10-QPeriod: Q1 FY2001

COCA COLA CO Quarterly Report for Q1 Ended Mar 31, 2001

Filed May 1, 2001For Securities:KO

Summary

Coca-Cola Company reported a strong first quarter for 2001, demonstrating a significant turnaround from the previous year's net loss. Net income surged to $863 million from a loss of $58 million in Q1 2000, driven by a 4% increase in worldwide unit case volume and an 11% rise in gallon sales. This growth was primarily fueled by robust performance in international markets, which saw a 6% volume increase. The company also benefited from improved operational efficiency, with selling, administrative, and general expenses decreasing by 4% due to cost savings from the 2000 realignment and a stronger U.S. dollar. The adoption of SFAS No. 133 related to derivative instruments introduced some complexity, leading to a one-time after-tax charge of $10 million but also a significant increase in Other Comprehensive Income. Investors should note the company's strategic initiatives, including a planned joint venture with Procter & Gamble for juice and snack products, and a commitment to significant incremental marketing investments in key markets for the remainder of 2001.

Key Highlights

  • 1Worldwide unit case volume increased by 4% to $4.479 billion in net operating revenues, a 5% increase year-over-year.
  • 2Net income swung to a profit of $863 million from a net loss of $58 million in the prior year's first quarter.
  • 3Operating income significantly improved to $1.28 billion from $240 million in Q1 2000, with operating margin expanding to 28.6% from 5.6%.
  • 4International markets showed strong performance with a 6% increase in unit case volume.
  • 5Selling, administrative, and general expenses decreased by 4% due to cost savings from a prior year's realignment and a stronger U.S. dollar.
  • 6The company adopted SFAS No. 133 for derivatives, resulting in a $10 million charge but also a $152 million increase in Other Comprehensive Income.
  • 7Plans announced for a 50/50 joint venture with Procter & Gamble for juice, juice-based beverages, and salted snacks.

Frequently Asked Questions

The significant increase in net income was driven by a combination of factors, including a 4% growth in worldwide unit case volume, a 11% increase in gallon sales, and a substantial recovery from the $680 million in charges recorded in the first quarter of 2000 related to asset impairments and organizational realignment. Additionally, cost savings from the 2000 realignment and a stronger U.S. dollar contributed to improved profitability.

The adoption of SFAS No. 133, which governs accounting for derivative instruments and hedging activities, resulted in the recognition of derivatives on the balance sheet at fair value. This led to a one-time after-tax charge of $10 million due to transition adjustments. While it may increase volatility in quarterly results, it also led to a $152 million increase in Other Comprehensive Income (net of tax) related to cash flow hedges, which is expected to offset future earnings fluctuations.

Coca-Cola announced plans for significant strategic, one-time marketing initiatives in 2001, expecting to invest an additional $300 million to $400 million in key markets like the United States, Japan, and Germany. These investments will primarily be expensed in the remaining three quarters of the year. Furthermore, the company is pursuing a joint venture with Procter & Gamble to create a new enterprise focused on juices, juice-based beverages, and salted snacks.

In the first quarter of 2001, the U.S. dollar was approximately 7% stronger on a weighted average basis against the company's functional currencies compared to the same period in 2000. This stronger dollar negatively impacted operating income by approximately 3%. However, the company's foreign currency management program, including hedging activities, aims to mitigate the impact of these fluctuations on net income and earnings per share over time.