可口可樂 (KO) 2012 Q4 法說會逐字稿

At this time, I would like to welcome everyone to The Coca-Cola Company's full year and fourth quarter 2012 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)

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 now like to introduce Jackson Kelly, Vice President and Investor Relations officer.

Mr. Kelly, you may begin.

Good morning.

And thank you for being with us today.

I'm joined by Muhtar Kent, our Chairman and Chief Executive Officer; Gary Fayard, our Chief Financial Officer; Ahmet Bozer, President Coca-Cola International; Steve Cahillane, President Coca-Cola Americas; and Irial Finan, President of our Bottling Investments Group.

Following prepared remarks by Muhtar and Gary 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 on 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.cocacolacompany.com, under the reports and financial information tab in the investor section, which reconciles certain non-GAAP financial measures that may be referred to by our senior executives in our 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, let me turn the call over to Muhtar.

Thank you, Jackson, and good morning, everyone.

Let me start by saying that we're pleased with our reported results today.

In a year marked by further uncertainty in the global economy, we once again delivered solid volumes, solid revenue, and solid profit growth.

We grew our worldwide volume by 3% in the quarter and 4% for the full year.

We generated comparable currency-neutral net revenue growth of 5% in the quarter and 6% for the full year, in the process, delivering record net revenues of over $48 billion in 2012.

Consistent with the outlook we provided last quarter, we delivered full-year comparable currency-neutral operating income growth of 6%.

This growth also translated into our company generating record comparable operating income of more than $11 billion for 2012.

And importantly, we met our long-term volume revenue and profit targets for the full year, an accomplishment we are proud of meeting or exceeding every year since we announced our 2020 vision.

In fact, since the first quarter of 2010, and the start of our 2020 vision, during one of the most difficult macroeconomic environments in recent history, we have firstly grown our daily servings by more than 200 million, serving more consumers daily on a global basis than at any other time in our history.

Secondly, increased our global volume and value share of both our core sparkling and non-alcoholic ready-to-drink beverages to their highest levels since 2003.

And thirdly, we added over $30 billion to our company's market capitalization.

We are well on our way to doubling our systems revenues by 2020 to $200 billion, reflecting the ongoing commitment of our entire global system to keep investing together for a better tomorrow.

And we are crystal clear on why we do what we do, for it is our mission to refresh the world, inspire moments of optimism and happiness and to create sustainable value while making a lasting difference.

This year, we once again led industry growth and extended our volume and value share gains globally in non-alcoholic ready-to-drink beverages.

We gained global share in the sparkling beverage category, where our portfolio was up 3% for the full year.

This is the third straight year our sparkling beverages have grown by at least 550 million incremental cases.

This has added more than 13 billion new servings annually to our global business for the past three years.

This growth of our sparkling beverages has consistently and reliably been led by brand Coca-Cola, which grew a very healthy 3% for the full year of 2012.

We also gained global share in still beverages, with our portfolio growing a solid 10% for the full year.

This year, this full-year growth was led by Powerade and Dasani, which were both up double digits, and our Glaceau trademark brands, which were up mid single digits.

In fact, our still beverage portfolio growth was well balanced with mid single to double-digit growth across every single still beverage category in which we compete.

As we have shared for some time now, we recognize that consumers across the globe continue to feel the effects of a still uncertain global economy.

2012 saw the extension of prolonged uncertainty in Europe, the ongoing transition of the economy in China, the lukewarm recovery in the United States, and ongoing challenges for Japanese consumers.

We expect this volatility to extend through 2013.

Having said that, the non-alcoholic ready-to-drink beverage category on the whole continues to be vibrant and grow in line with the levels we forecasted when we first developed our 2020 vision.

Our experience also teaches us that it is critical to seize opportunities during these uncertain times, in order to lead and to succeed in any macro environment.

To do so, we will, together with our bottling partners, keep investing in our business so that we not only grow bigger, but also we grow better.

Better at collaborating, better at innovating, and better at listening to our consumers and customers, as well as bottling partners.

And most importantly, better at executing with precision.

So while 2013 will once again be a year of challenges, we are confident that we will continue to generate consistent quality growth in this, the fourth year of our 2020 vision.

So now, let's review our performance results across our global markets in more detail, beginning first with North America flagship market.

Our business in North America delivered its 11th consecutive quarter of growth, up 1% for the quarter, and 2% for the full year.

As a result, our North America business achieved its best-ever full-year volume sales results.

In addition, we sustained 2% positive price mix in 2012, resulting in our North America beverage business generating 6% full year comparable currency-neutral net revenue growth.

Importantly, we achieved this growth while also realizing full-year volume and value share gains in non-alcoholic ready-to-drink beverages.

In fact, since we initiated our 2020 vision back at the end of 2009, our US business has seen consumer dollars spent across measured channels increase from approximately $56 to $60 per person in 2012.

This represents over $1.5 billion of value created by our brand portfolio in these measured channels alone.

I'm personally very pleased with our ability to deliver quality results, as well as to consistently create real value across our entire North America business.

This year's growth in North America was led by our still beverage portfolio, which was up 8% in both the quarter and also for the full year.

This is the fifth consecutive year that our North America still beverage portfolio has either maintained or gained both volume and value share.

Our Powerade brand grew double digits in both the quarter and for the full year, making this Powerade's third consecutive year of double-digit growth.

More importantly, Powerade led the broader North America sports drinks category in both absolute volume and value growth for full-year 2012.

This is further evidence of how today's consumers are increasingly demonstrating a growing preference for this innovative sports drink brand.

In our premium Smartwater brand achieved its fifth straight year of double-digit growth.

Our juice and juice drinks portfolio also delivered a year of positive growth with our Simply trademark up 7% on a full-year basis.

As such, our total juice and juice drinks portfolio gained volume and value share in both the quarter and full year.

Finally, our tea portfolio in North America sustained its momentum, up double digits while gaining volume and value share in both the quarter and full year.

This result was led by Gold Peak, which was up 36% in 2012, cycling 48% and making this Gold Peak's sixth consecutive year of double-digit growth.

Our sparkling beverage business in North America delivered absolute value growth in 2012, with full-year volume down 1%, offset by a positive 2% price mix.

Importantly, our strategy to provide meaningful and purposeful choice to consumers continued to yield benefits.

Our core sparkling beverage immediate consumption transactions were up 1% for the full year, enabling us to capture sparkling beverage volume and value share in North America in both the quarter and for the full year.

Coke Zero sustained its momentum, up high single digits for the full year.

And we also saw accelerated growth in Fanta, which was up mid single digits for the full year.

As we look ahead, we remain positive that North America is a long-term growth market for our sparkling beverage business.

We will keep investing in the category and in our winning sparkling portfolio and continue to promote active, healthy well-being in all the communities that we proudly serve.

Moving now to Latin America, our volume grew 5% in the quarter and for the full year.

The incremental volume we generated in Latin America this year was equivalent to adding a business the size of Canada to this region's volume base.

Our total business in Latin America set a new record with volume sales exceeding 8 billion unit cases, or the equivalent of 192 billion servings on a full-year basis for the first time in our company's history.

Our sparkling beverages in Latin America grew a healthy 3% in 2012 with brand Coca-Cola also up 3%, both for the quarter and for the full year.

Also, our still beverages in Latin America delivered double-digit growth in both the quarter and for the full year.

These well-balanced results translated into Latin America capturing volume and value share in non-alcoholic beverages for the eighth consecutive year.

We also saw balanced results across all four of our Latin America business units, each generating mid to high single-digit growth for the full year.

Our two largest markets in Latin America, Mexico and Brazil, were both up a solid 5% this quarter, while also growing volume and value share in non-alcoholic ready-to-drink beverages.

On a full-year basis, Mexico was up 4%, supported by consistent brand Coca-Cola growth, up 3% in the quarter and the full year.

Brazil grew 6% for the full year, with sparkling beverages up mid single digits in both the quarter and the full year.

And last December, also three of our bottling partners in Brazil, including two operated by our Bottling Investments Group, signed an agreement to combine their operations.

When completed, this transaction is going to create the second largest Coca-Cola bottling operation in Brazil.

The proposed combination will form a company with a greater ability to invest in the market and accelerate growth, reflecting our franchise systems continuous evolution and our systems commitment to long term, sustainable growth in Brazil.

Now let me turn to our Pacific group, which grew 2% in the quarter and 5% for the full year.

In Japan, our full-year volume grew 2%, in line with the outlook we provided in our previous earnings calls.

This resulted in our business in Japan delivering a third consecutive year of record high sales volume.

Our business in Japan also gained full-year share in non-alcoholic ready-to-drink beverages.

This result was driven by volume growth across most channels, including drug stores, convenience retail outlets, and supermarkets.

I'm also proud to announce that Ayataka, our premium green tea brand, as well as I LOHAS, our innovative water brand, achieved billion dollar brand status in late 2012.

These are the fourth and fifth billion dollar brands we have added to our portfolio since announcing our 2020 vision.

Also, with regard to Japan, last December, the four Japanese bottlers from the greater Kanto region announced their agreement to merge into one integrated and publicly listed company called Coca-Cola East Japan.

While this agreement is still pending final approval by each of the four bottler shareholders, once complete, Coca-Cola East Japan will become our fifth largest global bottling partner in terms of annual revenue.

We support this bottler-led consolidation in Japan and see it as one example of the many ways our franchise system continues to evolve in full alignment with our 2020 vision.

Moving now to China, our last earnings -- during our last earnings call, we shared our clear expectation with China's ongoing economic transition would have a short-term impact on our industry and on our business.

Since then, we have seen disposable consumer spending remain quite challenged in China, especially in the export-driven coastal areas where a higher proportion of our beverages are consumed.

As a result, our China volume was down 4% in the fourth quarter, also impacted by unseasonably poor weather, the cycling of double-digit growth from last year, and the timing of the Chinese New Year.

On a full-year basis, our volume in China grew mid single digits, cycling double-digit growth from last year.

Our strong sparkling beverage portfolio in China continued to expand our nearly two to one share advantage over our primary international competitor.

This portfolio is very well positioned in China, with leading brands in every major sparkling flavor category, including Sprite, the number one sparkling brand in China, Coca-Cola recently rated by Chinese consumers as their most favorite brand, and Fanta, which registered double-digit growth in 2012, exceeding 100 million annual unit cases for the first time.

And we are committed to investing and innovating across our broader still beverage portfolio in China to strengthen our presence across all categories.

As we look ahead to 2013, we still expect ongoing uncertainty in China to have a short-term impact on our industry and on our business, although we do expect to see improvements in consumer disposable income as the year progresses.

As such, from here on, we expect our business to deliver sequential improvement in 2013.

As we have stated before, we have every confidence in the long-term resilience of our China business, and we remain very excited about our long-term opportunities in this region.

Across the rest of the Pacific group, we realized several new milestone performances in fast-growing markets.

South Korea was up double digits in 2012, with our business there achieving over 200 million annual unit cases for the first time.

Thailand also delivered double-digit growth, up 22% for the full year, resulting in record value share and full-year unit case volume results.

The Philippines also achieved strong results, growing 5% for the full year, while also capturing volume and value share in non-alcoholic ready-to-drink beverages.

As many of you know, we recently sold 51% of our bottling business in the Philippines to Coca-Cola Femsa.

While every bottling transaction is unique, this transaction is yet another example of our long-standing and fundamental belief in the strength of our global franchise system.

We look forward to this new partnership with Coca-Cola Femsa as we jointly invest and further strengthen our business in the Philippines to create sustainable long-term growth and value.

Our Eurasia and Africa business also extended its strong momentum, growing a very solid 10% in the quarter and up 11% for the full year, including full-year double-digit growth for brand Coca-Cola.

During both the quarter and the full year, our business in Eurasia and Africa grew both volume and value share in total non-alcoholic ready-to-drink beverages.

On a country level, Russia was one of the key drivers of this group's performance, up 8% in 2012, led once again by the outstanding growth of brand Coca-Cola, which grew 20% for the full year.

And the momentum behind our Dobriy juice brand accelerated further with 13% growth for the full year.

Viewed in total, we have out paced the non-alcoholic ready-to-drink industry in Russia for three consecutive quarters.

As a result, our business in Russia now has achieved an all-time high market share.

Our business in India, which grew 16% on a full-year basis, continues its long stretch of strong growth, realizing both volume and value share gains across both sparkling and still beverages.

Importantly, India has now delivered six consecutive years of double-digit volume growth starting back in 2007.

Moving now to Europe, our business was down 5% in the quarter and was down 1% for the full year, reflecting the region's ongoing macroeconomic uncertainty.

While we recognize the real challenges of today's European environment, it is important to place our results in the proper context and to recognize the resiliency of our industry and our business in Europe.

Since the start of 2009, when austerity measures, unemployment, and fiscal concerns began to weigh heavily on European consumer confidence, Europe has seen its GDP decline.

In contrast, during the same four-year period, our business in Europe has out paced the broader industry, making our company one of a select few able to deliver positive growth between 2009 and 2012.

We successfully grew our business in Germany, up 1% in 2012, despite cycling 6% growth in 2011, while gaining full-year share in non-alcoholic beverages.

This makes it three consecutive years that Germany has delivered full-year volume growth.

As such, we remain confident that our business in Germany is in a sound position and capable of delivering long-term sustainable growth.

Looking ahead, we expect, we expect Europe's economic uncertainty to extend well into 2013.

At the same time, we expect that the European economy and consumer sentiment will gradually improve and that our business is well positioned to return to volume growth as that occurs.

We're also confident that our leadership team and our system will keep investing to outperform the industry in 2013 as Europe continues along the road to recovery.

Before concluding my prepared remarks, I would like to highlight our company's sustained efforts and resolve to work to find meaningful solutions to the complex issue of obesity.

There's an important conversation going on about obesity and we want to be part of the solution.

Together with partners in government, civil society, our own industry, and other businesses, I am personally committed to leveraging all our resources to lead and make a difference here.

We're committed to use evidence-based science to guide the choices we offer.

We are committed to investing innovation of our sweeteners, products, packaging and equipment that fosters active, healthy living.

We are committed to bringing real choice to consumers everywhere and educating them on how the choices we offer can play a role in sensible, balanced diets and active healthy lifestyles.

We are committed to transparency about the nutritional content of our products and we are committed to responsible marketing of our products.

In closing, we are pleased that our business has done so well in recent years and that we remain well on track to achieve our 2020 vision.

Together, we as a system have delivered on our priorities and we are achieving real success.

With passion and commitment and our collective focus, we are propelling ourselves forward during these challenging economic and social times.

As we look back to January 2010 when we began our 2020 vision, we have reasons to be proud of our collective achievements and yet remain constructively discontent.

We completed the largest transaction in our history leading to the formation of Coca-Cola Refreshments in North America.

We added five new billion-dollar brands to our portfolio.

We maintained Coca-Cola as the world's most valuable brand, a distinction it has earned from Interbrand every year since 2000.

And we launched multiple programs to support the global communities we serve, such as our 5 by 20 initiative to empower 5 million women by 2020 and to provide entrepreneurial training to help grow local businesses.

All that said, we are keenly aware of how today's turbulent economic landscape is likely to extend through this year.

As such, our 2013 strategic priorities remain absolutely clear.

First, we must continue to grow sustainably and provide meaningful solutions that enhance the health and well-being of the communities we proudly serve.

Second, we will win with Coca-Cola, while actively promoting the brand and the category.

Third, we must absolutely keep winning and executing with excellence at the point of sale.

Fourth, we need to keep maximizing the value of our global beverage portfolio.

And fifth, we will encourage and inspire our system and associates to deliver our mission and our vision.

For there is still a great runway ahead of us, both for our sparkling beverages, as well as across the entire range of our broader portfolio.

After all, global consumer expenditures are expected to grow strongly between 2013 and 2020, driven by further economic growth in developing emerging countries, as well as expected middle class expansion in populous economies.

So while we are proud of our strong record of delivering results through the first three years of our 2020 vision, we know that we are really just getting started.

All of us at The Coca-Cola Company and the Coca-Cola system remain diligent about what we need to do in order to achieve our results and to effectively and efficiently manage our business for sustainable, long-term success for all our stake holders.

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

Thanks, Muhtar.

And good morning, everyone.

We are pleased to have once again delivered quality performance results in 2012, making this the seventh straight year that our volume and operating income results have been in line with or ahead of our long-term growth targets.

Achieving such consistent performance during a time of ongoing macroeconomic uncertainty is a real testament to our global systems ability to execute our strategic priorities and alignment with our 2020 vision.

Therefore, we remain confident that we will continue to deliver full-year volume, revenue, and operating income results in line with our long-term growth targets.

So let's review our results in more detail, starting with our comparable earnings per share, which came in at $0.45 this quarter, up 15% versus the prior year.

Our full-year comparable earnings per share came in at $2.01, up 5%, despite facing what we estimate was about a 4% currency head wind for the year.

Our comparable currency-neutral net revenues grew 5% in the quarter.

The currency impact on this quarter's comparable net revenue results was a 1% head wind.

Our full-year comparable currency-neutral net revenue growth was up 6%, in line with our long-term growth target.

On a comparable basis, the impact of currency on our full-year net revenue results was a 3% head wind.

Our comparable currency-neutral operating income was up double digits this quarter, consistent with the outlook that we shared in our earnings call last quarter.

And as Muhtar shared a few moments ago, on a full-year basis, our comparable currency-neutral operating income came in at 6% as expected and in line with our long-term growth target.

During our last few earnings calls, we shared more specific full-year 2012 outlook across several financial items to help those of you who model our business.

I'm pleased to say that our results were right in line with or slightly ahead of the outlook that we provided.

So I want to take a moment to recap these results and where applicable, provide more and further insight into our full-year 2013 outlook.

With regard to volume growth, our full-year 2012 concentrate sales growth was in line with our full-year unit case volume growth, as per our comments last quarter.

Our consolidated price mix was up 1% for the full year 2012, consistent with our prior year full-year outlook.

And for 2013, we expect to keep earning low single-digit consolidated price mix, as called for in our long-term growth model, as we continue executing our occasion-based brand/price package and channel strategies with precision around the world.

Our comparable currency-neutral SG&A expenses were up 5% on a full-year basis.

This increase in SG&A reflects our ongoing commitment to keep investing for a better tomorrow, as we grew our direct marketing expenses in 2012 while simultaneously capturing incremental marketing efficiencies.

We also added additional feet on the street, primarily in North America, to ensure support of our growing business in this important market.

And our SG&A results for the quarter and full year also included a benefit from the reversal of certain expenses related to our long-term incentive plans, as well as a one point unfavorable impact of structural items, primarily in our bottling investments group and in North America.

Our full-year comparable gross margin was roughly in line with the estimate we provided during our previous earnings calls.

Our operating expense leverage was a positive nine points this quarter, as we benefited from having two additional selling days.

And our full-year operating expense leverage came in at a positive one point.

For 2013, we expect our positive operating expense leverage to be even to slightly positive, as we sustain our strategic investments in brand building activities around the world, and efficiently manage our operating expenses.

As you model our 2013 operating results and our corresponding operating expense leverage, let me also remind everyone that our 2013 calendar will have one less day when compared to 2012.

Specifically, our first quarter of 2013 will have two less days when compared to the first quarter of 2012, and the first -- and the fourth quarter of 2013 will have one more day when compared to the fourth quarter of 2012.

Moving now to net interest, this came in at a positive $31 million in the fourth quarter.

This was ahead of our initial expectations and raised our full-year net interest income to $74 million.

For 2013, our best estimate is that net interest will come in as an expense ranging between $30 million and $50 million for the full year 2013.

We'll update this outlook each quarter as we move through the year.

For 2012, underlying effective tax rate held steady at 24% and we expect the tax rate for 2013 to be approximately the same.

And our cash flow from operations increased 12% on the full year 2012, partially benefiting from favorable timing relating to certain working capital items.

Looking ahead to 2013, we expect our cash flow growth rate to be more in line with our earnings growth rate.

Now, let me take a moment to update on the impact of several additional items that may help you model our business in 2013, starting with commodities.

Incremental costs related to our big four commodities, which are sweeteners, metals, juices, and PET, came in at around $225 million for the full year 2012, in line with what we had provided previously.

Looking ahead to 2013, and after considering our hedge positions, we anticipate a more moderate year of commodity inflation with incremental costs related to our big four commodities coming in at closer to $100 million.

As for currencies, we saw head winds of 4% on our fourth quarter comparable operating income and 5% for the full year 2012 comparable operating income, consistent with our previously provided outlook.

In preparing for 2013, we are fully hedged on the Euro, Yen, and Sterling, and also have some near-term coverage in place across several other currencies.

After considering these hedge positions, current spot rates and last week's devaluation announcement in Venezuela, we now expect currencies to be a 4% head wind of operating income for the first quarter of 2013 and at even to minus 1% head wind for the full year.

It was even before Venezuela, so maybe slightly negative with Venezuela.

We'll also report $100 million to $125 million devaluation loss in the first quarter related to monetary assets held in Venezuela.

As for our normal practice, we'll update our currency forecast on a quarterly basis as we go through 2013.

Our full-year share repurchases net of employee option exercises totaled $3.1 billion in 2012, just slightly above the $2.5 billion to $3 billion range we communicated at the outset of the year.

In 2013, we expect our net share repurchases to range between $3 billion and $3.5 billion.

Now, let me take a moment to highlight a few other items that will also inform you about our business in 2013.

First, as previously announced, starting this year we will have organized our company around three major operating businesses; Coca-Cola International, consisting of Europe, the Pacific, and Eurasia and Africa operations; Coca-Cola Americas, consisting of our North America and Latin American operations; and our Bottling Investments Group, which will continue to oversee our company-owned bottling operations outside of North America.

As this organizational change does not impact our reporting segment, we'll continue to disclose our performance results for all five geographic operating groups, as well as for our Bottling Investment Group.

That said, starting with the first quarter of 2013, we will reflect our India and Southwest Asia business results within our Pacific operating group instead of within our Eurasia and Africa operating group.

Prior to our next earnings call, we will provide information reclassifying the last three years of our results for these two geographic operating groups to facilitate your historical comparison of our results to our future results.

Second, as previously mentioned by Muhtar, there have been several transactions announced these past few months, including bottler mergers in Japan and Brazil, and the sale of 51% of our bottling business in the Philippines.

To be clear, we do not expect these transactions to have a material impact on our 2013 earnings results.

However, these actions will generate a structural head wind on our year-over-year net revenue and operating income growth rates.

As such, we anticipate these transactions to have a 3% structural impact on our full-year 2013 net revenue.

Likewise, our full-year operating income results should see a 1% structural impact with this decline offset by a corresponding improvement in equity income.

And as I mentioned, we do not see these transactions having a material impact on 2013 earnings per share.

As a final update and as part of our previously announced global productivity and reinvestment program, we are reorganizing our Coca-Cola refreshments business in the United States to align itself and operating functions around three geographies.

We take this action as part of our consistent effort to improve our processes and systems, and to ensure greater operating effectiveness and productivity across our North American operations.

This new alignment is in keeping with the ongoing evolution of our North American business model, as we invest even further to enhance our capabilities and deliver against our 2020 vision.

In closing, and as Muhtar said earlier, we are delivering on our strategic priorities and achieving real success.

As we move into 2013, our global bottler system is healthier than ever and our financial priorities remain clear.

We will invest in our core business with plans to spend around $3 billion in capital expenditures in 2013.

We will strategically invest with our global bottling system to increase our share position across key growth categories.

We will pay a healthy dividend, and as previously announced, we will repurchase shares between $3 billion and $3.5 billion in 2013.

Our system is committed to investing together for a better tomorrow and our proven ability to achieve a consistent quality results provides us with the confidence that we will continue to successfully execute our growth strategies with precision, in line with our 2020 vision.

Before concluding our prepared remarks, I want to remind you that Ahmet, Steve and I look forward to seeing you when we present at the upcoming CAGNY Conference in Boca Raton on Friday, February 22.

And Irial and I also look forward to being with you when we present together at the CAGE conference in London on Tuesday, March 19.

Operator, we're now ready for questions.

(Operator Instructions)

Bill Schmitz, Deutsche Bank.

Hi, guys.

Good morning.

Muhtar, I know you have been doing a lot of globe-hopping lately, so could you talk about the global macro, maybe some granularity about regional growth rates?

I know you were at [sohishina dobos], just to give us some color on how you think things are going to trend over the next year.

I know you kind of covered it big picture, but maybe some more granularity.

Yes, Bill, I think -- I've recently been to Korea, to Australia, in the last 10 days to also southern Russia and Sochi, but I think essentially in Europe, there is a sentiment there that people are beginning to feel that it's not going to get any worse, that there will be some expansion happening as we move forward instead of just purely fiscal restraint and monetary restraint.

So there is that feeling beginning to emerge, but I think it's going to be a long recovery.

Certainly in China, we are seeing the transition happen from a purely export-led economy to one that is more balanced with consumer spending and a combination of consumer spending, as well as export-led a balanced economy.

I think there were some challenges in that transition initially where there was a divergence between GDP growth and pure disposable incomes for a while.

But I think long-term, that's going to be very beneficial for everyone, this transition in China.

I think in general, Japan is going to also -- I think the consumer sentiment will continue to be modeled and volatile there and subdued.

The rest of the world, whether it's Africa, the youngest billion, Latin America, Eurasia, Middle East, we see -- and of course Asia, Southeast Asia and other parts of Asia, Indian subcontinent, we see growth.

We see very disciplined monetary policy, balanced budgets, good banking system, and the consumer is more positive.

And so it's modeled and it's mixed.

And here in the United States, we see some signs of improvement.

We need to wait and evaluate the impact of the payroll taxes, as well as the higher gasoline prices.

It's too early to say, but it's a recovery that is at best lukewarm, but we feel that it could get better.

That's how we see the world.

And based on that, we continue to invest for opportunity.

We continue to invest based on our long-term models and plans with our bottling partners, to continue to generate both volume, top line, and income growth.

Great.

Thanks very much.

And can I follow up with the change in the structure of CCR North America?

Does this change your sort of philosophy on sort of how long you're going to own the asset and maybe how it's going to be operated going forward?

Are you just -- sorry.

Are you talking about just the restructuring?

Yes, exactly.

Like for the three different regions.

There were seven different businesses before and now there's three.

Does that sort of change your view on how long that asset stays with TCC?

Yes, it's got nothing to do with that at all.

Think of it as last year we announced a new productivity and reinvestment program that includes continued synergies from our North America CCR, Coca-Cola Refreshment operations, to be able to enable us to continue to invest in our brands to grow in North America.

11 quarters of consecutive quarters of growth.

When we first talked about growth in North America back in '09, people thought that we were trying to go to the moon with a glider.

And now, it's reality.

11 quarters of consecutive growth.

And we intend to continue that.

We see this as a growth market.

And therefore, to enable us to continue to invest in our brands, this is just ordinary course of business.

Think about it exactly like that.

It's not a big deal, ordinary course of business, and therefore, it's got nothing to do with the United States bottling structure.

It's just part of ongoing business and I'll have -- Steve Cahillane is here with me on this call, as well as Ahmet Bozer and Irial Fanin, so I can ask Steve to also comment.

Muhtar, you said it very well.

This is very much an effectiveness play.

Two years ago when we put these businesses together, we had a simple mantra.

First, we were going to make it work.

Then we were going to make it better.

Then we were going to make it best.

We've learned a lot over the course of the last 2.5 years.

One of our most successful organizations is our food service organization, which is aligned around three geographic units.

We're moving our national retail sales and our field sales organizations also around the same three units, which will really build our total efficiency and effectiveness, our ability to work together, our ability to continue to invest in this market, invest against our brands, put more feet on the street.

So we're very excited about the new organization and think it will get us from making it better to making it best.

Great.

Thank you very much.

Bill Pecoriello, Consumer Edge Research.

Good morning, everybody.

I just wanted to clarify one thing first, Gary.

When you are hitting the long-term FX neutral operating target, you expect to do that in 2013, as well as in the long run?

Then with close to zero operating expense leverage guidance of '13, despite the savings, you're signaling stepped-up spending.

Wanted to get an idea of where you're focusing that incremental spending on.

Thanks.

Thanks, Bill.

Yes, and I was trying to be pretty clear, but let me be very clear.

We expect to hit our long-term growth targets both in 2013 and in long-term.

But that applies to 2013 as well.

So we're comfortable with that and would expect to be able to deliver that.

The second thing is we have always had a mantra that you invest through a crisis.

We've been in a global crisis for a number of years now.

But we've got history and we've seen what happens when you invest through the crisis, when you come out the other end.

As Muhtar says, we think -- see things slowly improving across the world, but we expect to come out at the other end much stronger than we were even going in.

So we're going to continue to drive efficiencies, productivity, and then reinvest that back to grow the business and growing the brands.

The brands are stronger than they have ever been, but we think we can drive it even further so.

We're going to continue to invest behind the brands.

And just one point to add on that, Bill.

I always say, as you go up, the air gets thinner.

Always remember, we're adding on top of significant increases from prior year all the time.

Just on sparkling beverages alone, we've added 500, over 0.5 billion cases each year.

So we are cycling that every year and we're continuing to grow.

I think that is really important.

And in three years, the worst, I guess, probably macroeconomic environment, we've seen for a long time.

We're able to generate volume growth in line with our growth expectations, revenue growth in line with our growth expectations and income growth.

Generating record revenues of $48 billion, record income, as well as record cash growth.

It needs to be taken into that context, continue to crack the calculus for growth.

Thank you very much.

Judy Hong, Goldman Sachs.

Thanks.

Good morning.

So Muhtar, I know you spoke a lot about the macro environment, but maybe you could speak a little bit about the competitive environment, particularly around US sparkling, China, and parts of Western Europe where you have seen some step-up in competitive pressure and how that's affected your volume performance and how you see that sort of trending in 2013.

I think in the United States, we are -- as you have heard, we've gained -- continued to gain both volume and value share.

And in all over the world, our share is at an all-time high, everywhere across the world, in NARTD, as well as in the different categories that we're operating in and competing in.

We choose to compete in.

And therefore, and similarly in China in sparkling, we've widened our gap to our nearest international competitor in sparkling.

In Europe, I think there have been a month or two where we've had some challenges.

But overall for the whole year, we've, again, gained share across the whole of broader Europe, in Western Europe, as well as Eastern Europe, and in Southeast Europe, across the whole continent in both volume and value share.

And to be -- I think to be frank, we see competition is healthy, and it keeps us on our toes, it keeps us executing better and being better, becoming more efficient and more productive, and that's all we strive every single day as a business system, together with our 275 bottlers around the world, is that we strive to get better.

Better at making decisions quicker, so that we can be more nimble and more innovative and, as you know, we've launched more than 800 different products over the last four or five years.

Many of them are new, innovative products that are gaining great traction, as they are in the United States.

Look at the still -- performance of our still business.

Look at the relative performance of our sparkling business.

I mentioned that between 2009 and 2012, spend per person on our brands went up from $56 to $60.

So transactions are up in the United States.

Our brand price pack channel location architecture is working in the United States.

So both in China, transactions are ahead of our volume, as well as in the United States immediate consumption business.

So judge us not only by pure volume.

Judge us by the quality of our volume and transaction growth.

We sell -- in the end, consumers buy packages and products, combination of packages and products, each one at a time.

They don't buy liters.

That is really important, I think, to understand and how we think about our business.

Okay, and then Gary, following up on currency guidance for the full year.

It seems like the first quarter guidance is actually a little bit worse than I thought.

Can you help us understand, is it based on your hedge position and with the Yen moving pretty sharply, how much are you hedged on the Yen?

Judy, we're actually fully hedged on the Yen, Euro and Sterling, and in fact, the Yen positions that we have are actually in the money.

They are in good play.

That's not an issue.

When you look at the first quarter, it was actually -- I said 4%, it was 3% pre-Venezuela.

It is 4% now.

The Venezuela devaluation obviously is a big one, when you devalue 50%.

So that's number one.

But number two, the real impact is not what you would expect, is not the Yen.

The impact are the rates that we're cycling in the emerging markets, particularly Latin America.

If you look at Brazil, look at Mexico, those -- look at the rates at early last year, and then they started devaluing South Africa as well.

If you look at those, you'll see there's an improving trend.

So towards the latter part of 2013, based on where spot is today, we actually turned positive with kind of even to minus one for the full year.

But it is front end loaded negative and then improving throughout the year.

And in Venezuela, Gary, just the impact you're purely looking at transitional impact or some sort of margin impact as you have the pricing control in place?

We've got a loss on monetary assets.

That was the 100 to 125.

And so if you look in the Wall Street Journal article this morning, we just joined a list of other companies that have the same issue.

So that's kind of a one-time item that I'm just telling you has occurred and will occur.

And then the translation impact of the revenues will be about a 1% drag in the first quarter.

Got it.

Okay.

Thank you.

Thank you.

John Faucher, JPMC.

Thank you.

Just two questions here.

Gary, just sort of more of a housekeeping type of thing.

As you look at the commentary on the net interest line, seems as though that's going to create a situation where there's probably not much leverage, if any, below the operating lines.

If you could just sort of confirm that.

And then secondly, as we look at the organic top line growth in terms of just simply the bottler case sales volume plus price mix, it decelerated looks like to me at least every quarter this year.

So can you talk about how you see that trending up as we go through the course of 2012?

You've got difficult comparisons in the first half of the year and sort of how that's going to play into your comfort level of hitting that 6% to 8% currency neutral operating profit target.

Thanks.

John, let me see if I can get the first half of your question.

First, below operating income growth, you're right, because we will see net interest flip from interest income to interest expense.

There are a couple of things going on in there.

Primarily, it's rates.

And just rates are down, particularly in some of the emerging markets where we've got some cash which was generating a lot of the interest income.

You saw that happening during the latter part of this year.

And the reason that interest income was actually a lot better than in the fourth quarter than I told you to expect it to be was actually we put on some interest rate swap hedges a couple years ago.

There's a small ineffectiveness piece to that hedge and the ineffective piece has to go through the P&L.

That was actually pretty large this quarter positive, and it gave us a lot of interest income.

So that's part of what you're seeing.

So -- but then equity income, you're going to get some leverage.

It's going to be up because of the structural items that I talked about from some of the transactions that have occurred.

Then if we go to, all right, the second half of your question was -- tell me again.

Just looking at the deceleration in the organic top line growth and how that maps out over the course of the year and the comfort on let's say the 6% there.

Well, I think there are a couple of different things.

There, I think we're going to see improving and slowly improving trends in many of the markets around the world.

Europe, I think will improve.

My expectation is that Europe will improve in 2013 from well -- pretty good improvement form the fourth quarter of 2012, so I would say you're actually going to see sequential improvement in Europe.

You're going to see sequential improvement in China for sure.

I think the US is poised now also in a pretty good place.

So I think number one, I think volumes in 2012 dipped a little bit in the fourth quarter.

Our view is that is not the start of a trend, that we think that's just -- it happened, but it's not the start of a trend.

And we would expect volume actually to be okay in 2013 and we think it will sequentially start coming back and be better, be okay in 2013.

John, just, just to add on that, I think very little is always said about the 120 or so countries which have a per capita of around 125 in our business, where volume growth for 2012 was, again, 7%.

These countries represent about a little more than one third of our total global volume, countries that we never talk about, whether it's Sub-Sahara, or whether it's in Asia or Middle East or central Asia and so forth.

But -- and we grew in these countries 9% in 2010, 7% in 2011, 7% in 2012, and we keep on growing.

This is the beauty of our portfolio impact.

So while you may have a quarter where China doesn't grow or where Europe doesn't grow, we still continue to be able to deliver on our long-term growth model for volume and also for revenues, and I think that is -- imagine what would have happened to our volume if Europe did grow this past quarter and China.

So this is the benefit of having this portfolio, which is getting stronger and bigger, as we continue to invest with our bottling partners in alignment.

Okay, and then finally, one housekeeping question.

Gary, you mentioned the equity income line.

That's coming out of the operating profit line.

So is it -- as you look at hitting your target, I'm assuming that's before the bottler deconsolidation, right?

So that's 6 to 8, sort of minus 1 for the bottler, minus 1 for the FX is how we should look at it?

Yes, John, that's exactly right.

When I said hit the target, we hit the target before structural, but then you would have to adjust for structural.

But with pretax or net income being the same, it's just what is the geography within the P&L.

Okay, great.

Thank you.

Perfect.

Thank you.

Thank you.

Ali Dibadj, Bernstein.

Hi, guys.

Can you give us a little bit more of a sense of the go-forward evolution of the bottling system globally and in the US?

And you look at Germany that shrank this quarter and you want to do some system changes there.

Japan certainly has seen some system changes and that's had some struggles.

China is struggling a little bit and there were competitive system changes there.

US sparkling volumes are still a little bit tough and you bought TCC about two years ago.

And whether, to Gary's point, these volume trends are a trend or not, it just seems to us that given all of that, you might actually see the next few years with very large changes to the Coca-Cola system and the industry overall.

So if you were to kind of close your eyes and see with us, how would you see the structure of the system, of the future looking versus what it is today?

Ali, I've always said the fact we are total believers in the franchise system.

It is a beautiful system when you can get it to work as we have aligned towards the vision, aligned with its goals and aligned in its ownership objectives and goals.

That's what we have.

And therefore, we will continue to drive this bottling system towards an aligned vision, which we have.

And as I said, we've got three years that we've accomplished that and seven years to go and we're confident that we can continue to accomplish it.

As we move through the system, you've already heard us talk about what we see, envisage for the US system, where we have a role again for bottling partners.

We are on -- we still have the same time table for that.

I won't repeat what the time table was.

We said about four to five years since the time we closed the transaction.

And you can figure we're still -- we still believe that is doable.

And as we move along different parts of the world, you see us creating stronger systems, like Brazil, stronger systems like Kanto.

That is a huge milestone in the 55-year history of our Japanese business, getting the four Kanto bottlers to unite and to take costs out of the system to be able to continue to invest to drive top line growth for our system.

And you will see us doing more of those as we move forward.

And again, refranchising Philippines is another example.

So don't think of this as seismic changes in our bottling system.

We will continue to fine tune and evolve as needed, as necessary to drive the goals that we have outlined.

So it's helpful, and I'm still struggling with what's -- what can we look forward to changes in terms of not being as reactionary, but maybe thinking going forward.

Maybe if you can help me, you mentioned the US and Steve mentioned it a little while ago, so it's been about two years since you closed the CC North America transaction.

Can you give us a sense of where you think you are ahead of plan and where you are behind plan?

Certainly for many investors, this quarter was probably pleasing, because operating margins start in reflect positively, but is this sustainable without any more meaningful restructuring, bigger things?

And how do you think about the volume trends we've been seeing so far in sparkling and whether that changes anything about how you think -- not reactionary -- but going forward about the structure here, as just another example of what you're describing, Muhtar?

First, let me just say that everything we're doing, none of it is reactionary.

It's proactive, whether it's Brazil, whether it's Philippines, whether it's Japan, and we've got more to talk about that we're not in a position to talk about right now.

All of that is actually proactive.

And the US is all about proactive.

And I can tell you very clearly, once again, that as I mentioned in Judy's question, judge us not only by the leaders, judge us also by the transactions, judge us by how we are doing in terms of the value of the business that we are creating and the consumer spend that's coming into our business, into our brand and the health of our brands.

This is ultimately a brand business.

Our brands are healthier than they have ever been, both in sparkling, as well as in still beverages.

So I think that we see -- I repeat, we see opportunities in the United States for it to keep growing and also for us to keep generating value in both sparkling and in still beverages.

And that's how we see it and whatever it takes for us to be able -- investment, proactive long-term investment is the key.

Whatever it takes for us to be able to continue our targeted, thoughtful, purposeful investments, you will see us continuing to do that so that our brands remain healthy, our system remains nimble, and flexible, as far as throughout the market, as far as production and as far as distribution and sales.

Thanks.

Bryan Spillane, Bank of America.

Hi, good morning.

I've got a question on the, just the productivity program, just really looking for an update.

First, I think if you took the two elements of it, both what was initially announced last year plus the extension of the CCR integration, your expectation was $550 million to $650 million of annualized savings by the end of 2015.

So is that still the same size or has there been any change to what you're expecting in terms of total savings?

Brian, this is Gary.

No, no changes at all.

We -- you're exactly right.

What we announced the beginning of last year in productivity and reinvestment was $550 million to $650 million for total company, including North America.

We are still on track.

In fact, well on track on that program.

It was a 2012 through 2015 program and we are continuing to execute against that.

We're on track.

We are taking the savings and from the supply chain optimization, the marketing effectiveness, operational excellence, data and IT systems standardization were the areas of that whole program, in addition to what we're doing in CCR, and we're taking that and reinvesting behind innovation, as well as marketing of our brands and that's still working well.

What we talked about in North America today is just a normal part and evolution of that program and we'll continue to do that around the world to drive effectiveness, because it really helps us in several different ways.

It's not only about saving money.

It's about operating more effectively so we can operate faster.

Being more productive means we can make decisions quicker, and those are the things we are driving for.

We want to be fast, flexible and very big.

How much did it drive -- how much savings did you drive in 2012?

Outside of North America, we probably had about $40 million to $50 million in savings in 2012, and then North America continues to drive synergies and did fairly well against their part of their targets as well.

Fair to say you think '13 will be a bigger aggregate pull to savings to spend back than you had in '12?

Yes, it will be.

It will be.

Okay, and then just one last one.

How much in terms of charges are you expecting to take over the life of the plan relative to the savings?

Let me, Brian, answer it this way, because as we continue -- I'll continue to update you on where we are and how big the plan is.

So let's call it $550 million to $650 million today, but as you know, a few years ago, we had another program as well that we kind of concluded and then started this one.

So we continue to look for efficiencies and effectiveness.

But everything we look at when we evaluate it, we would expect that the one-time costs ought to be in a ratio no more than 1 to 1.5 to 1 payback.

So you're talking about a 12 to 18-month payback on something that's then continuous benefit to the P&L going forward.

Okay.

That's helpful.

Thanks, Gary.

Okay, great.

Thanks, Brian.

Thank you, Gary, Ahmet, Steve, Irial and Jackson.

In closing, we had a strong 2012 and have once again delivered quality full-year performance results.

Our business continues to grow, even in the midst of ongoing global economic challenges.

Our system is aligned.

And it's on track to achieve our 2020 vision.

Together, we are consistently investing in our brands on a global scale through world class marketing and commercial strategy.

And as we get closer to the midpoint of our 2020 vision, our system remains resolutely focused on refreshing our consumers, creating value for our customers, maintaining strong partnerships with our bottling partners, strategically investing for the future, and expanding shareholder value.

As always, we thank you for your interest and your investment in our company and for joining us this morning.

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

Audio playback is available via the Company's website, thecoca-colacompany.com.

You may all now disconnect.