10-QPeriod: Q2 FY2011

COCA COLA CO Quarterly Report for Q2 Ended Apr 1, 2011

Filed May 2, 2011For Securities:KO

Summary

Coca-Cola Company's first quarter 2011 report shows robust net operating revenues of $10.5 billion, a 40% increase year-over-year, largely driven by the significant acquisition of Coca-Cola Enterprises Inc.'s (CCE) North American business. Consolidated net income rose to $1.9 billion ($0.82 diluted EPS), up from $1.6 billion ($0.69 diluted EPS) in the prior year's quarter. The company demonstrated strong operational execution with a 6% increase in global unit case volume, aided by new licensing agreements with Dr Pepper Snapple Group. While gross profit margin saw a slight decrease due to the shift towards a finished products model in North America and rising commodity costs, management is actively hedging against these pressures. The company's financial position remains solid, with healthy cash flow from operations and substantial liquidity.

Financial Statements
Beta

Key Highlights

  • 1Net operating revenues surged by 40% to $10.5 billion, primarily due to the CCE acquisition.
  • 2Consolidated net income increased to $1.9 billion, resulting in diluted EPS of $0.82.
  • 3Global unit case volume grew by 6%, with strong performance in Eurasia & Africa and Latin America.
  • 4The company successfully integrated CCE's North American business, transforming its operational model in the region.
  • 5Investments in productivity, integration, and restructuring initiatives continue, aiming for significant future synergies.
  • 6The company experienced an increase in interest expense due to assumed debt from the CCE acquisition, but managed debt levels through strategic repurchases.
  • 7A $79 million charge was recorded related to the earthquake and tsunami in Japan, impacting the Pacific segment.

Frequently Asked Questions

The primary driver of the 40% increase in net operating revenues was the acquisition of Coca-Cola Enterprises Inc.'s (CCE) North American business, which significantly expanded the company's operations and revenue base.

While the acquisition boosted revenues, it also led to a decrease in gross profit margin due to the shift towards a finished products operation model in North America and higher commodity costs. However, the company is actively managing these pressures through hedging and expects to realize significant operational synergies in the coming years.

Coca-Cola recorded charges totaling $79 million related to the earthquake and tsunami in Japan. These charges included donations for relief efforts, support for local bottling partners, and impairment of damaged assets. This primarily impacted the Pacific operating segment.

The company is increasing its hedging activities for certain commodities to mitigate price risks associated with forecasted purchases. Many of these derivative instruments do not qualify for hedge accounting, meaning changes in their fair value are recognized in net income each reporting period.