Coca-Cola Enterprises Reports 9% Income Growth

Posted by Nicole Eckersley on 11th February 2010

Coca-Cola’s fourth quarter results, published yesterday, show a net income of US$731 million for 2009, and a comparable net income of US$788 million.

While sales in North America fell 5% and prices rose, the company showed impressive growth in the new markets of China (up 29%) and India (up 20%).  Developing markets also grew, Brazil by 8% and Mexico by 4%, and the European markets remained strong, with France growing 12% and Germany 3%.  Company shares increased by 66 cents in the quarter and earnings were up 3% year-over-year.

“We ended this year on a high note, delivering global volume and value share gains, comparable currency neutral revenue growth, improved productivity and increased cash flows,” said Muhtar Kent, Chairman and Chief Executive Officer of The Coca-Cola Company.

“In a year marked by unprecedented economic uncertainty, our foundation – leading brands, unmatched global footprint, great bottling partners and a solid financial position – proved that we have the right ingredients for growth even under challenging economic conditions.”

Kent highligted marketing campaigns, including the ‘Open Happiness’ campaign, Red, Black And Silver initiative and holiday programs, as a driver of brand growth this year.

Chairman and CEO of Coca-Cola Enterprises, John F. Brock, warned that the future might not be plain sailing. “Despite this success, we face lingering economic weakness throughout our territories and an evolving competitive environment,” Mr. Brock said. “However, we remain confident that we can continue to achieve our long-term objectives as we strive to be the world’s best beverage sales and customer service company.”

North American Results

For full-year 2009, comparable North American volume declined 5 percent, while net pricing per case grew 6½ percent. Full year cost of sales per case increased 4 percent. In the fourth quarter, North American volume declined 3 percent, while net pricing per case declined ½ percent reflecting the mix impact of slower sales of still beverages and single-serve packages.

“Though fourth quarter volume results reflect significant sequential improvement over the third quarter, we continue to see the impact of weak macroeconomic conditions on our overall results,” Mr. Brock said. “Key channels, such as on premise, remain soft. We will continue to execute several key operating and brand initiatives to counter these conditions. For example, through our price/package architecture effort, we are offering customers and consumers important package and price point alternatives.

“We are also strengthening our marketplace presence through our Right Execution Daily initiative and through Selling and Merchandising Optimization, which enhances customer service and reduces costs,” Mr. Brock said. “This work, coupled with the strength of our Red, Black and Silver Coca-Cola trademark portfolio as well as new brand activity including vitaminwater Zero, will help us reach our 2010 goals in North America.”

European results

A balance of solid volume and pricing growth enabled Europe to achieve a third consecutive year of profit growth. For the full year, comparable volume grew 5½ percent, with continental Europe growth of 5 percent and growth in Great Britain of 6 percent. A key growth factor is the ongoing success of Coca-Cola Zero and the company’s Red, Black, and Silver initiative. For the year, Coca-Cola trademark brands grew 7 percent, highlighted by growth for brand Coca-Cola, diet Coke/Coke light, and Coca-Cola Zero, which increased more than 15 percent. Flavored sparkling drinks grew 3 percent, driven by Sprite and energy drinks. Still beverages grew 1 percent for the year, with growth in water and declines for juices.

Comparable net pricing per case increased 4 percent for the full year on a currency-neutral basis. In the fourth quarter, European volume increased 6 percent and comparable net pricing per case grew 3½ percent.

“Europe continues to deliver outstanding results, with balanced growth and profitability for the third consecutive year,” Mr. Brock said. “To build on this progress, it is vital that we continue to focus on core sparkling beverages, improve our overall still beverage portfolio, strengthen customer service amid a rapidly changing commercial environment, and further enhance our effectiveness and efficiency.

“We are committed to maximizing our operations to seize the attractive growth opportunities in Europe,” Mr. Brock said.

Pacific results

The Pacific Group delivered unit case volume growth of 11 percent in the quarter, cycling 9 percent growth in the prior year quarter. Full year unit case volume increased 7 percent, cycling 8 percent growth in the prior year. Net revenues for the quarter increased 5 percent, reflecting an 8 percent increase in concentrate sales and a 7 percent positive impact from currencies, partially offset by the impact of six fewer selling days in the quarter as well as negative country and channel mix. Reported operating income increased 5 percent in the quarter. Comparable currency neutral operating income increased 3 percent in the quarter, reflecting higher concentrate sales partially offset by negative country and channel mix, primarily in Japan. For the full year, reported operating income increased 2 percent, but declined 2 percent on a comparable currency neutral basis as a result of the same country and channel mix drivers.

Pacific delivered unit case volume growth across the portfolio with sparkling beverages increasing 9 percent and still beverages increasing 15 percent in the quarter. Importantly, brand Coca-Cola grew 11 percent in the quarter. Unit case volume growth was led by China, Thailand, Australia, the Philippines, Korea and Vietnam. In the quarter, Pacific gained volume and value share in total NARTD beverages.

In China, unit case volume grew 29 percent in the quarter driven by strong double-digit growth in Minute Maid Pulpy and the successful launch of Minute Maid Pulpy Super Milky, the Company’s first entry into the value-added dairy segment. Trademark Sprite was also up double digits, and brand Coca-Cola was up 13 percent. China achieved volume and value share gains in total NARTD beverages as well as the sparkling and still categories in both the quarter and full year.
In Japan, unit case volume declined 4 percent in the quarter reflecting the continued weak economy and unfavorable weather. However, our business in Japan continued to outperform the NARTD industry, resulting in the seventh consecutive quarter of share gains. Importantly, Coca-Cola Zero maintained its strong momentum with unit case volume growth of 23 percent in the quarter, and I LOHAS mineral water in new lightweight eco-friendly crushable PET bottles has gained volume and value share in this competitive category.

2010 Outlook

CCE reaffirmed the guidance delivered in its December conference call with analysts. For 2010, the company expects operating income will increase in a mid to high single-digit range, driven by mid single-digit growth in both Europe and North America. Revenue should increase at a low single-digit rate, driven by mid single-digit growth in Europe and essentially flat revenue in North America.

Comparable earnings per diluted common share will increase at a high single-digit rate, excluding currency. Though it is too early to accurately evaluate the 2010 currency impact, at current rates, currency would have a negligible impact to full-year EPS.

The company also expects strong free cash flow of approximately $800 million, and capital expenditures of approximately $1 billion. Interest expense is expected to decline modestly, and the effective tax rate for 2010 is expected to be approximately 26 percent. Guidance excludes items affecting comparability and is currency-neutral.