可口可樂 (KO) 2010 Q1 法說會逐字稿

At this time, I would like to welcome everyone to the Coca-Cola Company's first quarter 2010 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 the interest in this call, we request a limit of one question per person.

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

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

I would like to now introduce 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 for 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 report.

In addition, I would also like to note that we have posted schedules on our Company website at www.thecoca-colacompany.com under the reports and financial information tab and in the investor section, which reconciles certain non-GAAP financial measures that may be referred to by our senior executives and our discussions 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.

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

Thank you, Jackson and good morning, everyone.

Let me begin by saying that I'm very pleased with our first quarter results.

We once again delivered consistent, profitable and sustainable growth inspired by our 2020 vision and also fueled by our innovation in global reach.

Despite ongoing challenges in global economic conditions, we continued to invest in our business and build our brands while generating strong and also steady cash flow.

We are competing and winning around the world as one company with our global bottling partners, leveraging our unique scale as well as the increased presence of our brands.

As we announced earlier this quarter, we are taking decisive actions to strategically advance our North America business and further strengthen our franchise system in Europe.

We remain confident in our ability to execute our 2020 vision thus laying the foundation for consistent long term sustainable growth.

As I've mentioned on numerous occasions, we see tremendous growth opportunities for our system and for the entire non-alcoholic ready to drink beverage industry over the next 10 years and beyond.

This past quarter, despite the lingering effects of the global recession, we delivered solid 9% operating income growth on a comparable currency neutral basis.

Overall, global economic unit case volume grew a strong 3% with a significant number of international markets fueling this growth, and our growth in countries with a per capita of less than 150 was an exceptional 10%.

Let me take a moment to share in more detail our performance across our international markets.

In Eurasia and Africa, we saw broad based growth of 11%.

This increase was lead by India up a strong 29% and cycling 31% making this our seventh consecutive quarter of double digit growth in this fast growing nation.

And while sustaining this high growth rate in India in the coming months will likely depend on weather patterns during the upcoming monsoon season, we're confident in our ability to deliver consistent double digit growth for the balance of this year.

We also saw double digit growth in Turkey, Northwest Africa, Southern Eurasia and the Middle East.

Notably, we are beginning to see sequential improvement in Russia, which was down 1% lead by the strong performance of brand Coca-Cola which grew 12% and gained share this quarter in Russia.

Latin America maintained its steady and consistent performance, up 4% overall driven by strong 12% growth in Brazil.

Our Latin center unit was up double digits lead by Columbia, which grew 19%, while our South Latin unit was up mid single digits.

Mexico, impacted by unseasonably cold weather, was down 2% but as the weather has improved this trend has reversed with our business generating positive growth in the month of March.

And despite these weather challenges in the quarter, we continue to gain total non-alcoholic ready to drink beverage share in Mexico driven by both our sparkling and our still beverages.

Our Pacific Group continued to expand, up 5% in total and lead by double digit growth across Korea, Indonesia and several other markets.

Our volume performance in Japan was a sequential improvement on our performance in the last two quarters down 3%.

Despite ongoing economic headwinds we are experiencing steady improvement in the critical vending channel, as well as strong results in the convenience store channel.

This lead to better performance for our Georgia coffee business.

Our trademark Coca-Cola brands in Japan keep widening the gap against our primary competitor lead by Coca-Cola Zero, which was up 24% for the quarter.

In fact, since 2005, we have grown trademark Coca-Cola incremental unit case volume in Japan five times more than our main competitor has grown its trademark brands over the same period, and our fast growing eco-friendly national mineral water brand launched last May is building on its market share leadership.

In less than a year, it has become the number one packaged water brand in Japan.

China unit case volume grew 6%, including double digit growth in the latter half of the quarter.

This performance comes on the heals of a strong fourth quarter and a great finish to 2009, which was lead by growth across our portfolio as well as new product launches.

Over the past six month,s our volume grew a solid 16% and while we may see volume swings from quarter to quarter, this 16% growth over the past six months was the head of our primary international competitor.

For perspective, our China business has generated more than 100 million incremental unit cases this past six months and continues to be twice the size of our primary international competitor on an annual basis, and we are building momentum across our entire portfolio.

We are advancing our sparkling business in China behind strong innovations such as the launch of Spritea, which taps into the combined popularity of green tea and Sprite.

We're expanding our winning still beverage business through the ongoing growth of our industry leading juice and juice drink beverages and our Minute Made pulpy super milky dairy brand, and we are kicking off an exciting new Hajime Tea portfolio launching Hajime Jasmine Tea.

And we've shared before -- and as we have shared before, we are just getting started in China and remain resolute in our commitment to invest for the solid long term growth.

Now, moving to Europe.

Despite the continuation of difficult economic conditions in Europe, our unit case volume growth was even for the quarter.

This was an improvement over our 2009 full year results with growth across France, Belgium, the Netherlands and North Central Europe.

Further, our Company owned bottlers in Europe grew well ahead of the region, with Germany up mid single digits and Nordics up low single digits as we built towards refranchising both of these operations.

In the United Kingdom, we were pleased that our trademark Coca-Cola brands became the first to top the 1 billion-pound mark in annual UK grocery retail sales.

We are excited about our recently announced increased investment in Innocent reflecting our belief in the long term growth potential of the smoothie business.

Lastly, and in alignment with our 2020 vision, we recently reorganized our Europe business from 10 units, 10 business units to four making it easier for us to do business with our bottlers as well as partners as we gain significant scale, speed, and simplicity.

In total, these international performance results are a testament to our seasoned operating team, which is executing our 2020 vision quickly and also with great discipline.

I can assure you that our strategy and focus to build the long term equity of our brands remains decisively clear.

This focus is reflected in the volume and value share gains we continue to realize together with our bottling partners around the world.

As a system, we are pulling together to communicate with our consumers, invest in our brands, and build for a better tomorrow.

Now, let me briefly explain each of these actions.

First, communicating with our consumers.

Last quarter, I highlighted some of the important global platforms we are leveraging in 2010 to communicate and connect with consumers around the world.

We just concluded our successful Vancouver Olympics program, which helped improve trademark Coca-Cola brand equity scores with teens in Canada and these improvements are flowing to the bottom line as we have grown dollar share for trademark Coca-Cola and system revenue in Canada to their highest levels in years.

Meanwhile, our FIFA World Cup trophy tour carries on with its journey all around the world.

The Tour has now traveled to 27 international markets, engaging thousands of consumers and earning an average of $2 million of media value in each and every country visited.

In addition, we are finding new and innovative ways to leverage our FIFA World Cup platform to more effectively communicate with consumers.

For example, we launched POWERADE's first ever global marketing campaign, which includes an innovative online experience.

A series of digital films highlight the functional benefits of POWERADE and also showcase a never ending football game played around the world.

This campaign has already launched on YouTube in Brazil, Mexico, Italy, Spain and 16 more countries.

We're also teaming up with customers around the world to bring the passion and the excitement of the FIFA World Cup to life for our consumers.

A great example is the marketing program we developed together with Wal-Mart, by using a jointly produced global toolkit, we will drive incremental sales for Wal-Mart and our Company while making the excitement of the World Cup more affordable and accessible for every day fans.

Finally as the global partner of the 2010 World Exposition in Shanghai, we expect to host over 100 million visitors from China and around the world at our Coca-Cola Happiness Factory Pavilion, engaging consumers, customers and other key global stakeholders through an extensive marketing program that will be executed during this exciting 184 day event.

So these are just a few examples of how we are connecting directly with our consumers across many, many nations in a way that only our Company, with our global footprint, can do.

Secondly, we are relentlessly focused on investing in our brands.

Let me start with sparkling beverages where I have already highlighted some of the many countries where we experienced sparkling growth this quarter.

Brand Coca-Cola grew in line with our worldwide volume.

Coca-Cola unit case volume grew over 1 million unit cases in 24 different countries.

We were very proud to see Diet Coke, for the first time since its introduction, tie for the number two brand position amongst all sparkling brands in the United States behind only Coca-Cola as reported in Beverage Digest last month.

As for Coca-Cola Zero, it is still driving growth for us in every operating group, increasing double digits for the 16th consecutive quarter in North America and 7% on a worldwide basis.

Just like we shared in our recent investor event, we intend to keep growing trademark Coca-Cola, the epicenter of our business, in 2010 and well beyond.

And we're building on our track record successfully introducing cross-category innovations by launching several new beverages including Spritea in China, which I mentioned earlier, as well as Fanta White, a new sparkling lactic drink which will launch in Japan next week.

We are innovating and expanding our still beverages as well.

We're launching new brand extensions across multiple markets such as Vitamin Water Zero in North America and Minute Made Nimbu Fresh Lemonade in India, both are gaining great momentum and traction.

We're expanding our successful innovations across borders such as our pulpy juice drink innovation created under the Minute Made trademark in the Pacific and now also available under the del Valle trademark in Latin America.

Altogether, our pulpy brands are now present in 12 countries.

We also have plans in place to take Hugo, our juice and dairy innovation launched in Chile last year into markets in Latin America, other markets in Latin America later this year.

We're leveraging best-in-class programs across borders, as in the case of Vitamin Water, where we are implementing a fully integrated 360-degree Summer program in almost all of our international markets.

We are leveraging best practices from Canada, Great Britain, Japan and Mexico to insure excellence, consistency and impact for this great brand.

Thirdly, we're building for a better tomorrow, and are fully committed to growing in a sustainable and responsible way in partnership with our consumers, customers and communities.

To the benefit of all our consumers, we're working in partnership with the first lady of the United States on a program to end childhood obesity in a generation.

We've announced our clear on calories committment in support of the special effort.

While I already highlighted an example of how we work in partnership with global customers, in the end the proof is in the results.

That is why we were particularly pleased to see our business with our top 10 global retail customers grow mid single digits in volume and double digits in revenue in 2009, ahead of our total Company growth.

Lastly, a great example of our efforts to support our communities is our launch of Odwalla's Haiti Hope, Mango juice drink in the United States.

100% of the profits of this beverage will go to support the development of a sustainable fruit industry and thousands and thousands of families in Haiti.

As we build these relationships for the future, stakeholders from around the world are recognizing our performance.

In the past few weeks we've been honored to receive several acknowledgments.

Fortune Magazine ranked us number 10 in their annual list of the world's most admired companies, number one overall in beverages and number one across multiple beverage industry attributes including innovation, financial soundness and social responsibility.

Paris Interactive ranked us number eight on their annual list of most admired US companies as well as in the top five envision and leadership as well as financial performance.

Corporate Social Responsibility Magazine ranked their 100 best corporate citizens for 2010 and rated us at number eight, ahead of all other beverage companies, and just this week, Business Week moved us up in their annual ranking of the world's most innovative companies positioning us as the most innovative consumer goods company in the world.

Our eco-friendly [elohouse] bottle was recognized by both the Asian Marketing Effectiveness Festival, where we won their platinum award and Japan's Ministry of Environment which awarded us with their grand prize for global environment.

And Wal-Mart named us their Supplier of the Year in China while 7/11's franchise system did the same in North America.

Staying in North America, our volume results declined 2% for the quarter, consistent with our 2009 results.

Our unit case volume for sparkling beverages declined 1% in the quarter in North America showing sequential improvement.

Our still beverages were down 2% for the quarter although we were able to still hold value share.

Importantly, our newest billion dollar brand simply grew 26% in the quarter while strong POWERADE activity, driven by effective NCAA March Madness programs, helped drive volume and value share gains in the sports drinks category.

Now, let me turn to our biggest news of the quarter and update you on the great progress we've made since announcing our intention to acquire CCE's North America business.

As previously announced, we have appointed Brian Kelley to lead the integration of the Coca-Cola Company's and CCE's North American operations.

Brian's integration team announced internally last week consists of leaders from both the Coca-Cola Company and CCE whose operating credentials and knowledge of the North American market is second to none.

I have the most -- I have the utmost confidence that this team will deliver on our integration goals.

Earlier today we also announced our post-integration leadership team for North America.

Steve Cahillane, currently President of the North American business unit for CCE will assume the role of President and Chief Executive Officer of the new Coca-Cola Refreshments once the Company's acquisition of CCE North America has been successfully concluded.

Sally Douglas will continue as President of Coca-Cola North America.

Both Steve and Sandy, who have executed very effectively and in concert with each other for the past two years, will report directly to me.

This will be the first time ever that our North American bottling can, fountain and juice businesses, will be produced, marketed and sold by an integrated 21st Century service organization.

We're truly excited by this prospect.

And as I've said before, we're taking decisive action in North America from a position of strength.

I am excited that both Steve and Sandy, who have been so instrumental in driving positive change in North America, have agreed to lead our efforts to capture the great opportunity that this important marketplace has to offer.

Let me reiterate my fundamental view about our business in North America.

Growing here is not optional.

It is essential to the health and future of our entire global system and if you look at the external forces shaping our 2020 vision, especially changing demographics, North America is at the heart of many of these trends.

The US population is growing and will increase by over 30 million by 2020, out pacing the absolute population gains fast growing countries like Brazil, Egypt and Indonesia.

And with over 30 million teens in 2020, the teen population of the United States is projected to be greater than that of Brazil, Mexico, Egypt and Vietnam.

Clearly there is great opportunity in our North America business across our entire portfolio and particularly with trademark Coca Cola.

Today, our favorite brand scores are higher than they've been in over a decade.

We believe innovative marketing, merchandising, strong execution and clear communications will be the key to restoring trademark Coca-Cola growth in North America, just like we were able to successfully bring back growth to Coke in Japan and the United Kingdom.

The acquisition of CCE's North American business and the refranchising of our European operations are consistent with our 2020 vision.

This evolution in our business will give us the financial flexibility and marketing and distribution leadership required to accelerate our business in North America and Western Europe, while also strengthening the long term health of our franchise system.

As we work to create the world's premier, low cost and effective beverage manufacturing and distribution business, one with a fully empowered and centralized national sales organization, we are confident these actions will result in greater value for our shareholders.

Let me close by saying that it is clear that consumers are not yet out of this crisis and still remain confused due to the extended economic headwinds around the world.

Therefore, given this environment, there still maybe bumps along the way this year and we may continue to experience some quarter to quarter volatility.

That said, we confidently stand behind our long term growth targets and intend to keep winning together in 2010 growing volume, share, and profits.

As we look ahead, we firmly believe that there is no better business to be in than the non-alcoholic ready to drink beverage industry, and we remain intently focused on creating shareholder value.

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

Thanks, Muhtar, and good morning, everyone.

As Muhtar indicated, we're off to a good start in 2010 delivering consistent sustainable and quality volume and profit growth in line -- excuse me, I've got a cold and from the pollen here, so you'll hear my voice -- in line with our long term growth targets.

Our first quarter results are a clear indication that we have the right leadership in place with the right strategic plans and capabilities to achieve these goals.

One quick reminder and as highlighted during our last earnings call, our comparable results for this quarter reflect the impact of the deconsolidation of certain entities, primarily bottlers, due to changes in accounting guidance as per FASB requirements.

To facilitate comparisons we will post details of all of these adjustments by quarter on our Investor Relations website later this week.

As outlined in our release, we reported comparable earnings per share of $0.80, up 23% versus prior year.

For the quarter, comparable currency neutral operating income was up 9%.

Further, our business delivered comparable net revenue growth up 7% driven by a 3% increase in concentrate sales and a 6% positive currency impact, partially offset by geographic mix.

As anticipated and as we indicated in our last earnings call, we continue to see many of our emerging markets recovering from the global recession at a quicker rate than our developed markets, resulting in continued pressure on our geographic or country mix at a consolidated level.

This is a natural outcome for a company like ours with such an extensive global footprint.

At the same time, we effectively executed our revenue growth management initiatives to realize positive pricing.

This enabled us to grow global value share for the 11th consecutive quarter while maintaining global volume share for the quarter.

These results reflect our continued effort, focus and committment to win in every market as we come out of this global crisis.

Our objectives remain steadfast, strengthened the health of our brands and drive share gains.

We anticipate that our positive revenue strategies will be offset by geographic mix, therefore, as we said in the last earnings call, we expect our price mix to be even for the full year.

As we also said in that call, we would expect to see a return to positive price mix over the long term, the global consumer sentiment steadily improves.

As for our cash flow from operations, this increased 52% in the quarter to $1.3 billion.

This growth was primarily driven by our improved performance and the cycling of a pension funding of about $200 million in the prior year.

Now let me explain some of the factors impacting our quarterly results and full year trends.

Our comparable currency neutral cost of goods was down 3% for the quarter as a result of the shifts in mix.

On a full year basis, we would expect our cost of goods to grow in a more normalized low single digit range.

comparable currency neutral SG&A expenses were down 1% in the quarter.

This reflects the timing of marketing expenses and it also reflects the continued benefits of our productivity initiatives, which we have pursued on an ongoing basis for the past two and a half years.

We anticipate our full year operating expense leverage will come in in the low single digits.

Next I want to call out two items related to North America.

First, related to the CCE transaction, our integration planning has progressed quickly and in an orderly fashion under the leadership of Brian Kelley and his team.

As Muhtar mentioned before, we're excited about the continued leadership both from Steve Cahillane and Sandy Douglas that they will bring to our North American business.

As for the approval process for the transaction, we have not experienced any delays and still expect a early fourth quarter close.

Second and as part of our ongoing work to strengthen our economic profits in North America, we've made a strategic decision to exit the low margin retail spring water segment of the water category.

Accordingly, we have eliminated the retail spring and customer brand water volume from our reported volume for both 2010 and 2009.

This change did not have any impact on either the Company or North America's reported volume results this quarter.

Now let me take a moment to provide our outlook and some of the other key factors we see impacting this year.

As expected, we benefited from currency in the first quarter.

We still believe currencies will have a slightly positive impact on operating income for the full year with this benefit weighted towards the first half of the year.

On productivity, we're on track to deliver $500 million in annual savings from our initiatives by the end of 2011.

And lastly, with regard to share repurchase, let me reaffirm that while we are out of the market until we close the transaction with CCE, we are still committed to repurchasing at least $1.5 billion of the Company's stock in 2010.

In conclusion, we're only just beginning to emerge from the global recession and expect the recovery to be moderate as consumer outlook slowly improves, and our seasoned management team is clearly taking the right actions, executing the right strategies in this global environment to drive our business for the long term and build on our track record of success.

We remain confident and will continue gaining global share while enhancing the health of our brands in order to drive long term profitable growth and value for our shareholders.

Operator, we're now ready for questions.

Thank you.

(Operator Instructions) Our first question comes from Bill Pecoriello with Consumer Edge Research.

Good morning, everybody.

Gary, I just wanted to follow-up on the price mix, you still see it even on the full year.

So just looking at Q1, was it just a matter of some of the timing and the laps?

I know it's your toughest compare, you're lapping 2% price mix from year ago and then it deteriorated as the year went on, but if you could help us understand how much the geographic mix versus underlying price or product mix impacted the quarter and why it's getting better balance of year, again is it just the comps?

Thanks.

Yes, thanks, Bill.

A couple of different things.

One is what we're cycling, but more importantly, it is a combination of a couple things.

One is obviously we're getting significant growth from our emerging markets and when those markets, which are lower margin, grow faster, you're going to get some negative pressure from geographic mix, and at the same time our pricing mix was actually positive in the quarter.

But the other impact that is totally timing and giving me a lot of confidence on where we'll come back, even for the full year, is that as I look at the different markets around the world and I look at the timing of gallon shipments of concentrate, while gallons and cases were pretty much in line for the quarter, within certain high margin countries, Japan, the US, South Africa, for example, the gallons were behind cases and this is a quarter where normally the bottlers would be stocking up getting ready for the Summer season.

Those are natural timings.

Those will reverse and so that gives me a lot of confidence that as we look at the price mix, it's going to come back, we think even for the full year.

Great.

Thank you.

Thanks.

Our next question comes from Marc Greenberg with Deutsche Bank.

Thanks, good morning.

My question relates to Japan, which has been soft for some time.

I appreciate that you're gaining share and that new products are driving volumes, but trends still remain negative.

How should we think about the longer term expectations for Japan and how might that impact the mix over time for the portfolio?

Yes, Marc, thank you.

I think no question that Japan remains a very challenging environment from a macroeconomic point of view, but also from a demographic point of view, but also, we have a tremendous business in Japan, tremendous partners in Japan and we are, as you know, busy trying to leverage the scale in Japan and trying to put together productivity measures in Japan that we can then refocus on further investments in our brands.

So I expect Japan to remain challenged, but I think we see some improvements in the at work market in Japan, in the vending channel in Japan compared to let's say eight, nine, 10 months ago.

We're gaining share in Japan, particularly in the ready to drink coffee, very critical ready to drink coffee segment category and our sparkling beverages are very healthy in Japan.

Coca-Cola Zero continues to do really well and also some new product introductions also continue to do very well.

It's a very complex market.

Coca-Cola Zero, as I said, was up about 24%, but you can look at Japan as in the following mindset.

Japan will remain challenged but we expect that there will be some sequential improvements going forward.

Thank you.

Next is Wendy Nicholson with Citi Investment Research.

Hi, could you talk about the shift in the timing of the marketing spending that you referred to in North America?

I was surprised by that given the Olympics and Super Bowl.

So where is the incremental and higher level of spending coming over the balance of the year and how significant is that?

Thanks.

Yes, thanks, Wendy.

This is Gary.

You know that we're on a sales curve and so we recognize marketing over the year and really what you're seeing impact in the first quarter is that the way our marketing was spread last year, it's what we're cycling.

So you're seeing the reported marketing pretty much even in the quarter, but it's going to be up in the mid single digits or more for the year, and so you'll see that shift starting in Q2, 3, and 4 but it's really a matter of what we're cycling, and nothing more than that.

And in terms of the mix of the spending, obviously I assume you're spending heavily behind Simply, but where else is incremental spending coming over the balance of the year?

Well, again, we're spending right on what we had budgeted to spend.

It's really how it's being recorded and what we're cycling versus the prior year.

So we're having marketing increases in spending across all the geographies around the world.

The largest increases obviously would have been in Vancouver with the Olympics, but particularly the Summer with FIFA World Cup, but that's in the spread as well across the year.

Great.

Thank you so much.

Thank you.

Our next question comes from Kaumil Gajrawala and he's with Goldman Sachs -- or he is with UBS.

Yes, I'm with UBS, hi, everybody.

I guess, two questions.

First roughly 2% impact on revenues from the accounting changes, that's roughly what we should expect for the rest of the year?

And then second question on productivity, how much of it was in the quarter and how far along are you, obviously you're confident in hitting $500 million by the end of 2011, but how far have we gone so far?

Hello, Kaumil.

Let me just reference productivity and then I'll pass it on to Gary about the first part of your question.

On productivity, I think we're seeing benefits of not just this past few months of work, but also the work that we've put into place over the last 24 even 30 months and this is obviously a long term, very long term, but also very important and effective project.

And I'd say that we are on target with realizing our goals through 2010, but also putting into place all of the necessary work that will assure that we realize also our goals in 2011, and as you know, the target is $500 million by 2011.

And on the accounting changes, Kaumil, that's why I mentioned that we're going to put details out by quarter and for the year out on the website later this week, and what we realized is some people, when they had modeled it didn't get it exactly right.

So it is 3% impact in the quarter on consolidated revenues, but then there's intercompany eliminations, so it's actually 2% net of the eliminations, 2% on operating income, and 0% at pre-tax income or net income, because you come back to exactly the same place.

But, it was up about $115 million reduction in net revenue in the quarter from the deconsolidation of those bottlers.

Got it.

Thank you, Gary.

Next is Christine Farkas with Banc of America.

Thank you very much, good morning.

I'm hoping to dive into North America a little bit.

Correct me if I'm wrong, but this is the first quarter I've seen where sparkling outperformed still beverages and I'm wondering if mix had something to do with your margin improvement or if there were other factors?

And speaking to the still beverages, certainly cycling a strong POWERADE comp, but can you talk about some of the other non-water still beverages and the performance in the quarter?

Thank you.

Thanks, Christine.

You're right in pointing that out and I think we're also pleased with that and that is the testimony to, not only again work that's being done in this past quarter but the work that we've been doing in our brands and strengthening our brands particularly sparkling brands.

The investments that are going into sparkling brands for the last year and a half, and again, our brand metrics for our sparkling brands are healthier than we've seen them in many, many years, Coca-Cola Zero again had a very very strong quarter in the United States.

And again, still tremendous room to grow in the United States going forward.

So I think packaging is working.

Our $0.99 single serve is working.

The contourization that is in now of more than 50% of the country and getting tremendous distribution coverage is working very well.

So all of those programs that we've put into place last year and even at the end of 2008 are beginning to bear fruit, so that's why we see an improving landscape in the sparkling category in the United States and our brands in that category.

As far as still beverages are concerned, I think sports POWERADE, again cycling a very strong prior year quarter at double digits growth from last year, grew this year which was very pleasing.

We, I think gained volume and value share in the juice and juice drinks category as expansion of Simply Orange and both packaging and cold channel lead to another quarter of double digit growth which was very pleasing.

And again, we also made the strategic decision to exit the lower margin retail spring water segment of the water category and accordingly we've eliminated the retail spring and customer brand water volume from our reported results for 2010, as well as 2009.

And I can reiterate this change did not impact either the Company's or our North America's reported volume results this quarter.

Again, I think Vitamin Water, we're very excited with the changes we've made, new product innovation of Vitamin Water Zero as well as packaging, as well as advertising and we expect to deliver stronger results through the balance of the year with again that strong brand.

Our energy brand NOS continued to grow very effectively in the quarter, as well as also our Smart Water.

So I think overall, those are the sort of important points that I'd like to make about our North American business that you asked, Christine.

Thanks for that, Muhtar.

I'm just wondering if on the Philippines the momentum has continued and you saw positive growth in the first quarter?

I'd say I think all of the hard work our BIG group is doing in the Philippines is beginning to pay dividends and I'm pleased, although not excited, because I think there's still room for improvement.

Thank you.

Next is Judy Hong from Goldman Sachs.

Hello.

Thanks, good morning.

Muhtar, one is a quick follow-up in terms of North America.

You've talked about sparkling being down 1% in the fourth quarter.

How much of that was really category getting better and maybe you can talk about your volume and value share performance, specifically in sparkling in North America in the quarter.

Well, I think if you look at -- we have certainly had good results in our value share in North America in sparkling and I'm pleased with that.

I think the category -- it's too early to say whether the category is beginning to improve.

All I can tell you is that our food service business, our fountain business, which is a great Litmus test for consumer sentiment, we are seeing some -- we saw some improvement in the latter half of the quarter but again, as I referenced to Christine's question, it's really important to understand that these packaging changes and also our open happiness campaign, our branding, our connection with the Olympics property in the quarter, all of that played very well into our brands and again, our brands are getting healthier.

Our packaging, as I said, is working 50% coverage in the entire United States on our contourization for two liter.

The pricing for two liter, again, versus the single serves are in a much better place than it was back 18 months ago.

All of that is beginning to show -- the logic of all of that is beginning to pay dividends.

Okay, and then just in terms of Europe, Germany clearly second quarter in a row where volume was up pretty nicely here.

Can you talk about what's been driving the improvement in that market?

And then moving to the UK, we've heard the weather was not really great in that market in the first quarter, so how did volume do in terms of the UK, because I don't think you gave us the volume number for the UK market.

Yes, UK was slightly down, but I think really important to understand is about Germany is what is happening in Germany has got nothing to do with this past quarter or this past year.

Germany was not a market that needed to be fixed.

Germany as you know, it took us years to try to insure that we could put the right structure in Germany.

We closed the deal finally and then in 2006 and we've been busy putting ourselves to work to get Germany right.

So it's really important to understand that this is not a program that suddenly came into being last quarter or last year.

We've been working on getting Germany right.

Is Germany right?

I'd say probably more than certainly 50% right and I am confident that going -- looking into the future, Germany is going to start yielding some good dividends as we move towards franchising Germany in the period that we've announced.

But think of it along the same lines as what we're doing in the United States.

These are long term programs that we commit ourselves to fixing major markets.

Germany was a big one internationally and now we see it's on the way to repair and it's finally in the right home.

Okay, thank you.

And the next question comes from John Faucher with JPMorgan Chase.

Yes, thanks.

A quick question, on the North America volume, I apologize for following up on this, Muhtar, you said it didn't affect the -- the loss of the spring water business didn't affect the volume numbers.

Is that because you excluded it from both years or was that because it was so small that it was just less than 1%?

Because we excluded it from both years, but Gary can give you more details on that, but the answer is we excluded it from both years.

Yes, John, we excluded it from both years, but it's very small and did not impact the volume growth rate of North America at all.

It's less -- on a full year basis, it's less than 1% of North America.

Okay, great, and then going back to the Japan question that Marc had and I guess as we look at the price mix in the Pacific, how much of the price mix issue, you talked about the strength of CSDs, how much of the price mix issue in Asia is related to lower non-carb volumes, this strategic push into CSDs and the channel mix that entails?

And I guess is that one of the mix problems that we should expect to improve over the next couple quarters or is that one going to take a little bit longer?

Thanks.

Yes, John, I think it's more related also to the channel in Japan and the channel was under tremendous pressure this time last year and remained under tremendous pressure for all of 2009.

And as I mentioned in an earlier comment, we see beginnings of some light there in the very critical vending channel and I think that is much more critical to the revenue and to the NSR than the different product categories.

Okay, and then --

Also CVS I think we're beginning to see some really good developments, positive developments in the CVS channel as well, but I think vending, which is a really critical channel is beginning to show some improved lights.

And then one follow-up there, which is when you look at that impact, whether it's the channel piece or the mix from non-carbs into CSDs, how much of the global mix decline do you think that is?

Is that a small piece or is that a pretty sizeable piece, just the Japan portions?

I would say on a global basis it's not that sizeable.

Okay, thank you.

And our next question comes from Mark Swartzberg, with Stifel Nicolaus.

Yes, good morning everyone.

Muhtar, on Mexico, could you give us some more color on the performance in the quarter including that sequential improvement and share with us more on your outlook for Mexico?

Yes, I think first, again, the portfolio is working very well in the Company.

I just want to reiterate as I get into the Mexico details, because in a quarter where Mexico was down and a quarter where China grew mid single digits, we achieved a strong, I may add, organic 3% plus growth in our global volume.

And I think that's a testimony to how well we're doing all across the world and our brands are doing all across the world and our investment programs are paying off all over the world.

So that's point number one.

Number two, on Mexico, very, very unseasonable weather and I think essentially we have seen improved results, positive rates of growth in the latter part of the quarter and I think that leads me to believe that we will get back to trends in Mexico.

Thank you.

Next is Lauren Torres with HSBC.

Good morning.

Another market you mentioned a sequential improvement was Russia.

so I was curious, coming off a rather difficult year last year what kind of changes are you seeing in that market this year and I think maybe also central and Eastern Europe some similar comments may apply.

so if you could just give more color on what you're seeing with respect to the recovery in those Markets?

Lauren, I think I see it this way.

Russia always comes back -- goes deeper and comes back quicker and with more rigor and so therefore, that's what we're going to see I believe in Russia.

It will come back and you'll see it more market return of the Russian consumers back to their normal habits, I believe in the coming year or so and I think that the return to normalcy in Eastern Europe is going to take a little longer, although Eastern Europe didn't go down as far as Russia.

So I think those are the comments.

I think Russia already, after as you said a very difficult consumer environment in 2009 where we saw double digit declines for the whole CPG sector, is beginning to show, again, positive developments where we're almost even in the quarter in Russia minus one.

And we grew -- importantly grew trademark Coca-Cola double digits in Russia, which, as I said, was pleasing for me.

So as we go into the Summer and Russia, again is a very seasonal dependent market, I believe that we will see sequential improvement in both the sentiment of the consumer in Russia, the spending of the consumer in Russia, and also our business.

And could I also ask in Europe, your volumes were even in the quarter and you highlighted a lot of markets that are improving, where was the particular weakness that just got you to flat volumes in Europe and not seeing an improvement in that region?

Well I can't give you anymore details, but I can tell you the following, that certainly Eastern Europe, Southeast Europe was not as strong as some of those markets that we referenced.

Same continues to be challenged, for example.

Okay, thank you.

Next is Caroline Levy with CLSA.

Good morning.

Just want to dig into number one, market share in North America just to make sure, it seems that you did lose overall market share in North America even though you gained in stills and I'm just wondering why you think that might have happened.

Well, Caroline, first I think as far as North America is concerned, we have essentially, in terms of our value share in the quarter in sparkling, we lost a little bit of value share in the full quarter as we looked into our volume share in North America.

Again, we had slight losses in sparkling and also in still.

And I think that is, again, a result of our discipline and pricing in the United States and what we saw is a bigger loss of share in the beginning of the quarter and some of that share was coming back in the -- latter part of the share gains were coming back in the latter part of the quarter to result in slightly down share in both volume and value and in both still and sparkling.

And do you expect reverse that and are you saying it's a function of a widening price gap versus the competition?

No, I think as I said, it was the difference between the first half of the quarter and the second half.

Volume share decline was mainly due to aggressive, very aggressive competitive pricing in the beginning of the quarter, bottling and so forth, as well as pricing but I think CCNA and CCE continue to focus on building consumer and customer value through strong brands.

And we are -- we see tremendous value from being disciplined in our future pricing between our future consumption and our immediate consumption channels and I think, therefore, that we anticipate also that the industry will return definitely to rational pricing through the balance of the year and we've seen some of that also in the latter half of the quarter.

Thank you and then in China, your comps actually get much harder, your comparisons as you move through the year.

So do you think this is perhaps a year where we should not expect double digit volume growth in China?

Well, first, Caroline, I think China remains -- continues to remain the most important growth market for the Company and I think through the end of 2009 as you saw, we held double digits in China.

It's been 26 consecutive quarters since 2003 until the end of 2009 and during that time, 2003 to 2009, our base grew threefold, almost to 1.8 billion cases, or over 400 billion servings per annum, and having said that, I think China remains -- we all know that China remains a complex, rapidly changing market, but I can reiterate one thing.

Our brands, our investment, our innovation platforms remain very healthy and I would say that we would be disappointed if we would not continue to achieve double digit growth on an annual basis in China going forward.

And if you view our business in China over the past six months our volume averaged at 16% growth over the last six months, very consistent with same prior year period and this is very similar to what you would have seen also if you compared quarter four of 2008 versus quarter one of 2009.

Thank you, just last question for Gary.

Currency looks like it took, it added $0.05.

So it would have been $0.75 without the currency benefit, is that right?

Yes, that's about right Caroline.

Thank you.

Thank you so much.

Our last question comes from Alice Longley, from Buckingham Research.

Hi, good morning.

My question is about price mix and I think you've talked about it in the Pacific.

Could you talk about Latin America and Eurasia Africa, it was, I think, 10% in Latin America.

Is that likely to persist through the year and the negative 5% in Eurasia Africa, could you talk about that?

Sure.

I'd say a couple of things.

In Latin America, we got very strong price mix of 10 points and that's both in pricing mix and geographic mix.

So everything was positive in Latin America and I don't know if it will continue at that kind of pace.

I don't think anyone should expect that you could continue that forever, but Latin America is doing extremely well across all of the metrics and particularly as we see Mexico coming back some, we would expect to see very positive results that we have in Latin America through the remainder of this year.

On Eurasia and Africa, there was a negative five points price mix there.

It is primarily driven by geographic mix of higher growth in Northern Africa, for example, lower sales in South Africa, but as I mentioned the concentrate sales are behind cases in South Africa, which is what's driving that.

I would expect that to reverse in the remainder of the year and so a lot of that will start coming back.

Excellent.

So that price mix could actually turn positive ahead?

Yes, it could.

Okay, good.

Thank you.

Thanks, Alice.

Thank you, Gary and Jackson.

In closing, the actions taken this quarter as well as our management teams continued performance track record gives us confidence in our Company today and our path to 2020.

We will continue to generate strong cash flow and redeploy that cash to both growing our business and rewarding our shareholders.

We are investing alongside our system and leveraging our global franchise network to win consistently and sustainably around the world.

At the same time, we're committed to delivering consistent value to our shareowners through regular dividend payments and share repurchase programs.

We will execute flawlessly on our 2020 vision by working closely with our global bottling partners, our employees, our customers, and all our key stakeholders.

As I said, we see tremendous opportunity ahead for the Coca-Cola Company in all our markets and remain intently focused on partnering across our system, to execute our strategic priorities and generate long term sustainable growth.

And most of all, we thank you for your interest in investment in our Company.

There's no greater responsibility than earning your trust and confidence.

So rest assured we're working tirelessly to keep our commitments and grow the value of your investment in our Company.

Thank you for joining us this morning.

That concludes today's call.

Please disconnect your line at this time.