可口可樂 (KO) 2009 Q4 法說會逐字稿

Thank you for standing by.

At this time I would like to welcome everyone to the Coca Cola Company's fourth quarter and full year 2009 earnings results conference call.

Today's call is being recorded.

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

All participants will be in a listen only mode until the formal question and answer portion of the call.

(Operator Instructions).

Participants will be announced by their name and company.

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

I would like to remind everyone that the purpose of this conference is to talk with investors and questions from the media will not be addressed.

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

I'd now like to introduce Jackson Kelly, Vice President and Director of Investor Relations.

Mr.

Kelly, you may begin.

Good morning and thank you for being with us again 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 to your 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 reports.

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.

Before I begin, I'd like to acknowledge the victims of the terrible tragedy in Haiti.

The global Coca Cola family continues to focus its efforts and resources in support of the millions of Haitians who are suffering following last month's devastating earthquake, and I'd like to urge everyone who is listening to this call to contribute to one of the many worthy organizations that are helping to provide relief in this time of great need.

Now, let me begin by saying that I'm very pleased to report that we ended 2009 with solid growth for both the quarter as well as the full year.

We achieved this through strong system alignment, guided by the shared values and strategies in our 2020 vision, which is our road map for winning together with our bottling partners.

As we enter a new decade, I'm pleased to say the foundation of our business, our wonderful dynamic brands, our strong financial position, and our unmatched global footprint is stronger than ever.

Our global share is growing.

This is our tenth consecutive quarter of winning total non-alcoholic ready to drink volume and value share.

At the same time, we are generating consistently strong and steady cash flow while investing in our business for the long term.

We're also thinking and acting like an integrated global enterprise, while intensifying our local focus, and we remain confident in our ability to deliver consistent long term sustainable results as we usher in another exciting decade of growth for our Coca Cola system.

This past quarter, we delivered strong international unit case volume growth of 6% cycling 6% growth from the prior year quarter, and total worldwide unit case volume increased 5% cycling 4%.

I think it is important to remember that we achieved these results despite the ongoing impact of the global recession across many markets.

Strong economic headwinds are still impacting the broader consumer goods sector, especially in the developed world.

Key international markets are feeling significant volume growth for us.

China was up 29% in the fourth quarter, the 26th consecutive quarter of double digit growth.

For the full year 2009, China was up 16%.

This has widened the share gap against our primary competitor in this key market.

India was up 20% for the quarter and 31% for the full year.

We've captured volume and value share across both the sparkling and still categories for the quarter and the year, and in Latin America, we delivered consistent growth across our entire portfolio also gaining share in both the sparkling and still categories for the quarter and also for the year.

Brazil was up 8% for the quarter and 4% for 2009 full year and Mexico was up 4% for the quarter and 6% for the full year.

Just to put this in perspective, the 2009 incremental volume from China, India, Mexico, and Brazil, four countries alone, was equal to adding another Germany, our sixth largest market to our business.

No question, absolute growth is vital.

That said, we remain laser focused on delivering profitable growth.

Today, we're pleased to report full year comparable currency neutral operating income growth of 7%.

This is in line with our long term growth target, which we have met or exceeded for the fourth straight year.

Equally important, we continue to implement three consistent strategies with our bottling partners.

The first is investing ahead of demand in emerging markets, secondly maximizing capture of value in developing markets, and thirdly, driving profitable growth in developed markets.

Along with our global bottling partners we are winning together locally by effectively executing these strategies in order to best serve each market's unique consumer and customer needs.

Our results are a testament to our seasoned system wide operating teams.

Regardless of the market condition remains focused on engaging consumers, providing value for our customers and building our brands.

We shared our 20/20 vision with many of you during our investor and media event in Atlanta last November.

Now, as we enter 2010, and embark on another era of growth for our Coca Cola system, we remain very positive about the broader macro trends.

We also remain firm in our belief that there is absolutely no better business than the non-alcoholic ready to drink beverage business.

Consumers, all around the world, enjoy our brands on average 86 times per year.

What we refer to as our per capita consumption.

Of course, there are many countries across each continent where per capita consumption is much higher but we also have many other countries like India, but China, Indonesia to name a few that are far below 86 and therefore offer us significant growth opportunities and as our 2009 results attest, we believe that we are well positioned to continue capturing growth in these and all other markets.

In the coming decade, as a billion new consumers enter into the middle class around-the-world, we see great opportunity for our per capita to continue rising.

So while we are selling moments of pleasure and sense at a time, 1.6 billion servings every day, we feel that there is tremendous opportunity both today as well as tomorrow.

And we firmly believe that our great Coca Cola system and our 700,000 associates who refresh the world with our brands every single day are ideally positioned to help us capture this opportunity and achieve and surpass the goals of our 20/20 vision.

Looking forward to 2010 and beyond, we remain intently focused on what critically matters to the long term growth and success of our business.

Communicating with our consumers and investing in our brands.

Let me just quickly walk you through both of these priorities.

First, communicating with our consumers.

We have wonderful platforms in place to expand our communication and connect with consumers all across the world.

Our plans include engaging consumers in a way that only Coca Cola can, through our longstanding partnerships with the world's most iconic global sporting events, both occurring this year.

First, for the Vancouver 2010 Olympic Winter Games, we launched a 12 month brand activation plan in Canada.

We also launched a widespread program across 11 countries that includes the olympic torch relay, consumer as well as customer events.

In addition, our Open the Games digital experience has been fully activated in the United States as well as Canada and also in six European nations.

In addition, we are executing our FIFA 2010 World Cup program.

This global football event is the single largest sporting event in the world.

It is watched in over 200 countries.

Given that the 2010 World Cup will be held on the African continent for the very first time, we're likely to see a global television audience of well over 1 billion viewers for the final match alone.

In other words, 10 times the size of the Super Bowl.

So it shouldn't come as a surprise that our fee for 2010 activation will be our most comprehensive campaign ever, that will include global commercials, online programs, commemorative packaging, and a 225 day World Cup trophy tour touching 86 countries.

In addition to sports, we're also undertaking our most ambitious social media program ever.

It is called Expedition 206, a team of three young happiness ambassadors traveling to the 206 countries where Coca Cola is sold, all to seek out what makes people happy.

This exciting program engages consumers both online and on the ground, allowing fans to interact with and follow our team's realtime updates as they criss-cross the globe.

This program is quickly becoming a global phenomenon.

In January the team spent most of their time making stops across Latin America.

At the same time, the program generated nearly 400 million media imprints in China alone, and of course, our award winning open happiness global campaign continues to connect with more and more consumers around the globe.

At the end of 2009, the campaign was running in markets representing approximately 95% of our global Coca Cola volume.

Our most recent open happiness television commercials were prominently displayed during this past Sunday's Super Bowl with MSNBC naming our Simpsons themed Hard Times commercial the games number one spot and our sleep walker ranking in the top five on USA Today's ad meter.

The common thread in all of these initiatives is that they enable us to speak efficiently and effectiveness, directly and passionately to consumers in every single nation, and they do so in a way that is uniquely Coca Cola, inspiring moments of optimism and happiness.

Now for the second priority, let me turn to investing in our brands.

As in 2009, we will maintain a relentless focus on growing our sparkling portfolio and on expanding our still beverages faster.

Momentum is on our side.

While unit case volume for sparkling beverages grew 1% for the full year in the fourth quarter of 2009, we saw 3% growth with our sparkling international performance up 5%.

Pacific increased sparkling beverages 9% for the quarter, and 6% for the full year.

Latin America grew sparkling beverages 5% for the quarter and 3% for the full year.

Eurasia and Africa sparkling beverages gained 4% for the quarter and 3% for the full year and while sparkling beverages in Europe were down 1% for the full year due to the difficult economic challenges faced throughout the region, they were actually up 1% for the quarter.

Importantly brand Coca Cola grew 4% this past quarter, positive proof that our strategy of winning with Coca Cola is leading the charge for us all around the world, and while sparkling beverages in North America declined 2% in the quarter as a result of continued macroeconomic pressures, this performance was a sequential improvement relative to the first nine months of the year.

In fact, let me take a moment to reflect on our sound progress in North America this past year.

We made critical investments in our brands and provided greater consumer choice by developing innovative packaging and industry leading labeling practices.

Our $0.99 cold contour bottle, 2-liter contour package and new sleek mini cans that make portion control easy are great examples of how we provide consumers with affordable value and our system and customers with profitable growth.

In addition, Coca Cola Zero delivered double digit volume growth for the 15th consecutive quarter.

At the same time, we expanded key initiatives and best practices to drive benefits across our North America system, including extending our incidence based pricing model to bottlers representing more than 90% of our sparkling volume, further deployment of Red Or Right execution daily and also continued progress with Coca Cola supply on track to exceed our three year goal of $150 million in Supply Chain productivity.

All of these are ample evidence that our North America system is operating from a position of increasing strength.

Now, let me move to our still beverages, which are also experiencing tremendous momentum in the marketplace.

Overall, our global still beverage portfolio grew 9% in the fourth quarter and 8% for the full year.

This growth was consistent and widespread.

Each of our five operating groups registered positive still beverage growth for the full year.

Latin America still beverages grew 24% expanding a portfolio of well established and emerging brands.

Both Pacific and Eurasia and Africa groups, still beverages gained 8% and Europe still beverages increased 2% and North America still beverages were up 1% growing both volume and value share in the still category for the second consecutive year.

In addition, Simply, our premium North America juice brand joined the ranks of our billion dollar brands at retail becoming our 14th billion dollar brand.

We see great opportunity in 2010 to grow still beverages faster by leveraging our unique geographic footprint.

Let me just give you a couple of examples.

Take Vitamin Water for example.

By the end of 2009 Vitamin Water was in 60 international cities, adhering closely to our influencer model strategy of focusing on select premium outlets that build brand equity.

We have captured over 20 miles of incremental shelf space in over 100,000 stores, through these international expansion efforts.

In 2010, we plan to expand into more influencer cities abroad, while strengthening and growing our presence in existing markets.

Similarly with Powerade, we will launch our first ever integrated campaign across our top 20 markets.

These markets make up 95% of the brands volume.

All of this will be done in conjunction with our FIFA World Cup activation program and with Minute Maid, we are leveraging a common global identity system to drive marketing productivity in our leading juice brands while maintaining our local relevance.

This all quickly expands successful brands across borders as in the case of Minute Maid Pulpy which began in China and was launched in 11 markets by the end of 2009.

We also introduced Minute Maid Pulpy in Mexico last month and plan to expand additional markets in Latin America as well as Africa in 2010.

You will recall that we indicated to you at the start of last year that 2009 was going to be a challenging year for our business, and in fact for all business.

We also said that we might miss our long term growth targets in a quarter or two over the course of the year, yet, it is clear that 2009 was a very solid year for us and we are very pleased with our results despite the challenging environment.

We stayed true to our word and remain confident that we will keep winning together with our great bottling partners in 2010.

That said, with consumers still challenged by a mixed global recovery, there again maybe bumps along the way with some quarter to quarter volatility still possible as we move through 2010.

However, we look forward to another exciting decade of growth for our Coca Cola system.

Our 20/20 vision is clear.

Our strategies are sound.

Our system is well positioned, and we remain focused on meeting or exceeding our growth targets over the longer term while always driving sustainable shareholder value.

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

Thanks, Muhtar, and good morning, everyone.

As Muhtar indicated, in 2009, we continued to deliver consistent sustainable quality growth growing volume, share, and comparable currency neutral revenue and profit.

Importantly, we delivered against our 2009 committment ,growing volume and profit in line with our long term targets on a full year basis.

First, let me remind you that in the fourth quarter of 2009, we had six fewer selling days than in the same period in 2008 and I'll try to call out the impact of these days as I review our results for this past quarter.

As outlined in our release, we reported comparable earnings per share of $0.66, up 3% versus the prior year.

Full year reported earnings per share were $2.93, up 18% while comparable earnings per share were $3.06, down 3% but reflecting a large negative currency impact.

For the quarter, our business delivered 5% revenue growth, driven by a 1% increase in concentrate sales and a 5% positive currency impact.

We estimate fourth quarter net revenues would have been in line with our long term targets if adjusted for the impact of the six fewer selling days, and excluding structural changes, our comparable currency neutral net revenues increased 4% for the full year.

For the quarter, comparable currency neutral operating income was flat, again impacted by the six fewer selling days that I mentioned earlier.

Adjusting for that impact, we estimate that currency neutral operating income would have been ahead of our long term growth targets.

For the full year, comparable currency neutral operating income was up 7% in line with our long term currency neutral profit target and in fact up 8%, adjusting for structural change.

SG&A expenses were up 9% in the quarter and increased 2% on a currency neutral basis, so seven points of currency in that 9% increase.

This increase was partly attributable to an increase in incentive cost, as well as an increase in pension costs due to a decline in the value of plant assets in 2008 and lower discount rates.

Now I do want to highlight our continued committment to our brands.

As I highlighted last quarter, we've increased our spending and point-of-sale marketing and activation programs to engage and win with consumers within the four walls of our customer outlets.

When taken in combination with our direct marketing expenses, we increased our overall marketing investments for the fourth quarter and sustained them for the full year.

As I shared last quarter, we expected our operating expense leverage to be negative for the fourth quarter due to the six fewer selling days.

Accordingly, our leverage for the fourth quarter was slightly negative, offsetting the operating leverage benefit we reported in the first quarter when we had five more days in the quarter.

Importantly on a currency neutral basis, our operating leverage for the full year was a positive three points, in line with our expectations.

Our cash flow from operations increased 8% to $8.2 billion for the full year, in spite of the currency headwinds, reflecting strength of our underlying business performance.

For the full year 2009, we repurchased approximately $1.5 billion in stock, which is more than the $1 billion that I indicated in our last call.

Given the strong performance of our stock in 2009, we experienced greater activity in our stock option programs in the fourth quarter and we ramped up our repurchases in response to that activity.

As for 2010, we expect to repurchase an additional $1.5 billion in stock over the course of the full year.

Lastly, let me touch on price mix.

We achieved positive pricing for both the quarter and the full year.

We're particularly pleased with this result, as it was accomplished while implementing brand building affordability programs across many markets in response to the challenging consumer sentiment.

As for geographic or country mix, as anticipated, our emerging markets are recovering from the global recession at a quicker rate than our developed markets, resulting in unfavorable geographic mix at a consolidated level.

Therefore, in the fourth quarter of 2009, we saw price mix slightly down at minus 1%, so for the full year price mix was even.

All while we grew volume and gained global volume and value share.

These results reflect our continued efforts focus and committment to both play and win in every type of market as they come out of this global crisis.

As for 2010, it would be reasonable to expect similar price mix results to 2009 as consumer sentiment continues to improve at varying rates across our geographic portfolio, and looking beyond 2010, we would expect to see positive price mix over the long term.

Now, let me take a moment to provide an initial outlook on some of the other key factors that we see impacting 2010.

Many of you are aware of the recent devaluation of the Venezuela Bolivar, and the country's designation as a hyperinflationary country for accounting purposes.

As a result, in the first quarter of this year, we will incur a one-time exchange loss from remeasurement of approximately $100 million, and that remeasurement of our net assets in Venezuela will be recorded below operating income.

As for currency overall, after considering current spot rates before what we're seeing happen to the dollar this morning, the anticipated benefits of our hedging coverage, the cycling of prior year exchange rates, and the impact of the Venezuela devaluation on our local operations, we expect currency to have a slightly positive impact on operating income for the full year 2010 with a benefit more heavily weighted in the first half of 2010, and you may have seen that the dollar started weakening again this morning.

We will maintain our disciplined approach to SG&A in 2010 while we'll be cycling the initial benefits of our productivity initiatives, we expect to capture between one and two points of operating leverage in 2010 from our productivity programs.

Importantly, we remain on track to deliver $500 million in annual savings from these productivity initiatives by year-end 2011.

From a capital expenditure standpoint, we expect to maintain our capital investment levels in line with the levels of the past several years.

For 2010, our best estimate is that the full year underlying effective tax rate will be in the range of approximately 23 to 23.5%, and then two other modeling items.

First I'm happy to tell you we're not going to have a day swing of five and six days like we did in 2009, but we will have a day swing of one day the first quarter of 2010 will have one less day, the fourth quarter of 2010 will have one more day.

Lastly, let me take a moment to address some recent accounting rule changes.

As required by the Financial Accounting Standards Board, effective January 1 of this year, we are no longer consolidating certain entities, primarily some bottling operations, and let me emphasize this will not impact our consolidated net income or earnings per share, but it will impact our 2010 reported results when compared to our 2009 results, especially within our bottling investments group.

Specifically, and just for the full year 2009, the entities that were deconsolidated as the first part of this year accounted for 3% of our consolidated revenues, net revenues and 2% of our consolidated operating income.

We'll let you know how this change impacts our comparable results during each quarter this year.

In closing, as I look back at 2009, it was a successful year and I'm very happy with our results.

Despite challenging economic conditions, we delivered against our volume and profit growth targets.

We strengthened our brands, our Company and our global system, and thanks to the efforts of our experienced management team and our system bottling partners, we are much better positioned as we begin to emerge from these difficult economic times.

So while we expect the economic environment to stay challenging in 2010, our success these past 12 months reaffirms our confidence that we will continue to gain global share, enhance the value of our brands, and drive long term profitable growth and value for our shareowners.

Operator?

We're ready for your questions.

(Operator Instructions).

Thank you.

Our first question is from Marc Greenberg with Deutsche Bank.

Good morning.

Muhtar, using history as a guide, what kind of system boost do you think you might see both in local markets and overall as a consequence of World Cup and Olympics and as for the media, how do you think the African consumers will appreciate the Simpsons ad?

Hi, Marc, good morning.

I think it's fair to say that the World Cup property really does generate a tremendous amount of excitement across the world, particularly in countries in Europe, in Latin America, but this time of course Africa is completely engulfed by it as well and I think that it's unique that it is on the African continent, special treat for South Africans of course but also for the most important thing also is that when it's played in Asia, you have some issues with timing in terms of viewership, but this time Europe time zone and Africa is identical pretty much so that additional benefit.

I think the last time we had the World Cup, we saw some very encouraging results in our business with both very small, medium, and large customers across the whole world, particularly in Europe and Latin America and this time I think certainly that we will see a tremendous excitement in addition to those continents from also Africa.

Great.

If I can just follow-up briefly, Gary, on the bottler investments, you saw some benefits from volume leverage and input cost deflation on the bottler group.

If we take out a lot of the currency shifts, where do you think the underlying bottler investment margins are right now?

Well one thing I'd say about bottling investments is remember the hospital ward concept in that the only reason those bottlers are in there is for some kind of issue that was with the bottler when we took it over and I think Gary has been very consistent that forget commodities, forget currency, forget everything else that over time, we're going to see continuing improvement in margins within the bottler investment group and we're seeing those.

We're seeing them quarter by quarter and year by year and I think you'll continue to see those where we're now seeing some of those bottlers actually coming up to kind of world class types of margins.

We've still got margin issues in others but they're improving over time so I'd say we're very comfortable with where it is and they're still improving.

Just one thing to add-on that maybe, Marc, is the way I look at these, all of these bottlers that are currently where we have equity majority and most of the time and manage them is I put them into three groups, I'd say group one ready now, group two ready in one to two years and group three ready in three years plus and we have some in all three groups.

Thank you.

Thank you.

Our next question is from Bill Pecoriello with Consumer Edge Research.

Good morning, everybody.

Gary, you talked about for 2010 price mix probably remaining flattish and one to two points of leverage from productivity programs.

In 2009 you delivered the three points of leverage you referred to on the full year so when you consider media rates and spending plans for 2010, do you think you can maintain overall about three points of leverage to offset the continued price mix drag versus the long term growth?

Thanks.

Yes, thanks, Bill.

I think where we are is because we're cycling some of those productivity programs in 2009.

That's why we're saying that our leverage from SG&A will probably be in the one to two points of leverage versus the three points that we got in 2010, but as some of what Muhtar is talking about, like the first ever integrated global campaign for Powerade, et cetera, we're going to be able to get a lot of leverage out of better integration across markets where we're getting a lot of productivity in our marketing as well as we continue to reinvest but actually not have to spend a lot more money and getting the same kind of leverage from it, so it's a different way of saying we're getting some leverage you won't see through some things we're doing but again in addition to that we'll get one to two points we think in 2010.

Yes, Bill, just to provide one other commentary on that.

I mean, no question that as you go up, the air gets thinner, and we are cycling some pretty big numbers that we've been able to achieve in productivity gains in 2009 and even 2008, we've achieved significant and we're ahead of the $500 million program at the end of 2009.

Now, the $500 million that we had put out there does not include of course the marketing effectiveness, does not include Supply Chain gains and so fourth.

Those come on top, but I think you will see us striving towards exceeding 500 million and the time frame for that as you know was 2009, 2010, 2011, but no question that I think we are or you need to consider that we're also cycling some of those gains.

And Bill, just one other little piece of granularity as we talk about leverage within SG&A and things.

One of the things we talked about that really would hit us kind of hard in 2009 was pension expense and I think this would go for all companies and it was really you measure that, actuaries measure it at the end of each year and then you reflect that expense over the following year and so what we saw in 2009 was a result of the pretty dismal performance of all investment types coming out of 2008 that hit us over $100 million of additional expense in 2009 and we still got the three points of leverage.

I was hoping to see some more leverage coming out of those pension expense numbers going down.

They are going to go down somewhat but the offset to much better investment activity and the assets going up in value is that we're not in an environment where interest rates and this helps in some ways but hurts in others.

Interest rates are at historical lows so your discount rates are very very low and that offset the investment gains we had so we're not seeing a swing in the pension expense that we kind of hoped and so that's kind of holding us to that one to two points as well.

Thank you very helpful.

Thanks.

Thank you.

Our next question is from Wendy Nicholson with Citi Investment Research.

Hi, two questions.

First the guidance for buyback, given how much cash you're sitting on I'm surprised the guidance isn't more than $1.5 billion and second the still beverage in Latin America I know is still relatively immature business but how sustainable is the 20 plus percent type growth you're seeing there?

Wendy, just let me make some commentary and I'll ask Gary to comment also on the share buyback but firstly I want to just stress the importance and how pleased I am with the fact that of our cash generation in our business.

I mean, in an era and in a time period over the last 16 months when so many businesses, so many companies were in trouble and strapped because of lack of cash, we grew our cash by 8% in the year and went over $8 billion for the first time, so that gives us tremendous also flexibility as we move forward into this year and beyond and I'll ask Gary to comment on that as well as on the share buyback.

On the still beverages side, I've always said the journey for still beverages in Latin America really began for us only sort of fully in 2009, we started in the middle of 2008 with the acquisition of [Hugos de Vaya] and also [Matelel] and the herbal business liquid beverage business in Brazil and we're rolling out Hugos de Vaya now in almost 20 countries already, that brand, and not just in Latin America, also in we've also rolled it out in some other countries across the world so we see that it's still a very small base and again, the picture of success is for us to grow both sparkling, continue to grow both sparkling and Latin America as well as still and understanding that because still is coming from a much smaller base it will grow faster.

Got it.

Gary do you want to comment on the share buyback?

Yes, Wendy, on the share buyback here is where we are.

As there's a couple of aspects to it and you're right.

We are sitting on a lot of cash and I'm well aware of that, but number two, I think we're still being somewhat conservative in our views and how we're investing, but the other major thing is that around credit ratings and you've heard me talk about this in the past, around holding those system credit ratings, we will be meeting with the credit agencies rating agencies next month and as we do that, I'll update you each quarter as to where we are on share repurchase and it very well could change and I'll update you on that as we go through the year.

Much as it did, it changed in the fourth quarter and we very quickly changed as I saw stock option exercises ramping up we accelerated our share repurchase program so we're very prepared to do that.

I can just give you a view right now but at the end of the First Quarter we'll give you an update where we are.

Fair enough.

Wendy, just let me also make broader commentary on the juice business at large.

I think we made juice a very major priority two years ago and it is really important to remind ourselves of that, and in the past sort of seven, eight years, the Coca Cola system has nearly tripled its volume and almost doubled its share of its juice business globally growing at a double digit CAGR, and we see still ahead tremendous opportunity, tremendous opportunity like in brands like Minute Maid, Cappy, Maaza, Hugos de Vaya, we made investments and we continue to invest in Simply and now I mentioned that it's now a $14 billion brand and in Q4 of 2009, we announced the launch of our first global come, look and feel for our leading juice brands beginning with Minute Maid in the USA as a first step in the strategy to create a single global juice brand architecture which would unite different brand names under common logos and I think you need to see that our partnerships with leading global juice experts like [Catrale], our brand strength, our investments, our bottlers committment, the system committment, all will continue to drive juice as a major opportunity in the coming years.

Got it.

Thank you very much.

Thank you.

Our next question is from John Faucher with JPMorgan.

Yes, good morning, thank you.

So want to ask a couple of questions about Pacific, sort of following up on the results this quarter.

First off the China results were tremendous given the very difficult comparison and obviously you're benefiting from some new product launches there, so can you talk about how we should view sort of the longer term run rate in China?

Does your success over the last 12-16 months give you confidence that maybe you can even grow faster than you thought maybe a year and a half, two years ago and then secondly moving over to Japan, and I guess you've talked a lot about the marketing changes that you're making to try and get the business moving, realizing there's a lot of category issues but can you talk about potentially what we might need to think of from a restructuring standpoint in terms of the bottling system.

Can West Japan work to consolidate the system more aggress every.

How involved do you guys need to be in maybe changing the system over there?

Thanks.

Thanks, John.

First, China.

Again, you go up, oxygen gets thinner.

We've been growing double digits for the past 26 consecutive quarters.

26 quarters ago, the base was significantly smaller, almost half of what the base is today, so I want to first draw your attention to that and I want to go back to the whole notion of investing ahead of the curve.

I was in China in 2008 at the opening of our Shanghai Innovation Center, global innovation center in Shanghai and announced a $3 billion investment program in China.

We're aggressively investing with our bottling partners creating horizontal growth, creating vertical growth and expanding our outlet coverage and outlet investments in China.

You've heard us talk about 6 million customers in China.

Of the 6 million customers, we've still got a huge way to go in order to cover all of them properly in the way that we would say is best practice and the right execution daily, so we continue to invest in people, trained people, thousands and thousands of people every year in our Coca Cola University China investing in equipment, investing in distribution, investing in production.

We just opened a state-of-the-art and again last year state-of-the-art still beverage plant in China.

I was there last year opening two new plants, one in the West and one in Central China, so we continue to invest in China, invest in the consumer.

The Olympic Games really helped our brand, and us being the only sponsor of Shanghai Expo as an international Company is again going to provide great returns for us but I think over time and we are now building scale.

We're building relevance with our portfolio, with our brands.

Brands are getting stronger and I think this past quarter was the first time we widened the gap to more than 2:1 versus our principle international competitor.

I think we're just getting started in China.

The per capitas are still so low in China we're just getting started but again it takes a lot of investment, a lot of effort to generate a quarter of a billion cases of incremental growth a year in China.

I think we're the only ones who can really realize that kind of growth and you will see us continue to focus on generating annual double digit growth rates in China.

I think that's the picture of success, annual double digit growth rates.

As far as Japan is concerned, John, Japan is a very challenging environment.

I'm pleased with the results in the last quarter in Japan where we continued to gain and drive share gains but I think looking ahead, it's really important to understand that we are in the midst of extracting more savings from our system in China so we can continue to invest, increase our investment in our brand.

That is the picture of success.

It's more about what we can do, how quickly we can do in Canto, and now we manage two of the four bottlers in Canto where we have equity positions in those and I think you will see us being very active in that area in structural changes going forward.

Okay, thank you very much.

Thank you.

Our next question is from Kaumil Gajrawala with UBS.

Hi.

Two questions.

The first on margins.

These countries that you identify with the low per capita consumptions, to the extent you can, can you give us some help on what the profit dynamics look like in those countries versus your global average, and then second, the lack of operating leverage between volume growth and profit, is that entirely due to the fewer selling days or is there anything else in there?

Yes, I'll have Gary talk about the profits and what was the first?

I didn't catch your first question.

The difference in the profit dynamics and the low per cap countries versus the more developed markets.

Yes, let me, Kaumil, I'll go in reverse order but the leverage in the fourth quarter of the negative expense leverage in the fourth quarter is exactly what we expected, exactly what I referenced in the third quarter call and it was entirely due to the six fewer selling days, as we have 100% of the expenses but not as many revenues because of the six fewer days, it's entirely due to that and so you come back to how was it for the full year, is it three points of operating leverage, and again we would expect operating leverage going forward into 2010.

Relative to margins in the emerging markets versus the total average, I'm going to give you a couple different views on that.

Number one, our view of the world is that, and you heard this from us as we took you through our 20/20 vision.

Our view of the world is we're going to grow volume and we're going to grow share in every market in the world of which where there is value and so we're going to grow as fast as we can grow in every market.

What that means is particularly in the environment where we are today where a lot of the emerging market countries are actually recovering faster than the developed markets is giving us negative geographic mix, but the point being we're playing to win and we're playing to win in every market so we're continuing to drive those.

Now, within let's take some of those emerging markets.

Take China, take India, et cetera.

What you see is margins that are much lower than Company average but I would go back to and I think we've probably talked in the past about this, if you go back 15-20 years ago and looked at Mexico you'd see the same thing.

At the time Mexico was delivering a lot of volume but the margins were much lower.

What you have to do is build out, as Muhtar was talking about, as we buildout both vertically and horizontally in these markets, there is a point and this is one of the keys to our business model, there is a point where you gain that critical mass of infrastructure and when that happens your margins then actually start really increasing significantly faster than your volume or revenue growth and it's because of lower marginal spend against every incremental case if you will, because you've built out that critical mass, so we will continue to buildout and grow the emerging markets as we approach the critical mass, you'll start seeing margins improve and coming back toward the Company average but today, yes, they are less than the Company average.

That's exactly what we would expect.

That's why we would expect to see even in 2010 probably some continuing pressure on total price mix but just being very specific, we had positive pricing in every geographic group for the full year 2009.

It was geographic mix that was a negative.

We expected it.

We want it because we want to grow every market which we operate, so we're very happy with it.

We expect it could happen again in 2010.

Overall we'll be fine and long term we'll definitely then come back to a more balance particularly as the rest of the world starts emerging from this economic environment in which we operate today.

Just one other commentary on that.

You've heard me often say that when a country reaches around 100 per capita something pretty incredible happens and that the pace of growth of bottom line significantly exceeds the pace of growth of revenue and volume and revenue, and I think that is the case.

It doesn't only start exactly at 100 per capita.

It starts, begin to show its face, positive face even at lower per capita and one other just reference point I think would maybe be interesting.

If you look around 10 years ago and you look at the Japan's profit base for us in the world, it was 10 years ago as a percent of total was more above the 20s.

In fact sort of mid 20s and over the last 10 years we've grown the base significantly of our Japan profit base, but now, as a result of what's happened in the rest of the world it's only midteens and not because Japan isn't growing, it has grown.

It's because of what's happening in the rest of the world, just as a reference point.

Got it, thank you.

Thank you.

Our next question is from Christine Farkas with Banc of America Merrill Lynch.

Thank you very much.

My Asian questions have been answered but I do want to follow-up on some comments about marketing spend.

Gary, you indicated a step up in marketing in the Fourth Quarter.

I'm curious how much of this is ahead of the Olympics and the World Cup and will we see easier comps when we cycle that going into 2011?

Thank you.

Yes, thanks, Christine.

What we saw is that we saw our business start improving in the fourth quarter obviously with the 5% volume growth well ahead of all of your expectations I think and as part of that, we saw that we could start improving our marketing and lifting it up and increase the spend in the fourth quarter, and remember the way we did marketing normally it's on a curve so it's spread across the full year but when you get to the fourth quarter you catch it all up and we started spending more and it all caught up in the fourth quarter, so that will give us some easier comp in the fourth quarter of next year but really it was not so much directly to the Olympics and FIFA World Cup in the fourth quarter, particularly Olympics because we had those already planned and we're implementing those programs as planned, so this was just we saw the opportunity to increase.

We did increase somewhat from where we had been full year as we saw our business actually doing very well in the fourth quarter.

Okay, that's helpful, thank you.

Thank you.

Thank you.

Our next question is from Carlos Laboy with Credit Suisse.

Good morning, everyone.

Good morning.

Two questions, one for Gary and one for Muhtar.

Gary, you've accumulated some of these great returns on minority equity investments you've made in pot letters over the last 20 years and those minority investments were made when they had issues so is the reason for making those equity investments, do you see an opportunity to sell down some of those positions and to reallocate some of that capital to new opportunities?

Can you give us some guiding principles on how you think about unloading minority equity investments?

Yes, Carlos, thanks for the question actually.

When you're talking about the equity investees, I assume you're talking about the ones that we own more than 20% of but not the BIG consolidated investments.

I just want to con firm so I'm answering the right question.

Correct.

The equity investments in bottlers that are independent.

Yes, and what I would say there is that we have made those investments and have in fact realized some very nice returns on them.

It's actually you have to look at each one individually to understand exactly what our investment percentage should be.

I would say that in all of those, we would want the minimum to always be 20%, the maximum in the 40s somewhere, but each one is different and it kind of depends on the ones you're talking about, so I can't give you a hard and fast rule on any of them, but we do evaluate them every year as we go through our strategic plans every Summer and are looking at all of them but there is no hard and fast rule, so without naming names, I can give you an example.

One of our equity investees, because we and another shareholder together jointly control the bottler, we would not want to reduce our investment because as a group, we probably lose control, so that one is kind of where it needs to be, so there are different reasons for different investment levels but we're constantly looking at those.

To the extent circumstances changed and we no longer needed an investment at the level that we were, we will definitely look at them and might reduce them in fact but we reduced them in an orderly fashion so that we would not create any issues of those shareholders overhangs on the stock and that kind of thing but as of today there are no plans to reduce any of those.

Great, thank you, and Muhtar, could you comment briefly, expand briefly on the Philippines?

What bucket do you see it in?

Is it in the ready now?

It in the ready in one or two years or is it in the ready in three years plus kind of time frame?

Yes, Carlos, well firstly, Philippines had a good quarter and our investments and the leadership of our bottling investment group is beginning to show and the Philippines was one of those markets actually that also was very negatively impacted as an emerging market from the macroeconomic environment but I think we are hopeful as we move forward that we will continue to see positive results for our business in the Philippines; however, I'm not going to give you which bucket it's in.

You know that from what I'm saying that we still in the midst of restructuring routes to market in the midst of restructuring production alignment across the whole country, across Ireland, so we have some more work to do in the Philippines before we can say that we are where we need to be.

That's helpful, thank you.

Thank you.

Our final question today is from Judy Hong with Goldman Sachs.

Thanks, good morning.

Muhtar, a couple of questions on Europe.

First among the developed markets, you're looking at pretty nice improvement in markets like Germany and France, so I'm just wondering if you could give us some perspective on what's driving that improvement in those markets and then with what's going on in Greece, do you see any risk that the issues there and some of the regions around there could impact consumer demand in Europe broadly and then I have a question on currency for Gary.

Yes, I think, Judy, as far as Europe is concerned, I think we have seen some good results in our business in 2009 in Western Europe.

In fact France was one of the Top 10 contributors of volume in the overall in 2009 for the full year, so I'm very pleased with the results and growth rates in France and Italy, in Germany in the quarter and Britain, but I think Europe is a, Eastern Europe is much more troubled than Western Europe.

It's an anomaly to think in that respect but it is.

Southeast Europe, Romania, Bulgaria, the former Yugoslavia, as well as Russia, Ukraine, troubled in terms of where the consumer mind set is, but I think overall, our marketing, our brand strength, our marketing, our investments, our alignment with both Coca Cola Enterprises as well as Coca Cola Hellenic has proven results in some of those markets in Western Europe like Italy, like France, and I think we continue to invest heavily in our brands.

We continue to see opportunities for growth and as far as issues in terms of what's going on in Greece, I think the international community will come to terms and I think we're close to seeing some finalization on what will happen in terms of the current financial situation in Greece.

Okay, and then Gary just in terms of currency clarification, you talked about the 2010 slight benefit in terms of the FX impact.

Historically, you've talked about the practice of hedging on the hard currency, so can you clarify that at this point you're protected in terms of the downside risk on the Euros and really whatever you get on the upside with respect to Euro strengthening against the dollar that will flow through in terms of the EPS impact?

Yes, Judy, thanks.

Yes, we continue to hedge our normal hedging programs are in place.

We do use an option strategy such that we are protected against the downside and we maintain and keep all of the upside, so Euro for example, as it really weakened over the last couple of weeks due to just kind of risk aversion, we actually went into and are using our hedge coverage so we're covered, we were using hedge coverage yesterday when the Euro was down at $1.35, $1.36, we're seeing it start to strengthen again some today, so yes, we've got the upside on the Euro.

I think we'll wait and see.

I think the markets have probably and this is going to be a currency forecast and you know what those are worth but the markets probably have overreacted a little to risk aversion, have probably gone into the dollar and strengthened the dollar a little more than it probably should have.

I think that will work itself out over the coming weeks probably four, six weeks, eight weeks, whatever particularly with IMF, it looks like going into help Greece today.

That's going to help significantly I think, so I think we'll see the dollar continue long term to weaken with what there will be these risk aversion spikes but as that happens we continue to put coverage in place to cover ourself against that.

Okay, thank you.

Thanks, Judy.

Thank you.

This concludes our question and answer session.

I would now like to turn the call back over to Mr.

Kent.

Thank you, Gary and Jackson.

Before we conclude this call, it's my pleasure to remind all of you that Jose Reyes, our President of our Latin America Group is going to speak at next week's Cagney event.

He will provide a great overview of our latin American business where we are realizing strong success.

Our achievements in Latin America served all of us as a wonderful example of the long term growth opportunities that exist for the Coca Cola Company and Coca Cola system around the world and in closing, we feel very good about our Company today and where we are headed tomorrow.

We see great opportunity ahead in all of our Global markets and remain intently focused on executing our key strategic priorities.

All the while generating long term profitable growth for our system and sustainable rewards for our shareholders.

Thank you for joining us this morning.

Thank you.

This concludes today's conference.

Thank you for participating.

You may disconnect at this time.