency head wind for the third quarter and a low single-digit currency head wind for the fourth quarter.

Of course, there are many different scenarios that could play out as the market's risk perspective continues to evolve.

But I can assure you, we will continue to carefully manage our risk exposure and keep you updated as we move through the remainder of the year.

Next, let's move to operating expense leverage.

First, as we move in the second half, we will begin to cycle the initial savings benefits of our productivity programs.

Second, we'll continue to incur higher pension costs and cycle lower incentive costs for the remainder of the year.

And third, we will have six fewer selling days in the fourth quarter.

This means that while we will continue to reduce our expense base in the fourth quarter, the rate of reduction will be lower than the revenue decrease we will experience as a result of having six fewer days in the quarter.

So essentially, the opposite of the significant benefit we experienced in the first quarter when we had five additional selling days.

Therefore, you should expect operating leverage to be essentially flat for the second half of the year, even as we continue to benefit from our ongoing productivity initiatives.

Below the operating profit line, we will have the full impact of higher interest costs related to the $2.25 billion in term debt that we placed in March and the continuing impact of currencies on equity income related to our bottlers.

As a reminder, our revenues will continue to be impacted by the sale of our Pakistan bottler investment at the end of the third quarter last year.

Next to taxes.

We ended the quarter with an underlying effective tax rate at 23.5%.

And we estimate that our underlying effective rate will remain in the range of 23.5% for the remainder of the year.

Finally, a comment on our cash, given the 14% increase in year to date cash flow from operations, we are restarting our share repurchase program and expect to repurchase up to $1 billion of our stock during the remainder of 2009.

In closing, I believe our first half performance is indicative of a Company that is growing and delivering in a challenging market, while continuing to build on our record of success.

We are on track to meet our long-term growth targets for the year and are optimistic about the tremendous growth opportunities in the beverage industry.

Our 20/20 vision lays out a clear road map for our system and we have a skilled leadership team with the right plan and capabilities to achieve our goals alongside our bottling partners.

Again, Muhtar and I are pleased that Poncho Reyes has joined our call this morning.

I know he looks forward to addressing any of your questions related to our Latin American operations.

Operator, we're now ready for questions.

(Operator Instructions) The first question is from John Faucher from JPMorgan.

Yes, good morning.

A question for Poncho, actually, two questions.

One, can you talk a little bit about some of the regional differences in performance in Mexico?

We had been hearing that the north was a little bit weaker, given concerns about Swine Flu and the US economy.

But looking at the overall numbers it, seems as though the south must be holding its own.

And then secondly, we're hearing that Big Cola may be expanding in Brazil.

So, any thoughts on that in terms of, with the economy having softened a little bit, whether you're seeing it a little more ripe from a B-brand standpoint?

Thank you.

Good morning, John.

This is Poncho.

Regional performances in Mexico, no, they're pretty stable throughout the country.

The north and the south have performed relatively in the same terms.

So, the overall numbers that you are seeing are comfortable both in every geography within Mexico.

B-brands, yes, B-brands are always a consideration, especially under tough economic situations like the ones we are facing.

But in the Pacific was the birthplace, if you will of the B-brands, the [Juena's] back, I don't know, 20 years ago probably.

So therefore, it's not unusual for somebody else to come into that market.

I would think that it is a crowded B-brand market, by the way, and we welcome the competition coming from Big Cola if that would be the case.

I think that we have a system that can deal with that threat and hopefully, we will continue to prove it as we go along in this environment.

Thank you.

The next question is from Bill Pecoriello from Consumer Edge Research.

Good morning, everybody.

The question, if you could flush out a little bit more for us, the price mix?

That was down around 1% in the quarter and you made comments about driving affordability.

But the underlying kind of concentrate revenue per unit, is that going up in line with the bottlers raising price around the world to recoup offsetting FX and commodity increases?

And also, what exactly is happening in the price mix in the bottling division in markets like Germany, Philippines?

How much is that a drag on the price mix?

Should we expect that to continue into the second half?

Thanks.

Yes, Bill, good morning.

This is Muhtar.

I'll let Gary talk about this.

But just in general, basically, our price mix generally improved around the world.

With a couple of exceptions somewhat related also to currency with BIG, certainly.

But in general terms, I think we are on track and on target with our price mix plan and we're actually progressing better than our plan in many of our geographies.

And I'll let Gary just talk in more specific terms.

Yes, a little detail, Bill.

If you looked at price mix, it was negative, about 1% negative in the quarter.

And flat year to date, something like that -- or plus 1% year to date.

If you look at it, we are -- we have positive price mix in every operating group across the world except for two; Bottling Investments Group and the Pacific.

On bottling Investments Group, it is pretty much entirely a function of what's happened in the Philippines and in Germany, two markets that are significantly impacted economically.

And then, within the Pacific, it's almost entirely all because of Japan.

And there, it's really a function of a channel brand function.

It's really Georgia Coffee in vending, primarily in at-work vending.

And what we've got, is you've got a lot of automobile factories, et cetera, that have been closed due to the economic environment.

We're seeing those start to come back online now and that's why we're cautiously optimistic that this thing is going to turn around.

But you've got a high revenue channel and high revenue -- and high profit brands in that at-work vending.

And basically, the Japan vending at-work and Germany and the Philippines is the whole thing.

Everybody else was positive.

And just follow up one other piece on your question, generally most of the world, I'd say, is on some type of incidence pricing.

And therefore, we and the bottlers are both benefiting and both investing jointly together in driving the right brands, the right packages and the right channels.

So we're doing it together and we're in this together.

Great.

So maybe a little bit improvement in the back half as Japan vending comes back a little bit?

Yes, I would expect so.

I think we'll continue to see probably a difficult situation in the Philippines, probably in Germany as well.

You've got a little negative just because of kind of channel and all in Spain because as you know, Spanish unemployment is sky high right now.

So much related to the construction industry.

So it's some specific markets.

Thank you.

The next question is from Carlos Laboy from Credit Suisse.

Good morning, everyone.

Good morning.

Poncho, Muhtar referenced the strength of the brands in his comments in Latin America.

But how critical is the out performance of the region that Latin America is anchored by a bottler with a 10-year concentrate price model in their core market and the 50/50 long-term profit split for non-carbs?

Could you be hitting these numbers without this kind of clarity and profits, just looking out over the long-term?

And then, on a related basis for Muhtar, as you go into the next round of planning sessions with bottlers, why not embrace some of these multiyear incidence agreements?

Carlos, Poncho here.

I cannot speculate on how important that is.

I believe that our bottlers in Latin America, and I've said this time and time again, are perhaps the best bottlers in the world.

I think that -- we have a great system.

I believe that we have a great brand.

I believe we have a firm belief on the power and on the potential of brand Cola.

And I believe that we have a system that knows what to do and how to do it.

And that is the important piece.

Now, Muhtar, on the second part of that comment.

Yes, look, Carlos, I think the key question -- the key thing in this business is, how do you really ensure that you have a constructive dialogue and constructive alignment and constructive tension in this business, that moves the business forward in one direction continuously.

And that it operates as a single system, focused on generating consumer occasions and customer partnership.

And I think incidence does that in many respects and I am -- I've always -- as a bottler, I worked very well under incidence and have instituted many incidence programs with bottling partners.

So, if you asked me in terms of -- and it has to be multiyear.

Because the picture of success in this business, as I have outlined before, is you get into a room with bottlers and you actually agree on a picture of success, five, 10 years down the road.

Long-term planning is key and continuing to invest in this business always, with a focus, is key with both innovation on our side, inspirational marketing on our side, equipment on the side of the bottlers and new sales systems and socioeconomic segmentation that drives revenue in a proper way.

And I think incidence does all of those in the best way.

So, I -- you're talking to someone who believes that it's a great way to align the system.

Thanks, Muhtar.

The next question is from Judy Hong from Goldman Sachs.

Thanks.

Good morning.

Muhtar, can you give us your assessment of sort of the macro, the consumer environment, particularly markets like Russia or Eastern Europe where trends have been pretty weak?

Are you seeing trends stabilizing?

And as you think about the 4% volume growth number in the fourth quarter and as you look out maybe six to 12 months out where GDP growth broadly should start to accelerate, are we at a point where now volume growth, even that 4% number, could start to show even better trend going forward?

Yes, hi, Judy.

Good morning.

Think of a four different quadrants.

That's how I like to think of the future that's going to be ahead of us.

I think of four different quadrants as far as the consumer sentiment is concerned.

On the top left quadrant, you've got Europe, you've got North America and maybe couple of other economies where we will probably be experiencing resets in terms of the consumer psyche.

Where they'll probably do things differently than they've done in the past.

And mostly related to probably -- in terms of durable consumer consumption habits but also in general, there will be a reset in the mind.

And then, on the top right, you've got markets like China, India, other parts of Brazil, where I think very strong, quick rebound.

Then you've got on the bottom left quadrant, a Japan stagnation.

And then you've got part of the question that you asked about Eastern Europe, Russia, Ukraine, on the bottom right quadrant, which is basically I call volatility.

More zigs than zags, it could come back quickly and then it could go back down quickly.

I think we're in for a few years of zigs and zags for Russia, Eastern Europe and so forth.

So that's sort of a quadrant of -- a tale of four different cities, I think, in terms of how we're going to look at what's happening in the world.

Okay.

That's helpful.

Just a follow-up on share repurchase question.

Gary, can you just maybe help us understand the $1 billion announcement today, sort of in the context of, obviously, your balance sheet is still very healthy, generating a lot of cash?

It seems like the $1 billion could be viewed as a conservative number.

In the past, you've also talked about acquisition opportunity.

Maybe just help us maybe flesh out those issues.

Yes, Judy.

There are a couple things there.

And you've heard me talk about it in the past.

One of the real items that you've got to consider are credit ratings and those are important to the system of maintaining those.

We are very comfortable that with up to $1 billion in share repurchase that we'll maintain the credit ratings and where we are relative to all of the rating agencies.

And we are being somewhat conservative but in the environment in which we're operating, I think it's prudent to be conservative.

And we will continue to update on you our plans and where we are relative to that as we go through the year.

I think you saw us start the year being very conservative, with not being in share repurchase at all.

We're through half the year.

We've announced we'll do up to $1 billion and then, I'll just continue to update you as we go forward.

Just on that, we said to you in the last call that we would be looking at it as we approached the summer.

And as what Gary said, we've looked at it and we believe that it's right to reinstitute it.

And I think we will -- you will always be seeing us look proactively for bolt-on acquisitions as we go around the world.

And in this environment, we see increasing opportunities than in that area, just like the Innocent announcement.

But again, I reiterate, organic growth is the key to our success and the key to our business.

And I think that when you look at our volume results this past quarter, organic growth was strong.

We had basically less than 0.5% point of acquired volume in our numbers and I'm pleased to see that as we go forward.

Okay, thank you.

The next question is from Kaumil Gajrawala from UBS.

Hi, good morning, everyone.

You spoke a bit about the vision 20/20.

Can you talk about, as you went through studying 20/20 how the conclusions might have varied from the manifesto?

And specifically, are there some strategic tweaks that you might be making that we need to be thinking about?

Well, yes.

It's an evolution, Kaumil and it's important that all of our bottlers are -- we develop the 20/20 vision together with our bottling partners.

That the to how -- perhaps one of the major differences to how we saw the manifesto from the previous years.

And I think importantly, we've added another, a sixth P, which is productivity.

It's embedded into everything we do.

It's part of our transformation exercise and what we continue to want to do to even deliver more than what we've said.

But I think it's a very sound throughout year vision with very specific strategic initiatives attached to it.

It's a system document.

And we believe that we've put a stake in the ground in terms of where we want our system revenues to go from where they are today around -- from the base of around $90 billion today to where we want the system revenues to go to.

And we believe that it's, it's a real road map.

And we are very actively today, as we speak, double-clicking into that document into each geography and applying it to how -- to different geographies with all of our bottling partners across the world.

All of our senior leaders, as Poncho is doing in Latin America, is generating vision 20/20 for each of the geographies, each of our 39 business units around the world.

Got it, thank you.

The next question is from Lauren Torres from HSBC.

Good morning.

In the quarter, in North America we saw a retail volume down 4%, with food service up 7%.

I was just curious to get your thoughts or give some idea of what was behind these numbers?

Being somewhat surprised to see food service doing so well, I was hoping you could talk about trends, be it by channel or by product category, if we're seeing some changes here.

Sure, Lauren.

Good morning.

We held our food service volume at 4% versus Q1 of '09 in the United States and in the second quarter.

I'm very pleased with the dynamics of our food service business and our retail business.

As I said, we held to 4% in our retail business versus Q1.

And I think that we're seeing some very good, results of very good strategies being applied in our food service business.

But I'm also very pleased with the developments that are taking place in terms of our brand price pack channel architecture and working very closely with our bottling partners in the United States in what we're doing in our retail business.

And I think that what I'd like to say is, I mentioned the $0.99 single cold drink pack, which is now in 90% of the United States, generating incremental transactions every week.

And that's proving very successful.

But also the very -- contourization of our two-liter, which is now in 25% of the United States.

Our pricing is generating significant value share gains for us in the retail business.

That's very positive compared to the previous quarters.

So, we're holding volume at where it was and we're generating revenue growth, both for us and our bottling partners.

That program is, we believe, sustainable and is getting good customer traction also across the United States.

And I think looking forward, you can -- we basically see sequential improvement from here on, in our retail bottling can business in the United States.

And with that said, we're seeing sparkling beverages do better here in the US.

So it's curious your thoughts on that?

What's really driving that?

How sustainable that is?

How should we think about those trends as we course through the second half of the year?

Yes, I think -- as I said, you should think of it as sequential improvement.

We are pleased with the results of all the actions that we're taking; new package initiatives, new brand initiatives, Coca-Cola Zero driving growth and the strength of our brands.

The metrics of our brands, with how our consumers see our brands, getting better in the United States.

Which leads us to believe, again, that you will see sequential improvement in retail and in sparkling.

Okay.

Thank you.

The next question is from Christine Farkas from Bank of America.

Thank you very much.

Good morning, Muhtar and Gary.

I actually have a global question but just to clarify back on the North America top line, we saw net sales drop 3%.

There was 1 negative point from currency.

Shipments were down 1%, which implies price mix was slightly negative.

I just want to understand, given how strong given the retail pricing environment was and your incident-based concentrate model, was this a channel shift switch?

Or with fountain being so much stronger than retail, is that what impacted the price mix part of the top line?

Good morning.

This is Muhtar.

I'll let Gary also reflect on this.

But I think, generally speaking, what we see is a shift in -- some shifts from cold drink as people -- certainly due to the economy.

So there's a shift in retail more to the home market versus -- so cold drink continues to be under pressure in North America and there's more movement to quick service in North America.

Some movement to quick service from bottling can cold drink.

So you're seeing some of that being reflected in that number.

And also, the shift in general as we said, in terms of the pressure on pricing in North America.

So I think overall, though, we are confident that our activity, all of the actions that we're taking to drive sparkling, to drive cold drink with new price points, will bear fruit as we go into the second half of the year.

Okay.

That's helpful.

Thanks, Muhtar.

And then broadly, on the global question, you've noted certainly potential bumps along the way, but your volume growth in the second quarter did pick up from the first quarter.

When you look at the year here, is it fair to say that perhaps first quarter really was the bottom in terms of volumes and that -- or is there anything you can foresee that would suggest a hiccup like that in the second half of the year?

It's -- I can't say that with confidence, given where the economies are.

All I can say is that all the programs that we have in place with our bottling partners are bearing fruit.

So what you've seen is improvements in key geographies compared to the second quarter of '08.

So, you've got improvements in many geographies compared to the second quarter of last year.

And certainly, sequential improvement in many, many geographies versus the first quarter.

If you look at Europe, if you look at many parts of the world, in Eurasia and Africa, in the Pacific.

The Pacific group went from 4% to 6%.

China went from 10% to 14%.

so you see -- Japan went from flat to 2%.

So, you've got sequential improvements from Q1 '09 to Q2 '09.

I think that we're very pleased that we've been able to have a volume growth of 4% versus the 2% in the first quarter.

But certainly, I think -- and certainly, we have comps of 5% in Q3 and 4% in Q4.

So there are pretty significant comps as we go into the second half of the year and we will continue to drive our business forward, invest in our business and drive our business forward.

Thank you very much, Muhtar.

The next question is from Damian Witkowski from Gabelli & Company.

Hi, good morning.

A question on currencies.

Have you still actively hedging your euro, even as in the second -- in the first half of '09, even as the euro was weak against the US dollar?

And then, secondly, Muhtar, you mentioned you're proactively always looking for acquisitions.

Just wondering if there's any focus, is it more domestic or more international?

Okay, I'll let Gary talk to you, Damian, about the currency and then I'll come back on acquisitions.

Yes, Damian, on currency, on the hard currencies, we do use an option strategy so that we participate on any appreciation of the currency but to protect us against downside.

And we do continue to do that, even in the environment in which we're in, on euro and Aussie dollar, sterling, et cetera.

And on acquisitions, Damian, look, it's absolutely not based on -- focused on a single geography.

At any point in time, we're always talking with our group presidents around the world, like Poncho here and all of our other group presidents, about opportunities on a very, very regular basis.

And then, if we see any opportunities, then our M&A team gets involved and will look at it very rapidly.

So, it's not related to a focus in North America or international per se.

It's across the globe.

Okay, thanks.

The next question is from Mark Swartzberg from Stifel Nicolaus.

Thanks.

Good morning, everyone.

Muhtar, Gary, a question on marketing spend per case globally.

If we think about that number on a currency-neutral basis, am I right in thinking that number was up in the quarter?

And can you tell us how much it was up or at least tell us how it compared to rate of growth in the first quarter and in '08?

Yes, good morning.

I think you see us continuing to drive efficiencies in our OpEx line and you see us continuing to invest.

I've said before, this is -- there's no better time to invest in our brands than today.

And we are looking -- we are trying to ensure that we manage this business on both a long-term basis and a short-term basis, on a quarterly basis.

But one of the key drivers of what we're doing every day is to make sure that we come out of this crisis stronger, stronger with our brands, stronger with our system, than when we went into this crisis.

We're driving efficiencies in media.

So when you look at our spend, it was about even for Q2 in marketing.

In 17 of our top 21 countries in the world, we drove efficiencies in marketing.

That means our GRP costs were down and therefore, look at our marketing spend with a view that there's tremendous pressure on pricing in terms of advertising.

So we're getting really good deals in all markets.

In Europe, particularly.

In Latin America, Poncho has driven efficiencies, together with Joe Tripodi, our Chief Marketing Officer, in media programs.

So, I think that's the way you should look at our media spend and our marketing spend.

Great.

And then, what about impressions?

What would you say rate of change on that is, given the efficiencies you're seeing?

I think that, our idea -- our target is always to get more for our money and steadily build up our impressions.

And is that happening?

Absolutely and that's why you see our brand health improving around the world.

Great.

Thanks, Muhtar.

One more question, I think.

Yes.

The last question comes from Ann Gurkin from Davenport.

Good morning.

Good morning.

First of all, we've heard some comments that perhaps consumption of soft drinks in the on-premise channel in China is slowing.

So, if you could comment on that?

And then secondly, switching back to the US, any comments on the prospects for a tax on soft drinks and what is Coke doing and the industry doing to combat that?

Yes, on China, I -- we haven't seen that happening.

I think what you see is in China not a shift in channels but your shift in geographies.

We have traditionally, the stronger parts of China for our business have been the coast, have been the export-driven areas of China.

And I think some of that dynamism of growth have shifted to the inland, as more consumers have moved in fairly large numbers, millions and millions.

Tens of millions of consumers have shifted and moved back into the country into their home towns.

But now with the very effective stimulus plan of China, those consumers have more money to spend and I think we're seeing a shift from the coast into more central and western cities but not shifts in channels.

As far as -- I think what you referenced is the possible tax issue around nonalcoholic beverages.

And I think we're certainly doing our fair share to impress upon all parties concerned that this would not be the right move and that we've never seen a move like that work.

And we don't believe it will work this time.

And I think that right now as far as the Congress bill is concerned, there's no evidence of it in the Congress bill and we are waiting to see what happens in the Senate bill.

All right, thank you.

So with that, I'd like to thank you all.

Thank Gary and Poncho and Jackson.

As part of our continued efforts to provide you with a deep exposure of costs, our business.

I hope that you have found the information that we've shared with you today valuable.

Additionally, I'd like to say also that Ahmet Bozer, our Group President for our Eurasia and Africa Group, will be speaking on behalf of the Company at the upcoming Barclays Conference in early September.

As you can tell, all of us at The Coca-Cola Company see tremendous opportunity and remain intently focused on our key strategic priorities to generate long-term sustainable growth.

Our robust business model is built to withstand tough times.

Great companies always plan with external trends in mind but do not overreact.

While these trends help shape the future, the Coca-Cola system is creating its own future.

And as we move through the halfway mark of 2009, we remain optimistic about our business and the future we are creating together with our system for long-term sustainable growth.

Thanks for joining us this morning and have a great day.

That concludes today's conference.

You may disconnect at this time.