可口可樂 (KO) 2010 Q3 法說會逐字稿

At this time, I would like to welcome everyone to The Coca-Cola Company's third quarter 2010 earnings results conference call.

(Operator Instructions) 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.thecocacolacompany.com under the reports and financial information tab in the investors section, which reconciles certain non-GAAP financial measures that may be referred to by our senior executives in 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.

Now I'll turn the call over to Muhtar.

Thank you, Jackson, and good morning, everyone.

First, let me begin by saying that we are very pleased with our third quarter performance.

We successfully completed our acquisition of Coca-Cola Enterprises' North America business, and the sale of our Norway-Sweden bottling operations to CCE on plan and in line with our commitments.

And we closed this transaction on the heels of executing a strong quarter.

We continue to build on our momentum, delivering solid volume revenue and profit growth this quarter, with our results exceeding all of our long-term targets and generating sustainable value for our shareholders.

This quarter, once again, underscores how we are advancing our 2020 vision from a position of strength, as we enter a new era of growth for The Coca-Cola Company.

Together, in close alignment with our global bottling partners, we are executing with excellence around the world.

Our strategies, our brands, our marketing, our innovation, our partnerships, and our people are defining new growth opportunities today and shaping our system's vision for this decade.

Our brand equity is growing stronger around the world, as evidenced by a measurable increase in consumer preference for our brands this quarter, as well as 4% global growth for our flagship brand Coca-Cola on a year-to-date basis.

We are now intensely focused on driving a fast and seamless integration in our North America operations, and this evolution of our franchise system is an important milestone in realizing our 2020 vision, strengthening our commitment to best serve our customers and our consumers, and facilitating our ability to achieve sustainable and profitable growth in our flagship market.

Turning to our current results, this quarter's comparable currency-neutral operating income growth was 14%, ahead of our long-term growth target.

We grew our quarterly volume a solid 5%, also ahead of our long-term growth target, fueled by organic unit case volume growth across both North America and our international operations.

We increased net revenues a healthy 8% on a comparable currency-neutral basis in the quarter, bringing our year-to-date comparable currency-neutral revenues to 5%.

This is in line with our long-term growth target.

And once again, we generated significant cash from our operations, with cash flow up 15% year to date.

Now, I will share our performance results in more detail across our markets, starting with our flagship market.

North America volume grew 2% this quarter, the second consecutive quarter of positive organic growth.

On a year-to-date basis, our North America business is now up 1%.

These results are due to the continued successful execution of our well-defined brand, pack, and price strategy, focused on driving profitable growth.

Our sparkling beverages in North America grew volume and value share, both against a total category, as well as versus our primary competitor.

And to be clear, when we speak about share swing gains versus our primary competitor in North America, we refer to our performance across all channels, not just measured channels, which represent less than 40% of our North America business.

Brand Coca-Cola health measures keep improving as we increased our favorite brand score versus our primary competitor amongst the most critical consumer segments.

At the same time, Coca-Cola Zero delivered double-digit volume growth for the 18th consecutive quarter.

Brand Sprite had a second consecutive quarter of positive growth and is now positive on a year-to-date basis.

And Fanta had its strongest quarter of the year, growing 4%.

We further extended the footprint of our innovative Coca-Cola Freestyle fountain dispenser, which is on track to be in 15 markets by the end of this year, providing a greater choice of brands to our customers and our consumers.

This all reaffirms our confidence that we are executing the right strategies with our bottling partners to drive growth across our entire North America sparkling beverage portfolio.

Turning to North America still beverages, these also continued to accelerate, up a strong 8% for the quarter, and 5% year to date.

We have now grown volume share for 11 of the past 13 quarters, and value share for 12 of the last 13 quarters.

Our North America juice and juice drink business delivered positive growth for the quarter, led once again by double-digit growth from our Simply trademark.

Our North America energy portfolio also accelerated this quarter, up 15%, including double-digit growth by NOS.

In the North America tea category, our Gold Peak brand delivered double-digit growth in both its bottle, can and food service delivery forms.

I also would like to highlight how our North America still beverage portfolio works in concert to generate value.

First, our Glaceau brands were up mid-single digits this quarter in North America, continuing a year-long trend of sequential improvement.

Secondly, Powerade was up over 30% in the quarter, outperforming the North America sports drink category, while gaining share against our primary competitor for the eighth consecutive quarter.

This performance is not a new turn of events or simply due to price discounting but rather the result of implementing a clear, consistent and competitively sustainable strategy, focused on innovation, consumer engagement, as well as brand building.

In fact, since acquiring Glaceau in mid-2007, our joint Glaceau and Powerade businesses have gained more than 7 points of volume share swing against our primary competitor's combined sports drink and functional hydration offerings.

This is the power of valuable brands and strong system execution, working together in the marketplace.

Now, as we begin to benefit from our acquisition of CCE's North America business, we have an important opportunity to take our execution across our entire North America portfolio to the next level.

As we have consistently said, we have the right long-term strategies in place in our flagship market and we are confident that we are well positioned for the next era of winning.

Now let me turn to Eurasia and Africa, an operating group consisting of nine business units, with 89 countries, spanning from Africa through the Middle East and India, up to Russia.

This group grew 12% volume in the third quarter, with strong performance across both sparkling and still beverages.

Year to date growth now stands at 11%.

All nine business units in Eurasia and Africa grew this quarter with countries representing more than half of the group's volume increasing by double digits.

This broad-based growth was led by Russia, up 30% this quarter, and 13% year to date.

We outgrew our primary international competitor in Russia this quarter.

Importantly, this high quality growth was led by the strong performance of our core sparkling brands, which drove almost half of this quarter's absolute volume growth.

In fact, brand Coca-Cola, the single largest nonalcoholic RTD brand in Russia, was up 34% this past quarter, gaining both volume and value share.

We're also making steady progress in the Russia juice market.

The integration of our Multon juice business, which began this past quarter, is advancing as planned.

And this quarter we also acquired Nidan, a leading juice brand in Russia.

This transaction will enable us to further expand our juice offerings in this important market.

We also grew double digits this quarter in Turkey, Southern Eurasia, complementing high single-digit growth in the Middle East.

India, meanwhile, achieved its 17th consecutive quarter of growth, despite facing record rainfall during this summer's monsoon season and cycling 37% growth in the comparable 2009 period.

Importantly, India captured share in both sparkling and still beverages.

And on a year to date basis, we have grown trademark Coca-Cola 18% in India, while our Maaza juice brand is up 24%, demonstrating the broad-based strength of our portfolio in this critical market.

Our commitment to India is unwavering.

Last month we announced plans to invest up to $120 million in a new plant in Southern India and we are excited about the significant and sustainable opportunities this region has to offer over the long term.

Another continent we're excited about and keep investing in heavily is Africa.

Over the past 10 years, our system has invested more than $5 billion in the African continent and we plan to invest another $12 billion as a system in the next decade.

As for this quarter's performance in Africa, we saw double-digit growth in East and Central Africa and mid single-digit growth in North and West Africa.

South Africa delivered 6% unit case volume growth, benefiting both from the momentum generated by our FIFA World Cup activation programs, as well as our ongoing work to improve our route to market and small store activation capabilities in this key market.

Moving to our Pacific group, overall volume growth was up 11% in the third quarter, bringing our year-to-date volume growth to 8%.

These results were supported by a return to double-digit growth in China, up 12% in the third quarter.

China captured volume and value share gains in both sparkling and still beverages.

Our sparkling beverages grew high single digits in China, led by the strong performance of both brand Coca-Cola and Sprite, with Sprite remaining the number one sparkling brand in China, for the 14th consecutive quarter.

Our still beverages in China were up a strong double digits, led by the continued momentum of our Minute Maid Pulpy brands.

We are one of only a few true multi-category beverage players in Russia, twice as large and growing faster than our primary international competitor.

And while we are pleased to report such good results this quarter, our focus in China is primarily on building our business with great brands across multiple categories to drive strong performance over time.

The measure of our success in this country will be how we grow our total business between now and 2020.

We are confident we have the right strategies in place to deliver sustainable double-digit growth in China over the long term.

We were also pleased to see Japan return to growth, up a very strong 11% for the quarter, and 3% year to date.

While this quarter's volume growth was our highest in Japan in over a decade, we recognize that along with the rest of the beverage industry, our business benefited from record high temperatures this summer.

That said, our brand portfolio gained further traction with the Japanese consumer.

For example, Coca-Cola trademark was up 11% this quarter, a third consecutive quarter of positive growth, driven by effective and exciting summer marketing programs and successful FIFA World Cup activation.

And our water business in Japan also drove profitable growth with this summer's launch of I LOHAS Mikan, a new mandarin orange flavored water, extending the presence of our industry-leading and eco friendly single-serve I LOHAS brand.

Despite the success we have so far had in Japan this year, it is important to point out that economic headwinds remain challenging for the time being.

As for the Philippines, we delivered a fourth consecutive quarter of double-digit growth, with Coca-Cola trademark growing 12%, and still beverages up 20%, supported by strong gains in tea, juices, and juice drinks, as well as water.

We also announced our commitment to increase our investments in this critical country by $1 billion over five years, as we remain focused on investing ahead of demand.

Moving now to Latin America.

For the quarter, volume grew a steady 4%, gaining share in total nonalcoholic ready-to-drink beverages.

Despite adverse weather conditions in Mexico, Colombia, and most of Central America, brand Coca-Cola was also up 4% for the quarter.

Brazil delivered very strong results with volume up 13% for the quarter, and 12% year to date.

This also marked the third consecutive quarter that Brazil has gained volume and value share in total nonalcoholic beverages.

Mexico volume was even for the quarter, cycling 9% growth from last year, and impacted by heavy rain during the summer season.

Mexico has now gained total nonalcoholic ready-to-drink beverage volume share for 14 of the last 15 quarters and value share for 15 consecutive quarters.

We are confident that Mexico will return to normalized growth over the balance of the year.

Lastly, our South Latin region, which includes Argentina and Chile, delivered solid mid single-digit growth.

Moving to Europe, we still see customers and consumers pressured by the difficult economic conditions impacting various countries in this geography.

For the quarter, our volume was slightly positive rounding to even versus the prior year.

Our performance of sparkling beverages in Europe was led by trademark Coca-Cola, which was up 1% for the quarter and on a year to date basis.

Our still beverages in Europe saw positive growth across categories, including double-digit growth in energy and tea, as well as positive results in both sports drinks and juice and juice drinks.

Importantly, our still beverages gained both volume and value share in Europe this past quarter.

We were pleased to realize low to mid single-digit growth this quarter across most of our Western European markets, including France, the Nordics, and Great Britain.

These encouraging results were offset by ongoing economic challenges in South and Eastern Europe.

In Spain, despite the ongoing economic crisis, our business once again improved its share trends, capturing total nonalcoholic ready-to-drink beverage share this quarter.

Our Nordics business grew a solid 6% in the quarter.

Norway and Sweden have now transitioned to CCE's ownership.

The move of these bottling operations is consistent with the principles we have always shared regarding our Bottling Investments Group.

That is to sell our selected Company-owned bottling operations at fair value and at the right time to strategically and financially align bottling partners.

As we have said many times before, we will only sell a bottling operation when it is a successful and sustainable business.

The Norway and Sweden operations are just that.

So on behalf of our Company, I would like to personally thank all of our Coca-Cola associates in Norway and Sweden for their great efforts.

They are the foundation upon which a strong business was built, and we look forward to partnering with them now that they have joined a new CCE organization.

As for Germany, our remaining European bottling operation, it sustained its momentum, delivering its fifth consecutive quarter of positive volume growth.

You have heard me say time and time again that we always put our brands first in everything that we do across each and every one of our operating groups.

As a result, our sparkling beverages grew 3% in the quarter, with international sparkling beverage volume up 4%.

As for Coca-Cola Zero, it continues to be one of the fastest growing global sparkling beverages in the world.

Earlier, I referenced Coke Zero's uninterrupted stream of success in the North America market.

This momentum extends around the world with the brand up 6% in international markets on a year to date basis.

We are also successfully expanding our still beverage portfolio with total still beverage unit case volume increasing by 11% in the quarter, led by double-digit growth in sports drinks and water, as well as high single-digit growth in juices and juice drinks.

I mentioned before how Powerade has been the growth leader of the sports drink category in North America, but this brand's success story is also a global one.

Powerade has almost doubled its global share since 2000 and this momentum extended into the third quarter, supported by the flawless execution of Powerade's global FIFA World Cup campaign across 34 markets.

In summary, the sound results across our operations and the balanced growth across our sparkling and still beverages are a testament to our seasoned operating team and global franchise partners.

Together, we are executing our 2020 vision in a disciplined, aligned, and decisive manner.

We are growing our business, while holding a more than 3-to-1 volume and value share advantage internationally over our primary global competitor.

And while we grow our business, the strength of our flagship brand is only getting stronger.

This past quarter alone, Coca-Cola was named South Africa's top brand by the Sunday Times, and Coca-Cola retained its number one ranking in Interbrand's rankings of the best global brands for the 11th consecutive year.

Despite these recognitions, we can assure you that we are not content.

In fact, we remain constructively discontent.

We realize and appreciate that many near-term challenges remain with our consumers and customers around the world.

So as we further build our business momentum across the world, we are also committed to building a better tomorrow.

One way we are doing this is by delivering on our promise to be the global leader in sustainable water use and the industry leader in packaging, energy, and climate protection.

This past quarter, our PlantBottle package, a new redesigned PET plastic bottle made partially from plants, won a Greener Package Award, reaffirming our position as a sustainable packaging leader and representing yet another step in our journey to create the bottle of the future.

Since making its debut in Denmark in December, 2009, our PlantBottle package has rolled out in a variety of sizes across our sparkling and still beverage portfolio.

By the end of this year, we will have 2.5 billion PlantBottle packages in the market and we expect to double this number in 2011.

The presence of these packages this year alone is equivalent to eliminating almost 30,000 metric tons of carbon dioxide, CO2, and approximately 70,000 barrels of oil.

So, our commitment to lead in climate protection is one we have worked on diligently for years.

We made a public commitment in 2008 that we would place an additional 100,000 HFC-free coolers in the marketplace by the end of 2010.

I am pleased to report that together with our bottling partners, we have fulfilled this commitment five months ahead of schedule, having placed our 100,000th incremental HFC-free unit in the marketplace this past quarter, bringing our total number of HFC-free coolers in the marketplace to 220,000 units.

Another way we are building a better tomorrow is by partnering with our communities.

A great example of this is our recent launch of Project Nurture in Kenya.

This is a mango and passion fruit and juice sourcing partnership with the Bill and Melinda Gates Foundation.

Through this creative initiative, we are helping develop local food sourcing farms to support our expanding juice businesses around the world.

Equally important, we are improving the incomes of more than 50,000 fruit farmers in Kenya and Uganda.

We're also building for a better tomorrow by putting our people first.

In fact, I spend as much time developing our management team and talent as I do leading our business.

Our people are the absolute key competitive advantage and enabler to achieving our 2020 vision.

The real opportunity in developing our people is finding leaders with a global mindset and experience who can effectively lead a multinational, multicultural, multilingual team of associates and bottling partners.

To do this, we have a consistent set of criteria we apply when it comes to talent management, seeking leaders with the breadth of experience and perspective who can think beyond their geography and also operate in different and dynamic environments.

In the end, our reputation attracts and retains talent, but we cannot rely on this as our only strategy.

Just as we continue to focus on building our brands, we're also investing in our brand as a 21st century employer.

Which is why I was pleased to see us receive such a high ranking on Universum's Second Annual Survey to identify the world's most attractive employers.

The 2010 survey was based on data from nearly 130,000 college students all around the world.

The Coca-Cola Company moved up five spots since 2009 to number eight in the world according to the surveyed business students, number two amongst consumer goods companies, and the only beverage company ranked in the top 20.

Let me close by saying that we are confident in our system's ability to win together, aligned and focused on executing against our consistent growth strategies to achieve our 2020 vision.

Despite facing extended economic headwinds, we are on course to deliver on our commitment to grow volume, revenue, share and profits in 2010.

The integration of our North America business is fully under way and well on track.

We have created the right operational structure, which will accelerate our ability to make agile strategic decisions to build on our strong momentum in this marketplace.

As we look ahead, we see a world that is yearning not just for the beverages provided by The Coca-Cola Company, but also for the values and ideals that our brands represent.

Values and ideals like community, like fun, happiness, and the hope for a better tomorrow.

This is what inspires the strong and unyielding belief in the growth of our Company and our system, as well as the long-term value it can create for our shareholders.

So with that, I would like to turn the call over to Gary.

Thanks, Muhtar.

Good morning, everyone.

As Muhtar said, we once again delivered a quarter of consistent quality volume and profit growth.

Our volume, revenue, and profit results all came in ahead of our long-term growth targets this quarter, reaffirming that our highly capable leadership team is executing the right strategic plans with our bottling partners to achieve our sustainable long-term goals.

These results demonstrate that we are building on our 2010 momentum and advancing our 2020 vision.

As outlined in our release, we reported comparable earnings per share of $0.92, up 12% versus the prior year.

For the quarter, our business delivered strong comparable net revenue growth of 8% in the quarter, driven by a 7% increase in concentrate sales, and a 1% positive price mix impact.

Our comparable operating income was up a strong 14%, bringing our year-to-date comparable growth to 15%.

While currency had a minimal impact on operating income this quarter, it had a 4% positive impact year to date.

Further, our comparable gross profit increased 10%, with year-to-date gross profit up 9%.

Again, currency had a minimal impact on gross profit in the quarter, but has had a 2% positive impact year to date.

As for our cash flow from operations, this increased 15% year to date to $7.2 billion.

This growth was primarily driven by our improved performance, including the effects of currency.

Now, let me go through some detail around our quarterly results and year to date performance.

Our sequential improvement in price mix was in line with our expectations, with the ongoing impact of geographic mix more than offset by our positive global revenue growth management strategies.

This improvement brings our year-to-date price mix results to even versus the prior year, fully consistent with our expectations shared in previous earnings calls.

As we have communicated before, we expect our price mix to remain even for the full year.

Our comparable currency-neutral cost of goods was up 3% for the quarter and is now up 1% year to date, fully in line with our communications in previous quarterly calls, when we said that we expected our cost of goods to grow in a low single-digit range for the full year.

Comparable currency-neutral SG&A expenses were up 8% in the quarter and up 3% year to date, reflecting increased levels of marketing spend, driven by the cycling of low marketing expenses during the same period last year, which we anticipated and also outlined for you in our last quarterly call.

As for our total marketing spend, including both our direct and point of sale marketing, this continues to be positive on a year-to-date basis, as we remain committed to investing in our brands for long-term growth.

For this quarter, we captured 4 percentage points of operating expense leverage.

This was a little better than our expectation for the full year that I mentioned last quarter, and was driven by greater top line profit growth, continued strong focus on cost management, and the benefits of our productivity initiatives.

Importantly, this underscores the unique strength of our global system, a system able to simultaneously run highly effective and efficient operations while driving solid top line results.

Going forward, we now expect our full-year 2010 operating expense leverage to come in at the low to mid single-digit range.

Lastly, the lowering of our year-to-date effective tax rate from 23.2% to 23% benefited our earnings per share by a little less than a penny.

Now, let me take a minute to highlight a few additional factors we see in the fourth quarter of this year.

First, I want to remind you that as highlighted in our previous quarterly calls, our comparable results for 2010 reflect the impact of the deconsolidation of certain entities, primarily bottling operations, due to new accounting guidance that became effective the beginning of this year, as per FASB requirements.

We've now reflected the appropriate changes within our GAAP and non-GAAP schedules to provide a comparable income statement for external modeling purposes and have posted a schedule in the investors section of our website that takes into account this change in accounting guidance to assist you in adjusting prior year results.

Secondly, as per my earlier remarks, currency had a minimal impact on our comparable results this quarter.

As such, and as we've communicated in our prior quarterly calls, we believe that currency will have a slightly positive impact on operating income on a full year basis, with this benefit weighted towards the first half of 2010.

We expect currency to have a minimal to low single-digit negative impact on operating income in the fourth quarter.

Looking forward, while we don't expect to see a repeat of the currency volatility we saw in early 2009 and earlier this year, we would expect some further volatility going forward as economies emerge from the global recession differently.

Please note that we routinely monitor our exposure to currency, actively hedge hard currency, such as the euro and yen, and proactively balance our coverage as appropriate.

We'll keep doing so in this environment, in line with our long-term hedging strategies and we'll keep you updated on our hedging activities.

Importantly, we will keep managing and investing in our business at the local market level and in local currencies, to drive long-term growth and increase the consumption of our brands.

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

Lastly, with regard to our share repurchase program, we were out of the market pending the close of our transaction with Coca-Cola Enterprises.

With this transaction now closed, we're in the process of reentering the market and now expect to repurchase approximately $2 billion of shares by the end of 2010.

While on the subject of CCE, let me share a few items regarding the transaction.

First, the deal closed on October 2, 2010, which was the first day of our fourth quarter.

While this transaction was structured as primarily cashless, under the terms of the deal we agreed to make a cash payment to CCE in the event that the actual debt assumed upon acquisition was less than the previously agreed upon amount.

Therefore, in anticipation of closing the transaction, a cash consideration of $1.3 billion was paid to CCE, substantially related to the debt level assumed.

This payment was made on October 1, the last day of our third quarter.

Concurrently and as expected, we also received about $900 million in cash from CCE for the sale of our Norway and Sweden bottling operations.

Both of these transactions are reflected in the quarter's cash flow statement and balance sheet.

As for the recurring results we report today, these were not impacted by the CCE transaction.

When we report our fourth quarter and full year results, these will be the first to fully reflect the incorporation of CCE's North American business as well as the divestiture of our Norway and Sweden bottling operations.

Secondly, when we announce our fourth quarter and full year results, we will continue to detail our results by our five existing geographic operating groups, with the North American operating group fully incorporating our newly constituted Coca-Cola Refreshments and Coca-Cola North America organizations.

Finally, with regard to synergies, as we have announced previously and reiterated in our earnings release today, we continue to expect synergies of at least $350 million per year, phased in over the next four years.

We know that many of you are looking for additional modeling information regarding our newly integrated North America business.

Please note that before the end of this year, we intend to share with you further details regarding our capital and debt structure plans, as well as the impact of other items regarding the modeling of our new North American operations.

In conclusion, we've delivered strong volume growth and high quality profit growth through the first three quarters of this year.

Both our operating income and earnings per share growth rates are ahead of our long-term growth targets on an ongoing currency-neutral basis.

Our revenue growth has sequentially improved over the course of the year and is now fully in line with our long-term growth targets.

All of this is a testament to our seasoned management team's ability to effectively manage and execute our strategies within a challenging market environment.

Together, with our global bottling partners, we are maintaining our disciplined investment strategies and executing the right actions to drive our business for both today and tomorrow.

As such, we remain confident that we will keep enhancing the health of our brands and importantly, drive long-term profitable growth and value for our share owners.

Operator, we're now ready for questions.

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

Good morning.

Muhtar, you had a very strong quarter in North America relative to where the industry is growing.

Can you talk about what the Coke system is doing in the non-measured channels to drive this outperformance and why you think it's sustainable?

Thanks.

Good morning, Bill.

I think you're right in pointing out that we had a good quarter in North America.

Volume grew 2%.

Second consecutive quarter of positive, and I highlight organic growth, and year to date volume growth was 1%.

I think if you sort of double click and dig down for the quarter, total sparkling was even.

Trademark, and then for the year to date, when you look at like trademark Coca-Cola on a year to date basis, it's even versus minus 3% for the same three quarters of prior year.

So one of the things that is continuing to drive this is our success in our brand, price, pack, channel architecture that we have talked about for a number of quarters that we're implementing.

I think another one is our continued strength in our brands.

We continue to invest in our brands and it's paying off.

Coca-Cola remains the number one favorite brand and has widened that lead over its nearest competitor.

Ratio is now 1.6 to 1 versus 1.4 in year-to-date 2008, for example.

Favored brand scores are again up.

Coke Zero favored brand scores continue to grow at a significant rate.

So all of that is paying off and I think that it's important that we have a strategic focus that is consistent on building powerful brands, creating the value with our customer relationships and also a high performing system that is capable of working together to serve our customers and consumers.

And I'm happy also to point out that in the third quarter, as the industry returned to more rational pricing, CCNA, our North American operation, Coca-Cola USA gained value share in total NARTD and volume and value share in the sparkling as well as still categories.

So, when you look back at, say, some of the media reports back in the middle of 2008, say June-July 2008, one of the priorities I outlined at that time, if you look into the clippings and go back into recent history, I said it is to stabilize and return to sustainable growth our North American operations.

I think that in no way are we declaring victory.

We're in the process of stabilizing, as you can see from the numbers and we're cautiously confident that even in the depths of the most severe crisis that we've recently had in the last couple of years in North America -- and the US consumer is still confused, by the way -- that our investments are paying off.

Our alignment with our bottling partners is paying off.

And now I think we can accelerate that with this historic transaction.

So I'm particularly pleased as we've gone into the quarter, as we have gone -- sorry, into this transaction at the end of this quarter, this past quarter, that we go into that transaction from a point of strength, from a position of strength, and as I said, the transaction will further enable us to accelerate our momentum, I believe.

And Gary, if I can just quickly follow up, I know you said you are going to update us at year end on some of the deal math, but originally you had said the deal would be accretive by 2012.

Interest rates have moved down since there.

Do you see it as likely to be accretive on 2011 earnings?

Thanks, Bill.

I tell you what I'm going to do.

I'm going to give you an update on the answer to that question actually when we get together later in the year.

We're putting together all of the numbers now and to really answer it, you've got to go through all of the synergies.

You've got to go through all the purchase accounting adjustments and everything else.

Some of those are not complete yet.

So while you're right, interest rates have come down, which will be helpful, let me delay the answer to that question until later this year.

But for sure 2012 is accretive; whether it's going to become accretive in 2011, I don't know yet.

Okay, thanks.

And next is Carlos Laboy from Credit Suisse.

Good morning, everyone.

Good morning.

Muhtar, could you provide us maybe some more granularity on the Philippines?

Can you expand on the infrastructure development that's facilitating this type of volume growth?

Maybe talk a little bit about the profitability levels that you might be, or improvements that you're seeing out of the Philippines.

And on a related basis, you're talking more -- your management seems to be talking more about transactions and tracking transactions better, not just volume.

Can you speak to how you're using this metric internally and maybe give us a sense of what it's telling you about transaction growth versus volume growth?

First, on the Philippines, Carlos, I think as we've noted, we posted a strong quarter of plus 19% growth in the third quarter, which was actually our fourth consecutive quarter of double-digit growth.

Our BIG team, Bottling Investment Group team, led by Irial and his associates, I think are doing -- have done a good job in stabilizing the business, first in the Philippines and now we've been returning it to sustainable growth.

Coca-Cola grew 12% in the quarter, due to an emphasis on multiserve packages to protect our Coke with Meals Heartland and I think our still beverages grew 20%.

We've also recently announced our commitment to the Philippines to increase our investments, to the tune of about $1 billion over the next five years, and I think that again tells you that we believe in the future of the Philippines.

We believe in the future of the Philippines consumer, as well as the Philippines in total as a country, and I think we're excited what the future offers in the Philippines.

As far as transactions are concerned, at the end of the day, you've got to remember that consumers don't buy unit cases.

They buy transactions, packages, at certain price points.

I think it's really -- that's why it's so important for us to track the consumer behavior, patterns of consumption, in different channels, on a transaction basis.

And I think that we are certainly seeing the benefiting of tracking that metric in the United States, especially as we have offered more choices as part of our brand, price, pack, channel architecture in the United States.

That's working well.

And you will continue to see a focus on that metric as we widen it across the world.

And Carlos, this is Gary.

Just to be definitional for everyone that's on the call, when -- as you were talking about transactions, the way we define transactions is that a two-liter package, if you bought a two-liter bottle, that's one transaction.

If you bought a 14 or 16-ounce bottle, that's one transaction.

If you buy a 12-pack of cans, that's one transaction.

And it really then drives into our brand, pack, pricing architecture and how you drive value for the brand.

So it's critically important and one of those metrics that we are actively reviewing every month.

Thank you.

That's helpful.

And the next question comes from John Faucher from JPMorgan.

Good morning, thank you.

Wanted to dial down on a couple of different markets where we saw some, a little more volatility in results than we're used to seeing, or at least in Russia's case more positive volatility.

You had mentioned weather as a factor in Japan, Russia and Mexico.

Can you just talk a little bit about how you would have seen the normalized trends in those three markets, and particularly for Japan and Russia how you see things normalizing over the next couple of quarters?

Thanks.

John, good morning.

You've heard me say about Russia and Ukraine in particular in the past that these markets are linked to more -- we should try to think of these as being more volatile markets.

They will go into the crisis quicker, deeper and they will come out of the crisis quicker and deeper.

We're seeing an exact play of that happening.

And I think that Russia over the next sort of three to -- three-year period, say, will normalize to growth rates of sort of double digits.

I think as we move forward.

But again, you'll see some volatility in Russia play out over the next three years.

But I think a more gradual return to a high single-digit and double-digit growth rate.

As far as Mexico is concerned, you ask the question.

I think during this quarter, Mexico and certain regions of northern South America, the northern part of South America, suffered from unusual, very unusual high rainfalls, which were, in fact, in some cases in Mexico, particularly severe enough to disrupt distribution over some prolonged period and of course also this past quarter, again remind you that Mexico was cycling 9% growth in the prior year.

I said I think in the call earlier that Mexico, we believe that Mexico returned to more normalized rate of growth that we've seen in the past periods, over the last two or three years.

And I think Japan certainly benefited from the extraordinarily positive weather, lack of rainfall, and also very high sustained temperatures during the key summer months, July, August.

I think that Japan -- but again, not all of the growth was related to that.

Some of the programs are really -- we are really gaining traction, especially in the Kanto region, in Tone as well as Coca-Cola Bottlers Tokyo and also some of the other outlying, like Coca-Cola Central Japan.

And therefore I think Japan, we should see Japan, despite the very challenging consumer landscape deflationary environment, should return to more of an even to 1% to 2% growth rate normalized over the coming period.

Okay.

So that's over the coming period, or do you think that's over the next couple of quarters?

I think the next coming period, meaning sort of the one to three-year period.

Okay, great.

And then China, I think based on the cycling of plus 29, 30% from the prior quarter, in the quarter four, certainly we'll see moderation there.

But as I said, our focus is to benefit from our successful multi-category positions in China, and drive sustainable profitable double-digit growth over time leading into 2020.

Great, thank you.

And our next question comes from Judy Hong with Goldman Sachs.

Thanks, good morning.

Going back to North America, as we think about the volume trend, the 2% certainly is encouraging, but it seems like the price mix benefit has been pretty minimal here.

So as you look out over the next six to 12 months and you continue to focus on the brand, channel, pack architecture, would you assume that you see an acceleration in terms of the price mix benefit?

And then over the longer term, if you think about the North American business now that you've integrated the CCE's North American operation, what do you think is sort of the right revenue growth projection for that part of the business?

Well, I won't give you a sort of look forward statement on the United States business.

All I can tell you, Judy, is that I think in this past quarter, net revenues for the quarter increased 2%, which reflected a 2% increase in our concentrate sales, and a positive price mix, which sort of rounded to even, which was partially offset by deconsolidation of certain entities due to a change in our accounting guidance.

And I'll have Gary comment on this, too.

But I think it's really important that price mix will gradually strengthen, I believe, in the United States, as both our sparkling and still portfolios grow and as we get traction in terms of a more nimble and faster system in the United States, as we transform our business and reap the benefits of successful integration.

But it's really important to note that it is personally very pleasing for me that we can lead into this transaction, with two consecutive quarters of growth and also importantly this growth is balanced and that you've got, like trademark Coca-Cola, year to date on an even basis compared to, say, minus 3% for the first three quarters of prior year, and Coke Zero still doing very well in double-digit growth.

And so I think -- and then our still beverage strategy is really working very well, with total still beverages up 8%; on a year-to-date basis up 5%, and that's a derivative of our success in both the juice segment as well as sports drinks, as I mentioned, energy, tea, all working together, coming together to generate this balanced growth in the United States.

And I think, again, you can expect the price mix to gradually strengthen, but it's really important that we continue to invest in our brands and in our infrastructure in North America.

And that's the effect of marketing is paying dividends, the strength of our brands are paying dividends and especially in this third quarter, this past third quarter where there was price rationalization in the industry that we could still generate 2% organic growth, was particularly encouraging.

Okay.

Gary, do you want to comment?

Yes, Judy, just a couple of things.

First, there was a negative 1 point from structural change and that was the deconsolidation of Honest Tea this year, versus it was consolidated last year, just to make that adjustment.

The other, I think, and it's just expanding on what Muhtar just said, I think if you look at our pack, price architecture, particularly on the smaller entry level $0.99 pack, while that has some negative pressure actually on gross profit and price mix, it's absolutely the right thing to do.

Really helping with recruitment, really helping us drive transactions, as Carlos was asking about earlier, and I think it's one of the things together with I think very successful marketing programs that's driving those brand preference scores.

So this is one of those examples where North America went down over a long period of time and it's going to take us some time to really get it back.

But I'm really optimistic and confident, because of where we are starting from right now.

And, Gary, just a quick follow-up.

You called out the favorable timing of G&A in North America as a benefit in the quarter from a profit perspective.

Is there a way to quantify how much that's helped the profitability in the quarter?

No, and really what we had is we had some reversals of some compensation plans last year and it was both in North America and in the corporate segment.

And in fact, reversed in the third quarter and then reinstated in the fourth quarter.

So you've got some timing swings between quarters.

Okay, thanks.

Thanks.

And next is Kaumil Gajrawala from UBS

Good morning everybody.

First on Europe; as you moved through the quarter, would you say that trend strengthened or weakened maybe month to month?

And then second thing.

Shipments were about 100 basis points it looks like ahead of case sales, is this something that you reverse in 4Q?

Thanks.

Kaumil, I think it's fair to say that as far as the general trends are concerned, if you looked at the Q2 trend of minus 1 and the Q3 trend of even, certainly that's an improvement going -- sequential improvement.

And I think, again, Europe has been a little bit, continued to be a tale of two cities type of -- the west being performing better counterintuitively with higher per capita, as we mentioned, markets like France and Benelux and Great Britain, but also at the same time, east and southeast Europe still very challenged, from the Iberian peninsula to Greece and southeast, former eastern Europe countries like Romania and Czech Republic, Hungary, central Europe all remained more subdued and consumer confidence being still very challenging in that environment.

Got it, and on the shipments?

Gary, do you want to comment on the shipments?

Yes, I would expect shipments to pretty much be in line in the fourth quarter with volumes.

I think year to date, they are pretty much in line and should be in the fourth quarter as well.

Got it.

Thank you.

Thanks.

And our next question comes from Christine Farkas from Bank of America.

Thank you very much.

Gary, just a couple of housekeeping items.

I wanted to confirm currency.

Was that actually neutral on the top line as well as profits in the quarter?

And could you comment on CapEx targets?

Certainly we hear a lot about Coke's planned investments in a number of emerging markets.

I'm curious if that's putting some upward pressure on your overall CapEx targets in the bigger picture.

Hi, Christine.

Currency on revenue was pretty much minimal.

So currency basically for the quarter was minimal.

It's very little impact.

And we expect a little bit in the fourth quarter it looks like, but it's not going to be major.

Relative to CapEx, most of those investments, when we talk about investments in all those countries, it's really system investments, it's our sales and the bottlers.

And much of that is actually bottler investment.

We'll go through later this year and talk about CapEx for next year, but I would expect CapEx for this year to be pretty much in line with what we talked about earlier in the year.

And CapEx for next year we will go through, as we pull all of our plans together for 2011, but you're not going to see significant changes.

Okay.

Thanks for that.

And just a quick follow-up on South Africa.

Certainly volumes last quarter were flat and now we've seen a nice acceleration post the World Cup.

I'm wondering if there was something structural or economic happening there and what's a sustainable type of direction?

Christine, hi.

I think we're very pleased with the effective execution of our World Cup programs and I think it has, again, helped our brands on a sustainable basis in South Africa.

The sparkling category is showing recovery with improvements in our -- in the new 1.25-liter returnable glass bottle and also as I've said, the FIFA World Cup programs.

I think Fanta is performing well after we've made some, again, pack changes.

Activities in general have yielded good results and consumers still trading down to more affordable options.

We see that, especially in juices and waters, and we still see some heavy discounting going on.

But I would say overall, the consumer psyche is beginning to recover from the hard economic conditions of 2009.

You would recall that last year GDP shrank by about 2 -- between 2% to 2.5%, if I recall, and 2010 GDP is estimated to be at around plus 4% and we are benefiting from that also.

Okay, great.

Thanks for that, Muhtar.

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

Yes, thanks.

Good morning, everyone.

Gary, I had a modeling question, and then Muhtar, something on North America.

And I hear you, Gary, on unit volume and gallonage in line or roughly in line fourth quarter.

I'm wondering, when I look back, I see unit volume and gallonage in line in the first quarter, in line in the second quarter, and then that up 7 versus up 5 here in the third quarter and yet they are described as year to date in line.

Any thoughts on that?

Again, the go forward is the key here, but any thoughts on my number's wrong, or what's going on there?

Hey, Mark.

Good morning.

I'll have to go back and look at it by quarter.

What I looked at was just the third quarter and year to date.

And while it's 2 points ahead in the quarter, gallons versus cases, it's right at exactly the same year to date.

And I would expect the fourth quarter to be right in line as well.

And what you're seeing is just the seasonality of the business.

And as the business was accelerating in the third quarter, the bottlers were obviously just ordering more and more concentrate, because they had been behind in ordering up through the first two quarters.

So I don't think there's anything unusual in it at all.

And I think as I said, it's come back in line year to date and I would expect it to stay in line in the fourth quarter.

Fair enough, okay, great.

And then Muhtar, couple things on North America.

As has been discussed here, we've seen the trend has been very good profit wise for nearing two years now here.

Are you seeing any pressure to step up structurally investment in North America, either from retailers or competitors, or otherwise, as you look forward and now have some added synergies coming from CCE?

I think, first, we got to see what it's -- it's really important to point out, Mark, that over the crisis in the depth of the crisis 2009 full year and this year, we have continued to invest heavily in our brands in North America.

It's really important that that be understood well.

To the tune of -- if you take marketing and total CapEx of the bottling system, combined in 2009 number is around, north of $2.5 billion.

This year, it will be getting close to maybe another sort of 10% higher than that in total.

I'm talking about marketing, as well as CapEx investments in route-to-market, production, efficiency, IT, marketing, brands, all of that.

So again, I've said before, we cannot -- we have to really capitalize on this current economic crisis.

And that's what you've seen us doing all around the world, including in the United States, and continue to invest in our brands, in our system, and that's paying off.

That's paying off.

When you look at the whole world when we, again, globally, gained total value share and held volume share in the quarter, and that's a 13th consecutive quarter of value share gain globally.

So you're seeing that paying off.

And as Gary said, most of these investments, a lot of these investments are coming from the system.

We generate as a system north of $20 billion of cash, annually, $20 billion.

And when we announce $5 billion in Mexico the next five years, $6 billion in Brazil for the next five years, $3 billion in China over '09, '10, and '11, these are system investment numbers that are driving our business.

Because you've heard me say before, it's critically important to judge the appetite of our bottling system for more territory and investments.

And that is at an all-time high.

And our brands are at an all-time high in terms of their current metrics around the world, including here in the United States.

Great.

And then -- that's helpful.

And lastly, with corn having done what it's done in the last kind of two months or so, HFCS going up accordingly, do you plan a price increase to retailers here in North America this fall, before year end?

Any thoughts on pricing to retail before we get to next year?

I think it's too early to judge any of that.

We're just continuing to execute.

I think you're seeing, a lot of volatility and international markets on both currency and on commodities.

Commodity is somewhat driven by vagaries in the weather, but also driven by volatility in currencies, as you know, because commodities are priced in US dollars.

So we're looking at all of that.

And we've seen this movie before and we'll certainly take appropriate measures to make sure that our business remains in health.

Fair enough.

Thank you, guys.

Thanks.

So with that, in closing, I would like to just say that we had a strong third quarter and remain on course to grow volume, revenue, share, and profits in 2010.

The integration of our North America business is on track and our new operational structure in North America will accelerate our ability to build on our momentum in this marketplace.

So as we look ahead, we see tremendous opportunities for The Coca-Cola Company in all of our markets and geographies.

We remain intently focused on working with our capable system partners to build our brand, execute our strategic priorities, and drive long-term sustainable growth and value for our shareholders.

Thank you for joining us this morning.

And thank you for your participation in today's call.

You may disconnect your line at this time.