可口可樂 (KO) 2009 Q3 法說會逐字稿

At this time I would like to welcome everyone to The Coca-Cola Company's third quarter 2009 earning results conference call.

Today's call is being recorded.

If you have any objections you may disconnect at this time.

All participants will be on 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.

Due to the interest in this call, we request a limit of one question per person.

I would like to remind everyone 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.

And now I would like to introduce Mr.

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; and Gary Fayard, our Chief Financial Officer.

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

Before we begin, 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 periodic SEC report.

In addition, I would also like to note that we have posted schedules on our Company website at www.thecocacolacompany.com under the Reports and 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 on our website for this information.

Now, let me turn the call over to Muhtar.

Thank you, Jackson.

And good morning, everyone.

I am pleased to report that the fundamentals of our business remain strong.

We continue to both grow and invest in our business while generating a strong and steady cash flow.

We have built a solid foundation, allowing us to focus on executing a consistent set of strategic priorities with our bottling partners.

And we are continuing to deliver consistent sustainable growth.

During the third quarter, key international markets delivered significant volume growth with China up 15%, India up 37%, Mexico up 9, and Brazil up 3, yielding strong total international unit case volume growth of 4%, cycling 7% growth in the prior year quarter.

Total worldwide unit case volume increased 2%, cycling 5%, despite the continued effects of the global recession across several key geographies including North America, Europe, Japan and Russia.

In these and other markets, strong macro economic headwinds continue to impact consumer spending, and therefore the entire consumer goods sector.

Despite this we consistently delivered quality results above and below the line.

On a comparable currency neutral basis, net revenues excluding structural changes have increased 3% for this quarter and 5% year-to-date.

Operating income has increased 9% for both the quarter as well as year-to-date.

As a result, despite the challenging economic environment I am pleased to say that we have achieved our revenue and profit targets for the first nine months of the year and we remain committed to our long-term growth model going forward.

We know that during difficult economic times consumer, consumers gravitate toward and reward the brands they know, the brands they love and trust.

That is why we were pleased to see Coca-Cola once again recognized as the world's number one brand in the last business week Interbrand list of Best Global Brands.

Our brand value increased at a time when the overall value of the top 100 brands declined for the first time in this studies history.

Further, we recently received our first ever Emmy award for the Coca-Cola Open Happiness television commercial.

Year-to-date we now, we have now launched our Open Happiness campaign successfully in markets representing over 80% of Coca-Cola volume with encouraging results.

Cultivating love for our brand is translating into winning in the marketplace with brand Coca-Cola growing 2% total volume for the quarter.

In fact we continued to outperform the industry across many of our key categories and geographies.

We once again grew total nonalcoholic ready-to-drink volume and value share making this the ninth consecutive quarter of winning global share.

Further we continue to drive solid volume growth with our top ten global retail customers, without sacrificing value share in the process.

This is the result of strong customer service, value-creating programs, and execution of market specific brand pack and pricing architectures all around the world.

It is clear that global economic challenges have impacted people in every market around the world.

As I have said before, no single consumer has been immune to these challenges as we anticipate these economic pressures will continue to weigh on consumers through 2010.

However, it is also just as clear that our Company's focus on a consistent set of strategic initiatives is proving successful.

We are operating with realism about current challenges but remain excited about our global opportunities ahead of us.

In the short term, not unlike the rest of the industry, we remain challenged by the timing of the consumer recovery across markets but we also see a growing opportunity to leverage the strength of our brands, as well as our geographic footprint to drive share gains and position our system for profitable sustainable growth.

In the long-term, we remain very positive about the broader global macro trends and can say with confidence that there is no better growth business to be in than the nonalcoholic ready-to-drink business.

Our seasoned leadership team and our strong bottling partners are focused on investing together for growth to achieve our 20/20 vision.

You have heard me speak about our 20/20 vision in previous communications.

We will continue to expand upon it throughout this year, including at our upcoming investor and analyst event in Atlanta which we all look forward to.

We are focused on executing against three consistent strategies.

First, driving global beverage leadership.

Second, leveraging our balanced geographic footprint and strengthening system capability.

Let me go into more detail on each of these strategies and how they continue to support our growth and solid results this quarter.

First, driving global beverage leadership.

Our business starts with growing sparkling beverages, particularly trademark Coca-Cola.

Everyone of our key markets has Coca-Cola recruitment strategies in their plans.

While I previously mentioned that brand Coca-Cola grew total volume 2% for the quarter, Coca-Cola Zero grew 7% in the quarter and 10% year-to-date, while trademark Sprite was up 4% in both the quarter and year-to-date.

Further, we are continuing to drive global beverage growth in our 120 countries with per capita consumption of less than 150.

For the third quarter in these countries, we grew total beverage volume by 6%, cycling 10%, and sparkling beverage volume by 4%, cycling 8%.

We are also focused on faster still beverage expansion, with our still beverage unit case volume increasing 7% in the quarter driven by the organic growth of our mega brands and continued expansion of our recent strategic acquisitions.

Internationally, still beverages are up 10%, led by 21% growth in Latin America, driven by our expansion of our Jugos del Valle business across the entire region.

We have also expanded the footprint of our Glaceau vitaminwater brand which is now live across 50 [influential] cities in a total of 12 international markets.

Overall our total global still beverage portfolio gained volume and value share driven by our strong share performance in global juice, tea, sports drinks, enhanced water and energy brands.

These were complimented by the successful launch of several new products.

For example, we just launched our Minute Maid healthy dairy drink in China, a mixture of fruit juice, milk and coconut bits that will be sold across the entire country by the end of this year.

So these are just a few of the many ways that we are meeting our consumers evolving needs through new innovative and differentiated brands.

Our global beverage leadership effort is supported by our world class innovation and marketing programs enabling us to build real brand value and win at the point-of-sale with our consumers.

From an innovation perspective our Coca-Cola design progress was featured in the October issue of Fast Company magazine as part of their Masters of Design recognition program.

We will - - we will highlight more of our latest invasions at our upcoming Investor and Analysts event in Atlanta.

I want to also call out a few examples of how we are creating value through our marketing programs and proprietary global partnerships.

First, we are leveraging existing global partnerships to connect directly with our consumers.

For example we have just launched our feedback division program, including a 225 day, 86 country FIFA World Cup Trophy tour.

Simultaneously we are well into our preparations for the upcoming Winter Olympics in Vancouver, including the launch of our Olympic Torch Relay event.

Second, we are expanding our strategic sponsorship and marketing alliances as in the case of our recently announced agreement with Live Nation.

Coca-Cola has a long history of connecting with consumers through their passion for music.

So it makes perfect sense for Live Nation, the worlds largest concert promoter and Coca-Cola to team up and Open Happiness across Live Nation venues.

Third, shifts in our marketing and media spin strategies are enabling us to communicate effectively and stay even more relevant with today's consumers.

Specifically, we are increasingly spending more in point-of-sale marketing and activation programs.

For example, in Europe, we have shifted more marketing dollars toward in-store activation, and improving shelf impact by our on-pack and point-of-sale promotions and shopper marketing activities like loyalty point programs, sampling and gifts with purchases.

Further, in North America we have increased our overall in-store direct investments.

In addition, we have co-invested with our bottlers to accelerate our ability to offer consumers affordable value and inspiring new products and packages that meet their needs while creating value for our system and for our customers.

We believe these strategies represent value-creating ways to engage in and win consumers within the four walls of the consumer customer outlets.

Importantly, we have sustained our overall direct marketing spend in 2009, while also increasing our overall marketing effectiveness.

We can confidently state that we have continued to invest heavily in building our brands with consumers.

Now let me turn to our second strategy that is driving our growth.

Leveraging our balanced geographic footprint.

As I shared with many of you earlier this year at [tagnee], we view our global markets falling into one of three growth segments; emerging, developing, and developed.

We are actively managing our strategies to effectively grow our markets across each and all of these segments.

In emerging markets our strategic focus is on driving consumption.

As such our strategies are primarily focused on maximizing volume and investing in infrastructure.

Some of these markets have been more insulated from the global recession than others, while some are experiencing a more volatile recovery.

Accordingly, our quarterly results mirror these different paths to recovery.

One emerging market that continues to accelerate rapidly for us is India which saw outstanding 37% growth, gaining volume and value share across all categories in which we sale our brands.

Another emerging market, China, was up a solid 15% for the quarter, driven by our continued direct investments in the country, a strong push behind sparkling beverages and a simultaneous building of scale for still beverages.

In fact, our overall portfolio in China has achieved solid double-digit growth for the last 25 consecutive quarters.

We are consistently growing faster than our nearest global competitor and we are now more than twice their size in volume.

We are the clear sparkling category leader in China.

In still beverages in China, we have now attained leadership in the juice and juice drinks category and our overall still portfolio is seven times the size of our nearest global competitor.

One emerging market where consumers continue to be challenged by a weak economy is Russia.

However we are continuing to win absolute share.

We remain positive about the long-term growth opportunities for us in this critical market and will continue to invest for long-term growth.

Turning now to developing markets, this segment represents important value growth opportunities for our Company.

As such our focus is on maximizing value and building consumer loyalty.

We continue to see the benefits of this strategy across many key developing markets, particularly in Latin America, up 7% this quarter.

Mexico, as I said was up 9%, led by an 8% increase for brand Coca-Cola.

Argentina and Brazil both grew 3% and Chile, grew 2%.

Similarly other developing markets up are also growing including Thailand, up 5% in the quarter and 7% year-to-date, and Vietnam, up 12% and 11% year-to-date.

Finally, let me turn to more developed markets such as Japan, Europe and North America.

Here consumers are experiencing a reset in terms of how they view the marketplace.

We believe it is going to take a while for the consumers psyche to settle to a new normal.

In these markets, we are focused on sustaining our brands as the most relevant and valuable proposition for consumers.

And while absolute performance in these markets remains challenging, we continue to capture real value and volume share gains.

First in Japan, this quarters performance was impacted by the severe economic challenges as well as unfavorable weather.

That said, we still outperformed the industry gaining share in both the important supermarket and convenience channels and making this the sixth consecutive quarter of share gain for our business in Japan.

While the vending channel remains a challenge we have successfully executed marketing programs and segmented strategies, driving consumer enjoyment of our beverages.

As a result we were pleased to see growth restored to our Georgia coffee brand this quarter driven by both new flavors in the low calorie segment and our successful new Welcome to Georgia campaign.

Second, our Europe volume remained soft in the quarter driven by weak economic conditions across the region, while cycling 3% prior-year growth.

Despite these headwinds we see growth reemerging in several key European marketplaces including Belgium, Netherlands, France and Italy, all up low to mid-single digits and Germany up 1%.

In total we gained market share in nonalcoholic ready-to-drink beverages in all key markets.

This is notable considering the strong competitive pressure from Bee brands and private label brands in Europe, and demonstrates the resiliency and value proposition of our powerful brands.

Finally, as expected, North America volume was impacted by the shift of the July 4th holiday into the second quarter, as well as by deep competitive still beverage discounting in the back half of the quarter.

While total North American beverage industry performance remained soft this quarter, we outperformed the industry on value share while holding volume share on a year-to-date basis.

Let me take a moment to remind you of how we continue taking action to restore growth in North America.

Our North America sparkling business is focused on reminding consumers why they love our brands and providing them with the right size to enjoy our brands in new and relevant ways.

Last quarter - - last quarter I highlighted how our $0.99 cold contour bottle is providing consumers with affordable value and our system and customers with profitable growth.

A couple of more examples today include the expansion of our two liter contour bottle which today represents almost 40% of our US two liter volume as well as recent introduction of our new 90 calorie sleek mini can that provides consumers another great choice.

These actions are representative of our ongoing efforts to correct the brand pack price architecture in North America to drive results today and sustainable growth for the long-term.

As for Coca-Cola Zero it continues to deliver registering double-digit volume growth for the 14th consecutive quarter.

In still beverages, our portfolio grew volume share for the ninth consecutive quarter and value share for the fourth consecutive quarter.

An example of how we continue to win across our North American still beverage portfolio is the growth of our Simply brand, which we believe is on the path to becoming our next billion dollar brand.

We recently expanded our offerings to include chilled single-service packages which now account for four of the top five fastest selling single-serve juice offerings in both supermarkets as well as convenience retail as measured by Nielsen.

Lastly, we have made excellent progress as a system these past two years not just in addressing our brand portfolio but also our system economic model, alternative routes to market and customer governance.

On this last topic of customer governance, bottlers representing over 99% of US volume have just signed a customer governance agreement for joint business planning and execution with large retail customers.

This demonstrates how we are working with our system to create healthy value-creating relationships with our customers.

One theme, Company and bottler, one face, one unified value story.

Finally, let me address how we continue to strengthen our total system capability.

Our strong cash flow and profitability continue to enable us to make strategic investments in our business with significant long-term return potential.

This past quarter I've had the opportunity to travel across many of our key markets and visit with our bottling system partners as we jointly explore real investment opportunities, for the long-term sustainable growth.

These include China, where we are investing 2 billion over the next three years.

Just last week we announced the opening of a new $88 million still beverages plant in Wuhan in the heart of China, to meet growing consumer demand.

Mexico, where we opened a new state of the art Jugos del Valle plant and recently announced our plan for our system to invest 5 billion over the next five years primarily in infrastructure technology, equipment, environmental initiatives, marketing and training.

In Russia where our system has invested $2 billion since the early 1990's and where we are planning to invest another $1billion in the next three to five years.

And finally, Vietnam, where our system has invested more than $200 million since 1994.

Last month in conjunction with our bottling partner we have committed to invest and additional $200 million over the next three years.

Further, we continue to invest in sustainable innovations like our new plant bottle, the first bio faced beverage bottle that can be recycled along with other PC bottles, made up - - made with up to 30% plant-based materials, plant bottle is rolling out with Coca-Cola products in Denmark and with Dasani in selected areas of the US in the fourth quarter of 2009.

This investment represents the kind of innovation that is critical for our continued success in the next decade and beyond.

Finally, our global productivity initiatives are well on track to achieve our $500 million target by the end of 2011, and we will deliver more than half of the promised savings by the end of this year.

To recap, I am pleased with the results we have delivered year-to-date.

Our global system is better than ever and was built to grow and win in all environments.

Our business fundamentals are strong.

We are an attractive cash generator with a commitment towards investing diligently for the future.

We are positive on both the short and long-term outlook for our business and strongly believe there's no better business to be in.

We believe we have the right strategies and initiatives in place to drive long-term growth.

Importantly, we recognize the need to actively execute these strategies in a tailored way to effectively build our brands and grow volume and value share across all types of marketplaces.

While we may continue to experience some quarter-to-quarter volatility during these difficult economic times, our focus remains on the long-term opportunities before us.

We have the unprecedented reach, scale, and brands to capture this opportunity and we are well positioned to effective manage our business for growth both in today's economic environment and as we look toward our future.

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

Thanks, Muhtar, and good morning.

As Muhtar indicated we are continuing to deliver consistent sustainable quality growth, growing volume, currency neutral revenue, profits and share.

I am pleased with our performance and our seasoned management team's ability to continue to navigate these challenging economic times.

Because of their collective efforts, we remain on track to deliver against our commitment, growing profits above our long-term target for both the quarter and on a year-to-date basis.

As outlined in our release, we reported comparable earnings per share of $0.82 for the third quarter of 2009.

If we exclude the impact from reducing our underlying effective tax rate on operations for the full year, which we now estimate to be approximately 23%, earnings per share would be $0.81.

For the quarter our business delivered sound and balanced 3% currency neutral revenue growth, driven by a 2% increase in concentrate sales and a 1% favorable impact from price and mix.

On a year-to-date basis, our currency neutral revenue growth excluding bottler divestments stands at 5%, in line with our long-term growth target.

For the quarter reported operating income declined 2%, impacted by an 11% currency headwind.

Comparable currency neutral operating income for the quarter increased a strong 9% exceeding our long-term currency neutral profit target.

And on a year-to-date basis, our comparable currency neutral profits are also up 9%.

Let me take a moment to provide some detail on our SG&A expenditures.

Our operating performance is a direct result of our continued investment in our brands all while maintaining disciplined cost measures and leveraging productivity benefits.

We have benefited from productivity efforts across our marketing organization, leveraged more effective media buying and made strategic decisions to adjust spending behind initiatives with our bottling partners and customers, to deliver the value the consumers expect in premium branded offerings.

With respect to margins, our core business remains healthy, expanding margins on a year-to-date basis, despite incurring higher pension costs.

Our bottling investments group continues to improve margins as well.

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

First, building on Muhtar's earlier comments we are on track to deliver against our profit target for the year.

With regard to currencies, as expected, currency has continued to improve throughout the year.

As I mentioned earlier, currency negatively impacted our third quarter operating results by 11%.

Based on current spot rates and our hedge positions, we expect currency headwinds to impact operating income by low double-digits for the full year.

This implies that for the fourth quarter, we anticipate a low to mid-single digit currency tailwind.

And it is certainly good to finally be able to say that.

Further, if current spot rates hold we would not expect currencies to have the same severe headwinds as they did in 2009.

However, our focus will continue to be on managing and investing in our business at the local market level and in local currencies to drive long-term growth and increase consumption of our brands.

Next let me move to operating expense leverage.

First, we continue to cycle the initial savings benefits of our productivity programs while we incur higher pension costs.

Second, and as I advised last quarter, 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, much as we were able to in the third quarter, the six fewer days will preclude us from capturing the operating expense leverage we have realized year-to-date, in direct contrast to the significant benefit we experienced in the first quarter, when we had five additional selling days.

Therefore despite this quarters positive leverage, you should expect operating expense leverage to be negative for the fourth quarter, and as such slightly positive for the second half of the year.

Finally, an update on our cash flow and cash usage.

We continue to see strong cash flow from operations increasing 11% on a year-to-date basis.

As we announced in our last call, we have reinstituted our share repurchase program.

By the end of the third quarter we have repurchased $241 million for our stock, and are committed to repurchasing up to $1 billion for our stock by the end of this year.

In closing, we believe we are meeting our commitments to our shareholders, delivering consistent quality growth and investing for the future while also returning value via stock appreciation and dividends.

We continue to be an attractive generator of strong free cash flow with a fundamentally sound balance sheet.

And while we recognize that the economic environment will likely remain challenging for consumers and customers as we move into 2010, we remain committed to driving profitable growth, gaining global share and enhancing the value of our brands.

Operator, now I will turn it over for questions.

Thank you.

(Operator Instructions).

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

Our first question comes from John Faucher, JP Morgan.

Your line is open.

Yes.

Thank you very much.

A quick question.

As you look across the weakness on the developed markets, and I know you sort of talked about this.

Can you focus on sort of how long-term you think these problems are?

And - - it seems like everyone is surprised by the weakness generally in the more developed markets.

Is this permanent retrenchment from the consumer, or do you think we will see a fairly quick snap back when the economies normalized.

Yes, John.

Good morning.

I think you've got to look at it this way.

Firstly, there is a lag between the macro economic growth coming back and consumer sentiment.

And I think that we, we don't really all know how long that lag is, but there is a lag.

And give you an example of Japan.

- - although, we've heard some positive news about the macro trends in Japan, when you look at the consumer psyche, when you look at supermarket spend in Japan over the last quarter, minus 7%, department stores down 16%, household expenditures down 3.5%.

There's some significant weak consumer sentiment.

On the other hand we see exports beginning to rebound.

And I think we all watch and see how long this consumer sentiment is going to remain depressed and pressure on household expenditures.

Similar not quite the same story in Europe, but I think Europe is a tale of two cities, eastern Europe, Russia, as well as central and eastern Europe, very, very poor.

But then when you look at some key European marketplaces like Belgium that was up 6% for us in the last quarter, Netherlands was up 4%, France was up 3%.

Italy was up 2%, Germany up 1%.

So you see a different kind of consumer out there in terms of how they feel about their future and how they feel about their pocketbook.

No question that consumers have shifted their spending, spending more time at home.

Patterns of consumption are changing, restaurants are under a lot of pressure.

But you've got Spain and really the worst kind of economic situation in western Europe together with eastern Europe, and you have got some others like I just mentioned in a fairly good space.

I still believe that the US is still going to have to pull the general consumer sentiment up in the world, and the US consumer resiliency we will probably see that happening.

But I just don't have an idea about the timing and how that is going to occur in terms of exact timing.

But there is a lag, I want to stress between macro trends that we are beginning to see some improvements in the recent IMS report that significantly upped the anti for macro growth trends for 2010 and the consumer sentiment.

So I just want to stress that.

I just don't know what, we will all watch and see how the lag is going to be.

And then - - I mentioned to you also before about my, my quadrant of four, in terms of how I see the recovery in general.

I think China, India, Brazil - - and others in that area, like Indonesia, Vietnam, places in the Middle East, Eurasia, are all showing that recovery is on the way.

We feel it.

Continued volatility in eastern Europe and Russia and Ukraine although the current oil price should be stabilizing things at the moment as far as Russia and as far as some stimulus packages that we are hearing the Russian Government is considering.

And then, slower recovery in western Europe and USA and continued difficulty in Japan for the time being as far as the consumer is concerned.

But I do, I would be disappointed let me stress that if our volume numbers did not improve in Japan as we go forward.

Great.

Thanks.

Our next question comes from Bill Pecoriello, Consumer Edge Research.

Your line is open.

Morning, everyone.

My question on North America, if you could help us out.

It looks like the still retail business might have been down double-digits in the quarter.

Was that all bottled water you mentioned aggressive price competition.

If you can expand on that?

And I am wondering with the foreign currency upside coming and maybe increasing the US supply chain savings.

Are you looking to reinvest some of that back into the US what might be more competitive spend coming ahead.

Thanks.

The answer to your first question is certainly we will look at all investment opportunities as we look forward into some possible benefits from currencies, and you have seen us do that before, Bill.

So I think you will continue to see us always investing in our brands and in our business as we have done throughout this year.

In fact if you, if you look at our total marketing spend this year coupled with in-store spend - - you're talking about around 5% year-to-date.

So we continue to spend even in times where we've had currency headwinds.

So we will certainly take advantage of that.

As far as stills in the quarter, what you really see is certainly water, is significantly down, and that's really what is pulling our business, and that is mainly the bulk water business.

And the aggressive price competition was that in a certain segment?

That was more in the active life style and sports segments, in the latter part of the quarter.

Thank you.

Our next question comes from Carlos Laboy, Credit Suisse.

Your line is open.

Yes.

Good morning, everyone.

Two questions, Muhtar.

One is what has to be in it for Coke, if Coke is to see any merit in beer and soft drink integration going forward as you look at your vision for the year 2020.

The second one is single serving, it may now becoming larger than brand Coke in some markets like Indonesia.

Could you speak to where you see that brand going over the next couple of years?

Carlos, good morning.

The second question you had was on Minute Maid pulpy, is that right.

Singles, yes, correct.

First, let me just address the pulpy.

We have now, in eight countries and year-to-date June, unit case, cases were up for the first half of the year, more than 50%, certainly driven by China, Hong Kong, Taiwan, Pakistan.

Our business in juice and juice drinks now in China is almost 20% of the 1.3 billion case business, and driving really hard and certainly we see tremendous organic growth going forward in many markets including Hong Kong, Taiwan, Pakistan, Indonesia, and we intend to continue our horizontal expansion, continue to innovate.

We have new products like white grape, aloevera, lemon tropical mix and now - - supermilky pulpy in China.

We have sold in the first few days, 24 million bottles and we will sell in the next 120 days, 240 million bottles or more of this product in China.

So this is - - we certainly see a lot of opportunity in both horizontal expansion.

Secondly, innovation and further vertical growth in this juice drink area.

And you will see us also expanding into other continents from where we are.

As far as beer consolidation is concerned, I mean you have basically - - I have shared with you previously my view.

And my view of soft drinks integration has not really changed since the day I was managing a brew and bottling business.

And that is strategic functions need to be separate and you can't for benefiting both businesses.

If there are synergies in nonstrategic areas like freight, warehousing, back office, I think in this day and age you can't leave those on the table.

You have got to take advantage of those.

But at the front end which is - - you are talking about a different consumer, different consumption pattern, different regulations.

I think it is absolutely important to keep the strategic function dedicated to each side.

And that's been my view on it and that remains my view on it.

And I do not think there is long-term significant synergistic benefits to combining totally the two businesses and having the same sales system, having the same market development system because it is fundamental differences between product distribution, servicing.

And also in the velocities, of channels, price compliance, other issues.

And there's never the same footprint between (inaudible), sparkling beverages and beer, and there's a huge difference in the number of channels and a significant difference in consumption pattern and also the consumer itself.

So that remains my view on the subject.

Thank you, Muhtar.

Our next question comes from Christine Farkas, Bank of America.

Your line is open.

Thank you very much.

Muhtar, I was wondering if you could get just a little bit more into detail in North America.

The price mix was described up as 1%.

Just in light of the concentrate pricing model, the mix that you talked about, the shift of the holiday also would be helpful to understand how much that holiday shift hurt volumes, and maybe impact from energy drinks, if any.

If you could just shed a little bit of light on the North American trends.

And Gary, I just want to understand in terms of the buy back, why we don't see the dollar amount on your cash flow statement in the third quarter.

Thank you.

Well, let me just address the first piece and Gary will take it on the second.

Sure.

We believe there are three keys to achieving healthy sustainable growth in North America; healthy brands, healthy customer relationships and a healthy system that is capable of working in unison to serve our customers in the most effective and efficient way.

With regards to healthy brands, we continue to build strong value creating brands as evidenced by our improved brand health on Coke trademark, and increased revenues and system profitability.

With regard to healthy customer relationships, we work very well with our entire US system on corporate and customer programs I mentioned in my remarks.

And that's increasing our ability to create healthy value creating relationships with the customers.

And healthy systems, we accelerate system collaboration.

We have accelerated system collaboration on supply train productivity through Coca-Cola supply which is on track to exceed our three year goal of 150 million.

The successful integration of our recently acquired businesses and implementation of procured to pay and other operating disciplines, which are removing waste at a fast pace, in areas of operating expense.

And then we continue to build on our strong aligned position in the system driving the expansion of key enterprise initiatives, and best practices that are designed to increase our ability to drive the benefits of what I call, what we call virtual integration, expansion of our incidence based pricing model across other bottlers deployment of the right execution daily, looks of success, the new architecture for brand price fact channel, really working well.

Local integration of our food service business in select markets this summer and learnings from there.

So, I think there's a lot of things going on, and I just want to stress one thing.

You know as of today, I've said it before, I think before, bottlers representing almost all of the US volume, 99%, that are members of our counsel where we have pricing unity, SKU agreements, the big event support to coordinate selling periods, like holidays with key customers across regions and so forth.

So all of that I think - - are working in our favor for the long term.

We, you asked a question about holiday shifts and we don't usually disclose the impact, the exact impack of that holiday shift, but obviously you know from past experiences, and it is not insignificant.

And Gary, you want to take the question on share buybacks.

Yes.

It is, number one, there are quite a few people in the controllers booth that will be happy that you asked a question proving that someone actually reads the statements in detail.

But there is a reason, we have several things going on within the quarter such as the special dividend that Coca-Cola Hellenic has announced now, and because of that, felt like we needed to be out of the market for legal reasons.

And then once all that was announced and public and all, we went into the market but it was actually at the very end of the quarter and therefore the shares had not settled and so you don't see on the cash flow statement, but we had actually bought them.

They just didn't settle until the following Monday.

Okay.

That's helpful.

Thanks.

Thank you.

Our next question comes from Mark Swartzberg, Stifel Nicolaus.

Your line is open.

Thanks.

Good morning, everyone.

Muhtar, also on North America, with the sparkling down 5%.

I was hoping you could give us some more detail on how broad based this was across channels and whether any particular channel led that pick up in rate of decline.

And then similarly as you look at packages, how did single-serve perform sequentially in there and any commentary beyond what your prepared remarks were on package changes in trend for particular package sizes.

Good morning, Mark.

I think there's no question, certain channels still remain challenging and we expect them to continue to be a challenge.

But we do, our brand house as I said scores are improving.

I think the packaging innovations like the big bottle shrink multipack, the 50-ounce twin back, two liter contour, are really getting traction despite the price increases in revenue per bottle, significant increases.

The expanded multipack can offers are performing well, entry price packs like $0.99 continue to generate incremental transactions.

And then we expect some very good momentum from our new calorie conscious offerings like 90 calorie drink mini can.

I think we have made excellent progress I would say on resolving system business issues over the last year or so including our brand portfolio system economic model.

And I do think that generally speaking, there has been a shift as we said from the July 4th impacting the total volume growth for the quarter.

But we believe that our single packs, particularly in stills, are performing very well, the $0.99 offering is providing extra transactions in the convenience store/retail channel.

And we see we think that all of these initiatives together with our strong brand health should see us - - I would be disappointed if we didn't improve our results in North America going forward.

And I think the impact on retail is not tied to a specific channel.

It is more broad based tied to overall consumer sentiment.

Great.

And if I could on the single-serve element in there.

Is it fair to think that trends there got a little more challenging in the third quarter.

I think you've got it probably, difficult to say, Mark.

I think you got to take it into realm of the shift in the, in the holiday, and we are still seeing continued challenges in the convenience store channel, in the single-serve and also eat-and-drink channel.

Certainly more people are spending time at home, more consumption shifting to the house.

But we are, we are still seeing growth in our single-serve packages, incremental transactions.

Great.

Thanks.

That's the key.

Thanks, Muhtar.

Our next question from Marc Greenberg, Deutsche Bank.

Your line is open.

Thanks.

Good morning.

My question relates to the bottling investments.

I wanted to get some sense from you as to how much potential margin improvement we should be thinking about in the coming year.

The margins were just under 4% in the quarter.

Wanted to get a sense of how much benefit might come through from lower inputs as well as continued volume growth.

I know, Gary, in the past you've talked about benchmarking this to other bottlers.

Where do you think we are in this process, and is it 10% bottler investment margin still a reasonable goal?

Thanks.

Hi, Mark.

As Irial has said in the past, his long-term goal for bottling investments group would be to go for a 10% kind of margin.

We are at 4% now, which is a significant improvement from a couple of years ago when it was negative.

So we are seeing a really good sequential year-on-year and quarter-by-quarter improvement.

But I would say the 10% is still a long-term target of multiple years away.

Because remember most of the bottlers we have we owned because they were in trouble or they were troubled bottlers.

So we where fixing them, if you will.

While there's going be a lot of commodity relief particularly as you look at some of the US bottlers, etc., particularly around aluminum, and probably around corn sweetener.

If you look at them, and juice actually looks like it is going to be down in price next year as well.

Actually, for the bottling investments group there will be some pressure because sugar has actually gone up pretty significantly in pricing just because of some shortages of sugar.

In fact there's some rationing of sugar going on right now in India.

And PET prices have increased as well just due to the price of oil.

So, I don't see a lot of that upside from commodities within our BIG group itself.

But they continue to improve year-on-year and I would expect to see that continue kind of like we have seen in the past.

Just let me add, Mark.

Firstly, I am pleased with the progress that Irial and his team are making in improving the financial dynamics of our BIG bottling investment group and Company bottling operations.

I certainly also expect improvements to continue and as Gary said, the double-digit margin is certainly a long-term target.

But every single year, all of the time, we expect the business to generate better financial results as well as continue to invest in really world class execution in all of the markets.

I was again just - - I go a lot to bottling investment group markets and visit the marketplace with people who run those businesses.

I was recently in Sweden just crossed over from Denmark and again, saw that both opportunity as well as the improvements that they have made all, and this is true for every market that they operate in.

So, I think as we move forward, certainly Germany is a very key and important piece of this improvement, we will have sequential improvement, China under the leadership of Martin Jansen, our Chinese bottling operations will continue to see.

Philippines, again, we just also have new leadership in the Philippines.

And we will continue to see improvement coming from the Philippines.

So I expect the improvements to come as well as India of course, and I expect to see the improvements coming every year leading up to double-digit margins.

Thank you.

Our next question comes from Wendy Nicholson, City Investment Research.

Your line is open.

Good morning.

Can you talk a little bit more about the North American market and what you are doing in terms of shift in your marking mix?

I know you said that marketing was up 5% year-to-date.

How much of that is advertising and given the weakness in the consumer sentiment that you talked about, are you finding still higher promotional levels to be more effective than advertising, and what strategy is going toward?

Wendy, I think you need to see that in the realm of what we are completely, as we've said before, we are expecting our brand price pack channel mix inside the four walls of the customers, be it supermarket, hypermarket or convenience retail.

And I think with that and we have a lot of initiatives also in the food service area.

So, taking all of that into - - context, that is why we see a great opportunity to communicate more with the consumer at the point of sale, more effectively using better innovative tools.

And therefore - - we have increased our overall direct in-store merchandising, merchandising and advertising and indirect sampling investments behind our brands that is reflected in our strong brand growth for Coke trademark, Vitaminwater and powerade.

And we continue to co-invest with our bottlers and funding designed to accelerate our ability, ability to offer consumers affordable value and inspiring new products, new packages, just like the two liter contour twin packs, the new can, the $0.99, et cetera.

And I think what we are finding is all of that plus the digital media is really beginning to come together and creating a really effective marketing mix for us in the US marketplace.

Is it fair to say that's working particularly well simply given the macro environment we are in, but that's still in the broader context, the price pack architecture has been around for a little while, and certainly has become more important.

But it is I guess longer term kind of the marketing mix, algorithm for you in the US, has that changed permanently to de-emphasize traditional media.

I think it is how much of it is due to our new brand price pack architecture, how much of it is due to the current marketplace dynamics is difficult to say.

First in the price brand, architecture is an evolution.

We only have as I said 40% distribution with our two liter contour bottles.

So we are continuing to roll all of this out.

It is not something that has been around for a long time.

We are just rolling out the new 90 calorie mini cans.

We are still expanding the $0.99 contour bottle.

So there's a lot going on in the marketplace.

If you go into the marketplace today in the United States, and you don't have to even go into one of the [blue stores] of CC, but if you actually go into the normal marketplace and visit any supermarket where our brand price architecture has been changed, you will see the difference.

You will see how we are communicating, you will see the points of interruption, you will see how the in-store media and marketing is coming together with our new packaging.

Got it.

Thank you very much.

The next question from Judy Hong, Goldman Sachs.

Your line is open.

Thanks.

Muhtar, just some color in terms of Russia and eastern Europe.

Obviously the macros are still challenging in those markets and you have talked about the lag in some of these markets.

But now it has been three or four quarters of sort of high single to double-digit volume decline in Russia.

I am just wondering if you do get a sense of whether the consumers are close to bottoming there and we should think about the trends going forward in some of those more challenging markets.

And then in those markets, are you also really expanding some of these affordable packaging and price mix or price (inaudible) architecture.

Why aren't they responding as well as maybe some of the other markets?

Well, because I think you know eastern Europe is the land of volatility, and things always are deeper and much more colorful based on my experience.

And again, firstly, the volatility is much higher in Russia and Ukraine than it is in eastern, traditional eastern Europe and central Europe like Baltics and Poland and so forth, central Europe, Hungary, Chekoslovokia, and so forth.

So, it is not as deep and the volatility is not as apparent and significant in eastern-central Europe as it is in Russia.

I think we have seen most of the volatility already take place in Russia.

I feel that.

I was there in Russia a couple of months ago with the Chairman of our bottling partner, (inaudible) and CEO and we sat down and looked at the market, visited the customers and looked at the distribution and stores in the market.

And I think the consumer sentiment that we see is one that probably has seen most of most of the volatility.

That's my feeling.

Although it is always difficult to say with Russia and Ukraine.

But I do believe that we have seen a significant dips in consumer, and real estate has toppled.

Consumer spending has come down, supermarket revenues are down.

Retail revenues are down, every shop owner you speak to they talk about revenues being down.

I think we are past most of that going into the future.

As far as eastern-central Europe is concerned it is been, the dip has been lower, in places like Poland, Chekoslovokia, Hungary, even in southeast Europe, Romania.

Probably Romania, Bulgaria, Serbia and former Yugoslovia is a little worse than other parts.

So, I would say probably Russia will see some more bright sunshine as we move forward although not fully out in terms of consumer sentiment and then eastern-central Europe probably still a slower recovery than that.

Okay.

Thanks.

And then, Gary, just a follow up on currency you have talked about 2010 not being as headwinds as 2009 but I mean are there any hedges that you've already layered in that might mitigate the benefit that you would see on the currency side if you just look at the spot rates of the major currencies?

No, Judy.

In fact our hedging program is more an option based strategy.

So, even if we called it wrong, and all we would still have the upside.

So, no, the only edge that you heard in my comments was I know where the spot rates are today, I do not know where the spot rates will be next year.

So I think we just - - I will keep you updated as we go into the year.

And all but there is no negative on our side that would cause anything other than what you see today.

Okay.

Great.

Thanks.

Thanks.

Thank you, Gary, and Jackson.

As mentioned at the outset of our call, and as part of our continued efforts to provide you with a broader view across our business, and our 20/20 vision, as we said we will hosting an Investor and Analyst event here in Atlanta on November 16th and 17th.

Gary and I together with members of our global company and bottler system leadership will discuss how we intend to usher in a new era of winning for our Company and our system.

I look forward to continuing our conversations around the opportunities that lay ahead for The Coca-Cola Company at this event and I thank if you for joining us if morning.

Thank you participating in today's conference call for The Coca-Cola Company.

Audio playback is available via the Company's website at thecocacolacompany.com.

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