Assignment 1 The Coca - Cola Company Financial Results Analysis Dawna Berry, Rochelle Morton, Jose Pinto ACC

499 Undergraduate Accounting Capstone Professor Dr. M. Austin Zekeri October 21, 2012

1. Discuss the North American market for The Coca-Cola Company in the impact to volume growth or declines for the period.

I selected the first quarter of 2011. Volume was up 6% in the first quarter of 2011 with growth of 2%, excluding the benefit of their new cross-licensed brands in North America. This was positive growth in North America and Coca-Cola seemed to have been on an upswing, being the fourth consecutive quarter of growth. More importantly, North America increased in volume and value when it came to nonalcoholic beverages (The Coca Cola Company, 2011). The results for North America were a testament to how well Cokes new leadership and operation team were working. Placing focus on integration efforts reflected the greater plan, while executing strong marketing and sales capabilities to accelerate leadership position within North America delivered profit and substantial growth (The Coca-Cola's CEO Discusses Q1 2011 Results - Earnings Call Transcript, 2011). 2. Discuss the drivers of profitability during the quarter at The Coca-Cola Company and the likely long-term impact of these drives on profits.

In the United States, trademark Coca-Cola gained share. Diet Coke was a close second following the name brand Coca-Cola. Coke Zero continued double-digit volume growth in North America for the 20th consecutive quarter. Sprite grew 3%, while Fanta was up 5% this past quarter. Reiterating that using the right strategies and course of actions to sustainably drive long-term growth across our entire North America was in effect and reflective in the portfolio.

3. Discuss the Earnings per Share results for the quarter in comparison to historic results and long- term growth targets.

Year-to-date net share repurchases totaled $2.3 billion. These repurchases are in line with the targeted range of $2.5 to $3.0 billion in net share repurchases for the full year. Following shareowner approval, the Company amended its certificate of incorporation on July 27, 2012, to increase the number of authorized shares of common stock from 5.6 billion to 11.2 billion and effect a two-for-one stock split of the common stock. Accordingly, all share and per share data now reflects the impact of the increase in authorized shares and the stock split. The stock split will not affect the targeted net share repurchase range for the full year. Third quarter reported EPS was $0.50 and comparable EPS was $0.51. Items impacting comparability reduced third quarter 2012 reported EPS by a net $0.01 and reduced third quarter 2011 reported EPS by a net $0.04. In both periods, these items included restructuring charges, costs related to global productivity initiatives, gains/charges related to equity investees, net gains/losses related to our economic hedges, primarily commodities, and certain tax matters. Items impacting comparability in third quarter 2012 also included charges related to changes in the structure of Beverage Partners Worldwide (BPW) and charges related to the supply of Brazilian orange juice. Items impacting comparability in third quarter 2011 also included CCE integration costs. Year-to-date cash from operations increased 15%. Excluding incremental pension contributions made in first quarter 2012 and 2011, cash from operations also increased 15%. First quarter 2011 results included a net charge of $0.04 per share due to restructuring charges, costs related to global productivity initiatives and the CCE integration, and charges related to the natural disasters in Japan, partially offset by a gain on the sale of the Company's stake in Chilean

bottler Coca-Cola Ambassador S.A. Second quarter 2011 results included a net gain of $0.03 per share due to a noncash gain on the adjustment to fair value of our investment in Mexican bottler Group Continental S.A.B., partially offset by restructuring charges, costs related to global productivity initiatives and the CCE integration, and charges related to the natural disasters in Japan. Third quarter 2011 results included a net charge of $0.04 per share due to restructuring charges and costs related to global productivity initiatives and the CCE integration. The reduction of ESP for the quarter in comparison to 2011 ESP value, was due to changes made to the company on the evaluation of investments made, current market fluctuations, product development, and taxes imposed in various departments globally. (www.thecocacolacompany.com) Todays Trading Previous close Todays open Days range Volume Average volume (3 months) Market cap Dividend yield 37.40 37.37 36.96 - 37.48 13,342,577 16,783,999 $168.4B 2.74%

Data as of 4:00pm ET, 10/22/2012 Growth & Valuation Earnings growth (last year) Earnings growth (this year) Earnings growth (next 5 years) Revenue growth (last year) P/E ratio Price/Sales Price/Book. (money.cnn.com) 4. Discuss the emerging markets for The Coca-Cola Company and the likely future impact on earnings per share. On July 16, 2012 the company posted solid Q1 earnings helped by strong performances in emerging markets such as Thailand, India, China and South Africa (Trefis). Soft drink volumes should continue to post healthy growth as the company invests heavily in emerging markets to increase capacity, spread out distribution networks and boost marketing. Minute Maid will be an important top-line driver for the company in the U.S. as consumers ditch colas for healthier alternatives such as juices, RTD teas, coffee, etc (Trefis). Coca-Cola is spending $99 million on its Auburndale, Florida plant to expand its 'Simply' line of products, which falls under the Minute -27.08% +4.50% +7.70% +33.10% 19.5 3.42 5.35

Maid brand (Trefis). Internationally, the juice brand's volumes should also get a boost as it debuted in three African countries of Tanzania, Uganda and Kenya in the latter half of 2011 (Trefis). On October 16, 2012 before the market opened The Coca-Cola Company was likely to book a profit of 50 cents a share, down 2.5 percent from a year ago, when Coca-Cola reported earnings of 52 cents per share, according to analysts polled by Thomson Reuters (Zhang). CocaCola has topped earnings estimates in three of the past four quarters, while meeting in one. We expect operating profit to grow at a slower rate than sales, as higher prices and cost-cutting initiatives are offset by an unfavorable mix, with lower-margin emerging markets growing faster than developed ones, and commodity cost increases, Esther Kwon, analyst at S&P Capital IQ, wrote in an Oct. 6 note (Zhang). Revenue is projected to come in at $12.38 billion for the third quarter, 1.1 percent above the year-earlier total of $12.24 billion (Zhang). For the year, analysts expect Coca-Cola to earn $2 a share on revenue of $48.2 billion (Zhang). With these numbers you can easily tell that the outlook is not rosy. On Coca-Colas July 17 earnings conference call, Chief Executive Officer Muhtar A. Kent noted that consumers across the world are feeling the effects of prolonged uncertainty in Europe, a further cooling of the economy in China and the protracted recovery in the U.S, we find ourselves navigating through a challenging global economy (Zhang). JP Morgan analyst John Faucher notes that Coca-Colas results could also be hurt by weak consumer sentiment and negative product mix, meaning the company is relying more on less profitable items (Zhang). Coca-Cola uses a mix of packaging sizes to help it adjust various prices and profit margins. Faucher stated that, We expect pricing to decelerate, which should help volume trends in the back half of the year (Zhang).

References: Trefis. July 16,2012. Coca-Cola to Get Boost from Emerging Markets. The Street. Retrieved on October 24, 2012 from http://www.thestreet.com/story/11619235/1/coca-cola-to-get-boost-fromemerging-markets.html

Moran Zhang. October 15,2012. Coca-Cola Q3 Earnings Preview: Global Slowdown Chips Away At KO's Profits. International Business Times. Retrieved October 24, 2012 from http://www.ibtimes.com/coca-cola-q3-earnings-preview-global-slowdown-chips-away-kosprofits-846545 Paper Done By: Dawna Berry Rochelle Morton Jose Pinto