10-QPeriod: Q3 FY2009

COCA COLA CO Quarterly Report for Q3 Ended Oct 2, 2009

Filed October 29, 2009For Securities:KO

Summary

The Coca-Cola Company's third-quarter 2009 report indicates resilience amidst challenging economic conditions, with consolidated net income holding steady at $1.92 billion compared to $1.91 billion in the prior year period. For the nine-month period, net income saw a significant increase to $5.33 billion from $4.87 billion, driven partly by a substantial recovery in equity income from investments. While net operating revenues saw a modest decline of 4% for the quarter and 5% year-to-date, primarily due to unfavorable foreign currency fluctuations (a 6% and 8% impact, respectively) and structural changes, the company demonstrated strong operational management. This is reflected in the decrease in selling, general, and administrative expenses and a slight improvement in the consolidated operating margin. The company's balance sheet shows a robust increase in cash and cash equivalents to $8.85 billion, up from $4.70 billion at the end of 2008, indicating a strong liquidity position. This was supported by increased cash flows from operations and a strategic increase in long-term debt to manage the company's capital structure. Despite global economic headwinds, Coca-Cola continues to execute its strategic initiatives, including productivity gains and restructuring efforts, to drive efficiency and maintain profitability.

Key Highlights

  • 1Consolidated net income for the third quarter was $1.92 billion, flat year-over-year, while nine-month net income increased to $5.33 billion from $4.87 billion.
  • 2Net operating revenues declined by 4% for the quarter and 5% year-to-date, largely impacted by a stronger U.S. dollar and structural changes.
  • 3Cash and cash equivalents significantly increased to $8.85 billion as of October 2, 2009, from $4.70 billion at the end of 2008, bolstering liquidity.
  • 4The company reported a slight decrease in selling, general, and administrative expenses by 7% for both the quarter and the nine-month period, driven by cost management and foreign currency impacts.
  • 5Unit case volume showed a slight global increase of 2% for the quarter and year-to-date, with strong performance in India, China, and Latin America partially offsetting declines in Russia and Europe.
  • 6Strategic debt management included issuing $2.25 billion in long-term notes in Q1 2009 to replace short-term debt and optimize the capital structure.
  • 7The company continued its productivity and restructuring initiatives, incurring charges but aiming for significant annualized savings to enhance flexibility and investment for growth.

Frequently Asked Questions

Foreign currency fluctuations had a significant negative impact on Coca-Cola's reported results. For the third quarter, unfavorable currency movements decreased net operating revenues by 6% and operating income by approximately 11%. For the nine-month period, the impact was even more pronounced, with revenues down 8% and operating income down 14% due to a stronger U.S. dollar against most major currencies.

The company's liquidity position is strong, evidenced by a substantial increase in cash and cash equivalents to $8.85 billion as of October 2, 2009. This is supported by robust cash flows from operations and a committed $2.6 billion in unused credit facilities. The company also strategically manages its debt by maintaining a mix of short-term and long-term debt, recently issuing $2.25 billion in long-term notes.

The significant increase in net income for the nine-month period to $5.33 billion from $4.87 billion was primarily driven by a substantial positive swing in 'Equity income (loss) — net.' This was largely due to the reversal of a significant impairment charge recorded in the prior year by Coca-Cola Enterprises Inc. (CCE), which had negatively impacted the previous year's results.

The company is actively pursuing productivity initiatives and restructuring efforts. While these initiatives resulted in charges of $48 million in the third quarter and $212 million year-to-date, they are aimed at achieving significant annualized savings and providing flexibility for future investments. The company expects to reach its target of $500 million in annualized savings by the end of 2011.