Fourth Quarter 2014 Earnings Call. February 10, 2015

Transcription

1 Fourth Quarter 2014 Earnings Call February 10, 2015

2 Forward-Looking Statements This presentation may contain statements, estimates or projections that constitute forward-looking statements as defined under U.S. federal securities laws. Generally, the words believe, expect, intend, estimate, anticipate, project, will and similar expressions identify forward-looking statements, which generally are not historical in nature. Forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from The Coca-Cola Company s historical experience and our present expectations or projections. These risks include, but are not limited to, obesity concerns; water scarcity and poor quality; evolving consumer preferences; increased competition and capabilities in the market place; product safety and quality concerns; increased demand for food products and decreased agricultural productivity; changes in the retail landscape or the loss of key retail or foodservice customers; an inability to expand operations in emerging and developing markets; fluctuations in foreign currency exchange rates; interest rate increases; an inability to maintain good relationships with our bottling partners; a deterioration in our bottling partners' financial condition; increases in income tax rates, changes in income tax laws or unfavorable resolution of tax matters; increased or new indirect taxes in the United States or in other major markets; increased cost, disruption of supply or shortage of energy or fuels; increased cost, disruption of supply or shortage of ingredients, other raw materials or packaging materials; changes in laws and regulations relating to beverage containers and packaging; significant additional labeling or warning requirements or limitations on the availability of our products; an inability to protect our information systems against service interruption, misappropriation of data or breaches of security; unfavorable general economic conditions in the United States; unfavorable economic and political conditions in international markets; litigation or legal proceedings; adverse weather conditions; climate change; damage to our brand image and corporate reputation from negative publicity, even if unwarranted, related to product safety or quality, human and workplace rights, obesity or other issues; changes in, or failure to comply with, the laws and regulations applicable to our products or our business operations; changes in accounting standards; an inability to achieve our overall long-term growth objectives; deterioration of global credit market conditions; one or more of our counterparty financial institutions default on their obligations to us or fail; an inability to realize additional benefits targeted by our productivity and reinvestment program; an inability to renew collective bargaining agreements on satisfactory terms, or we or our bottling partners experience strikes, work stoppages or labor unrest; future impairment charges; multi-employer plan withdrawal liabilities in the future; an inability to successfully integrate and manage our Company-owned or -controlled bottling operations; global or regional catastrophic events; and other risks discussed in our Company s filings with the Securities and Exchange Commission (SEC), including our Annual Report on Form 10-K for the year ended December 31, 2013 and our subsequently filed Quarterly Reports on Form 10-Q, which filings are available from the SEC. You should not place undue reliance on forward-looking statements, which speak only as of the date they are made. The Coca-Cola Company undertakes no obligation to publicly update or revise any forward-looking statements. Reconciliation to U.S. GAAP Financial Information The following presentation may include certain "non-gaap financial measures" as defined in Regulation G under the Securities Exchange Act of A schedule is posted on the Company's website at (in the Investors section) which reconciles our results as reported under Generally Accepted Accounting Principles and the non-gaap financial measures included in the following presentation. 2

3 Topics Q Review Strategic Actions and Progress 2015 Expectations Financial Review Summary 3 3

4 Fourth Quarter 2014 Review Winning Metrics: Q4 vs PY Value Share - Sparkling - Still - NARTD Growth/Profit Metrics: Q4 Growth YTD Growth Unit Cases Net Revenue* - Volume (Concentrate Sales / Reported Volume) - Price/Mix** Operating Income* 7% 6% Cash/Returns Metrics: Absolute Change Free Cash Flow*** (YTD) $8.2B 3% Cash Return on Invested Capital**** 16.02% -32 bps 1% 4% 3% 1% 2% 3% 1% 1% 4 *Comparable Currency Neutral, Structurally Adjusted **Price/mix includes the impact of certain economic (nondesignated) hedges. After adjusting for the impact of these economic hedges, price/mix increased 2% in the fourth quarter and 1% for the full year. ***Free Cash Flow = Cash from Operations less Purchases of Property, Plant & Equipment ****Cash Return on Invested Capital = Free Cash Flow divided by Average Invested Capital (provided annually)

5 Five Strategic Actions Progress on Key Actions Status Target disciplined brand and growth investments Drive revenue and profit growth with clear portfolio roles across our markets Refocus on our core business model Aggressively expand our productivity program Streamline and simplify our operating model Not Started In Progress Completed 5

6 Investing in brand and growth opportunities Brand Media investments Growth Expanding participation across a range of consumption occasions Increased double digits for 2014 Enabling strong pricing in the North America sparkling portfolio 6

7 Driving revenue and profit growth Expanded our market segmentation, recognizing that each of our markets has a role to play within our portfolio Revised incentive metrics add revenue growth directly aligned to these market roles 7

8 Refocusing on core business model while evolving our bottling landscape North America 21st Century Beverage Partnership Model Refranchised ~5% of the U.S. bottler-delivered business in 2014 Signed definitive agreements to refranchise a similar amount in the first half of 2015 Roadmap to retain ~1/3 of the U.S. bottler-delivered business by end of 2017 Indonesia Coca-Cola Amatil Indonesia Population 250 million Fast-growing middle class Fund critical capability development Ensure we are a leading player over the long term Africa Formation of Coca-Cola Beverages Africa Largest Coca-Cola bottler in Africa and 10th largest worldwide Scale, resources and capability to best serve Southern and East Africa 8

9 We are moving quickly against our expanded productivity program COGS Operating Expenses Marketing TOTAL 2013 Spend Base $18B $12B $5-$6B $36B Total Savings ~$1.4B ~$1B ~$600M $3B In-line blowing Warehouse automation Light-weighting Network optimization Procurement 15% to 20% savings for non-bottling opex Mid single-digit % savings for bottling opex Streamlining group functions and standardizing business units Zero-based budgeting Marketing spend procurement Reduction in nonmedia DME Focus resources behind most effective investments 9

10 We began the process of streamlining and simplifying our operating model Streamlining group functional layers Standardizing key processes across our business units Organization wired to Act Rapidly 10

11 2015 Expectations 2015 will be a transition year for the Company Global consumer environment will remain volatile We will implement our strategies with focus and conviction to build for the future Maintain outlook of mid single-digit comparable currency neutral EPS growth in 2015 For 2016, we intend to deliver long-term target of high single-digit comparable currency neutral EPS growth 11

12 12 Financial Review Q4 EPS slightly ahead of our expectations Strong finish during holiday season Gross margins slightly higher Operating expenses lower than expected Marketing Direct marketing expenditures grew high single digits in the quarter and mid single digits for the full year Media investments up double digits in both the quarter and full year Venezuela We recorded a write-down on concentrate sales receivables We remeasured our bolivar-denominated net monetary assets at the end of the quarter using the SICAD II exchange rate The SICAD II exchange rate will also be used to translate our Venezuelan subsidiary s local currency income statement into U.S. dollars beginning in January 2015

13 Currency neutral outlook reaffirmed with stronger currency headwinds Net Revenue Organic Outlook (FX neutral) Macro environment not expected to improve materially Structural Items Slight positive impact Gross Profit Operating Income Net Interest Exp Margins roughly in line with 2014 Incremental media investments Higher pension expense Cycling reversal of expenses related to certain incentive plans 1% to 2% headwind 1% headwind Slight net interest expense (including impact from structural items) Full-year 2015 comparable currency neutral EPS growth expected to be mid single digits PBT Currency Tax Rate Net Share Repurchases Below long-term target ~5% headwind on net revenue and 7%-8% on PBT 22.5% underlying effective tax rate $2.0 to $3.0 billion updated Slight headwind 13 Capex $2.5 to $3.0 billion

14 First Quarter 2015 Considerations Calendar Six additional days compared to Q Impacts both revenues and costs Structural Items and Venezuela North America territories refranchised in 2014 will impact first quarter 2015 Monster transaction expected to close at beginning of second quarter Unfavorable impact from Venezuela provision enacted in 2014 Combined headwind of ~2 points on net revenue and ~3 points on profit before tax Other Benefit from incremental media investments flows in over time Unfavorable impact due to timing of marketing expenses last year and cycling the reversal of expenses associated with certain long-term incentive plans Currency ~6% headwind on net revenue and ~8% headwind on profit before tax 14

15 Summary We are confident in our strategies and our actions 2015 is a transition year as we implement significant change in our Company We are best positioned to capture growth in nonalcoholic beverages and deliver long-term value 15

16 Q&A