Coca-Cola Q1'16 Earnings Conference Call: Full Transcript

Operator:

At this time, I would like to welcome everyone to The Coca-Cola Company's First Quarter 2016 Earnings Results Conference Call. Today's call is being recorded. If you have any objections, please disconnect at this time. All participants will be in a listen-only mode until the formal question and answer portion of the call. If you would like to ask the question press star, one on your touch tone phone. To withdraw your question press star, two. If you are on speakerphone, please pick up the handset before asking your question. Participants will be announced by their name and company.

I would like to remind everyone that the purpose of this conference is to talk with investors and, therefore, questions from the media will not be addressed. Media participants should contact Coca-Cola's Media Relations Department if they have questions.

I would now like to introduce Tim Leveridge, Vice President and Investor Relations Officer. Mr. Leveridge, you may begin.

Timothy K. Leveridge: Vice President & Director, Investor Relations:

Good morning and thank you for being with us today. I'm joined by Muhtar Kent, our Chairman and Chief Executive Officer; James Quincey, our President and Chief Operating Officer; and Kathy Waller, our Chief Financial Officer. Before we begin I would like to inform you that you can find webcast materials in the Investors section of our company website at www.coca-colacompany.com that supports the prepared remarks by Muhtar James and Kathy this morning.

I would also like to note that we have posted schedules under the Financial Reports and Information tab in the Investors section of our company website. These schedules reconcile certain non-GAAP financial measures which may be referred to by our senior executives during this morning's discussions to results as reported under Generally Accepted Accounting Principles. Please look on our website for this information.

In addition, this conference call may contain forward-looking statements, including statements concerning the long-term earnings objectives, and should be considered in conjunction with cautionary statements contained in our earnings release, and in the Company's most recent periodic SEC report. Following prepared remarks this morning, we will turn the call over to your questions.

In order to allow as many people to ask questions as possible, we ask that you to limit yourself to one question. If you have multiple questions, please ask your most pressing question first and then reenter to the queue in order to ask any additional ones.

Now I would like to turn the call over to Muhtar.

Muhtar Kent: Chairman and Chief Executive Officer:

Thank you, Tim, and good morning everyone. 18 months ago, I communicated a clear five-point plan to reinvigorate our growth and increase profitability. In February, we reported a successful transition year in 2015 where we made tangible progress on our plans and delivered the full year expectations we laid out.

I am pleased to report that in the quarter, first quarter of 2016, we took another positive step in the macro environment that continues to be challenging. Today I will touch briefly on a few key highlights in the quarter before handing off to James to provide a more detailed review of our operational performance.

We are in the midst of transforming the Coca-Cola Company to one that is even more focused on our core value creation model of building and supporting strong brands, enhancing customer value and leading our franchise system.

During the first quarter, our continued focus on our five strategic initiatives enabled us to gain value share and deliver positive top-line growth with underlying margin expansion. With the first quarter behind us, we see the challenging global environment continuing, but we remain committed to our full year targets we laid out in February for both the top and bottom line performance.

From a highlight perspective, we continue to execute our strategic initiatives. In the first quarter, we unveiled our new Global One Brand marketing strategy for trademark Coca-Cola under the taste appealing campaign, which is elevating system engagement with our employees, bottling partners and customers. The initial consumer response is encouraging and positive.

Additionally we added to our portfolio fast growing still beverages. We closed our Chinese client based protein acquisition of Culiangwang in March. We also invested in Chi, the leading juice and value-added diary company in Nigeria, Africa's largest economy. Both transactions are further proof points of how we are strengthening our leading stills position, effectively responding to evolving consumer preferences.

Finally, we are accelerating our global re-franchising efforts. In North America, we continue to make progress against our stated goal re-franchising 100% of our bottling operations by the end of 2017. Including the territories announced this morning, we have transferred or signed agreements on almost two-thirds of the US territories we originally acquired from CCE. Looking outside of North America to Western Europe, our Coco-Cola European partners transaction remains on track to close by the end of the second quarter.

In Africa, the regulatory approval process continues. The South Africa Competition Commission has recommended for the Competition Tribunal to approve the Coca-Cola Beverages Africa merger with certain conditions. The Tribunal is set to meet in May to review the pending transaction.

In summary, we recognize that still have much work to do, but we have defined a clear path to transform the Company and we are making consistent progress to create long-term value for our share owners. The Coca-Cola Company is becoming stronger, more efficient, and more focused on our core strengths of marketing and brand building, customer value creation and leading our franchise bottling system. We are making progress implementing on disciplined global revenue growth management strategy. We are also building new growth opportunities with still and sparkling brands that we develop internally, we acquire from the outside, and we invest in through partnerships.

And our franchise bottling system is also getting stronger, faster, more nimble and more closely aligned. In short, my colleagues and I are getting up every single day with a fresh passion for doing the things that will create long-term sustainable value.

I'll now hand the call over to James, who is going to provide you with the more detailed look at our operating performance in the first quarter.

James Quincey: President and Chief Operating Officer:

Thank you, Muhtar and good morning everyone. From an industry perspective, we gained global value share in NARTD beverages in the quarter, with increases in both sparkling and still beverages worldwide. We gained value share in all but one of the subcategories in stills, where there we maintained value share. We delivered 2% unit case volume growth, as solid performance in many of our developed markets was partially offset by challenging challenges in emerging markets suffering from the worst of the macro slowdown. This had a disproportionate effect on sparkling volume growth as the non-alcoholic beverage industry in many of these markets is more likely towards sparkling beverages.

Consolidated price mix grew by 1%, cycling 3%, as solid underlying pricing was partially offset by 1 point of segment mix. We accelerated our price mix across every operating segments except Asia-Pacific versus the first quarter last year even the geographic footprint of our own Bottling Investment Group, our consolidated price mix was lower. Given the scale of our pending re-franchising, as you can see to this sustainability of our disciplined pricing strategy, I think it's helpful to exclude BIG and focus instead on our core business, which delivered 2 points of global price realization.

Results were also impacted by one less day in our fiscal quarter compared to the same period last year with reduced organic revenue growth by roughly 1 point. As a result, we delivered 2% organic revenue growth including 1 point headwind from one less day.

In the quarter, structurally-adjusted comparable currency-neutral income before tax grew a solid 9% with the underlying margin expansion reflecting our focus on productivity as well as the timing of operating expenses. Notably, this expansion occurred alongside the continued growth in our marketing investments.

Now, to describe more clearly our reflecting performance, let me briefly describe our results in three groupings of our markets. First, in markets where our strategies are in place and being executed very well, we are seeing strong results. This cluster is led by North America, Latin America, also includes Japan and India. Here strong marketing, disciplined revenue management and improving execution are driving results.

For example, specifically in North America, we delivered 2% organic revenue growth with one less day, 3 points of price realization led by 3% sparkling price mix and good operating leverage in the quarter. North America also grew value share again this quarter and continued to successfully implement its accelerated re-franchising program.

Latin America delivered double-digit organic revenue growth due to a strong focus on consumer and customer segmentation, despite worsening conditions in Brazil, Venezuela, and Argentina. In Mexico, brand investments including new products such as Del Valle Nada, a sparking fruit drink as well as Ciel mineral water and Ciel flavored water helped increase unit volume by 5% with growth across all major categories.

Our Japan business unit had a very strong start to the year supported by several recent innovations such as I LOHAS Peach, an extension of our premium water brand and a premium-priced Georgia Coffee bottle can. We also leveraged innovation from China launching Lemon Plussy (ph), which is seeing strong early results. These are products enabled our value share to outperform volume share as a SKU higher to higher revenue single serve packaging.

And finally India, here we delivered strong performance in the quarter due to the rapid scaling of a new product-pack architecture across sparking and juice segments coupled with brand marketing and execution efforts. In addition, we expanded our still beverage portfolio in India with the launch of VIO, our latest value-added dairy beverage.

These positive results give us confidence our strategies are working. While we are making progress in these markets, we also recognize there is more work to be done and the opportunity for improvement in these good performing markets continues to be significant.

The second group is comprised of markets where we are taking action to positively transform our business for the future. Here I would include Europe, where we continue to make progress to the establishments of our newly integrated Western European bottler and here several key markets performed very well led by Spain up 3%, Germany up 1% and in the Central and Southern European business unit, we grew volume 2%. We look forward to improving performance in Europe as the year progresses.

A second transition market is our African business, where we are taking steps to strengthen our bottling business through the creation of new Coca-Cola Beverages Africa Bottler. As Muhtar mentioned, we are also taking steps to diversify brand portfolio through our investment in Chi and we continue to improve our execution in key markets on the continent as exemplified by improving performance in South Africa and Nigeria, where we grew unit case volume 7% and 13% respectively.

And the final bunch of markets where we face clear macro headwinds in 2016, Russia and Brazil continue to be challenging. China's transition to a consumer-led economy is putting pressure on commodity-dependent emerging and developing markets. The lower oil price continuous to weigh on the Middle East and other oil-driven economies and while Argentina is taking the right steps to secure e-government recovery, short-term is also challenging.

So let me refer to few of these markets. In China, we are adjusting our plan to reflect these realties. China's macro environment was challenging in 2015 and that continued to be sell in the first quarter. While the economic slowdown is not new, the degree to which NARTD industry was impacted this past quarter was worse than expected. Key success factors going forward require focusing on both affordability and premiumization through segmented growth strategies. The more premium segments continue to grow in China as consumers who purchase these products are relatively insulated for broader economic issues. We are working to increase our premium offerings like sleek cans and -- Plussy in high value channels.

At the same time, however, we continue to evolve our price pack architecture to deliver affordable options in both single-serve and multi-serve packages to ensure we can capture key occasions and recruit new consumers. While the top line has been challenging, our initiatives have enabled us to gain both value and volume share in China in the quarter.

Turning to Brazil, here we are segmenting our price pack architecture to provide packages at key affordable price points while delivering and driving pricing to cover inflation. This strategy enabled us to gain value share during the quarter. And finally in Russia, we gained value share driven by good marketing and promotional activities with a focus of premium sparking beverages and juice.

Given the volatility in these market, we are proactively managing our investments, keeping an eye towards to the long-term but ensuring our near-term investments have the right payback. The challenging macro environment is also a key reason why productivity is critical. We remain on track to deliver more than $600 million in productivity savings this year enabling us to fund our brand and growth investments while covering cost inflation and driving margin expansion. We are delivering these savings through a disciplined process that involves our entire leadership team and associates. Ultimately it's about building a cultural that is focused on getting better every day while is also improving the employee experience. This quarter, the results of our ongoing efforts were evident in supporting the underlying strong operating margin expansion.

Before I hand over to Kathy, let me conclude by saying we are resolutely focused on evolving our growth strategies and transforming our business to deliver sustainable shareholder value. With the challenges around the world, we will focus on what we can control in order to deliver solid revenue growth and strong underlying operating margin expansion through the effective management of our product portfolio, price mix, and productivity efforts.

So with that, I'll turn over to Kathy.

Kathy N. Waller: Executive Vice President and Chief Financial Officer:

Thank you, James and good morning everyone. I would like to touch upon a few areas of our financial performance in the quarter before providing our full year outlook. Starting at the top line, as James mentioned, our 2% organic revenue growth was impacted by one less day in the quarter as well as by segment mix as our bottling investments grew at a slightly slower rate than our core business.

Let me take a moment to explain what we mean by segment mix and why the impact will be more pronounced 2016 and 2017 until we have finished our previously announced re-franchising actions. Starting in the first quarter, we revised our operating segment, so that our company-owned bottling operations in North America are now reported within our bottling investments group. This greatly increases the relative size of the bottling segment to the rest of our geographic segment.

Since our bottling operations earn significantly higher revenues per case than concentrate operations, slower growth among our company-owned bottling operations result in negative pressure on our consolidated price mix regardless of the underlying pricing in either the bottling operations or our core business. However, due to the relatively lower profitability of our bottling business, slower growth among our bottling operations has an opposite effect on our consolidated margins. At gross profit, our comparable margin declined, as we were impacted by currency headwind, the effects from North America re-franchising and the sale of our legacy energy brands to Monster. Excluding the year-over-year effect of these items, we would have seen gross margin expansion driven by benign cost environment, benefits from productivity and segment mix.

As you think about the downhill, keep in mind that the cost environment becomes more difficult to cycle in the second quarter and beyond due to the timing of when commodity prices eased last year. Our comparable operating margin improved about 25 basis points on a consolidated basis. Similar to gross margins, currency headwind, the North America re-franchising and the sale of our legacy energy brands to Monster impacted our operating margins. Comparable currency-neutral operating margins increased 140 basis points in the quarter. Excluding these effects, we achieved strong operating leverage in the quarter driven by the benefits of our productivity initiatives, the timing of certain expenses and segment mix.

Looking at our productivity initiatives, the first quarter benefited from the timing of when certain productivity initiatives were implemented last year. For example, the majority of headcount reductions began in April with Europe implementation closer to the mid-year. So, the associated expense savings began in the second quarter. As you think about the remainder this year, while we expect solid currency-neutral ex-structural operating leverage, we expect some of these drivers to moderate as we began to cycle more difficult comparisons. This was reflected in our previously provided full year guidance.

Let me stop here and touch briefly on an ongoing structural impact to provide additional clarity based on some of the question I have received from you. At CAGNY, we noted that by the time we complete our re-franchising, we will see significant increases in both growth and operating margins. While that is the case, I want to remind you that until we will get to increase of transfer of our production operation in America, the existing re-franchising of the distribution business actually has a dilutive effect to both growth and operating margins. Given that we do not expect the sale of production assets to significantly increase until 2017, our margins will continue to be effected by this dynamic this year.

Moving to cash-flow, we generated $1.1 billion in cash from operations before making a nearly half a billion dollar contribution to our pension plan. Looking ahead to the remainder of the year, we expect our cash-flow growth rate to be more in line with our earnings growth rate.

For 2016, we increased our annual dividend by 6% to $1.40 per share, our 54th consecutive annual dividend increase. Our net share repurchases during the quarter totaled approximately $150 million. For the full year, we expect to achieve the $2 billion to $2.5 billion range that we communicated during our last earnings call.

Turning to outlook, the first quarter reflected more challenging operating environment in markets like China and Brazil. We see that our strategies are working, however, in key markets like North America, Japan, and India. Further, our strategies allow us to scenario plan to adjust to market dynamics. Therefore we are maintaining our currency-neutral outlook we previously provided. However, we are updating the expected impact from currency.

We expect organic revenue growth of 4% to 5% and comparable currency-neutral EPS growth of 4% to 6%, inclusive of a three to four point structural headwind to income before tax.

Moving to currency, while current spot rates have improved since our fourth quarter call, these rates have been extremely volatile as well. Therefore, our caveat, our currency outlook now embedded is definitely subject to change. We will update you accordingly as we move through the year.

Based on current spot rates, hedging activity and what we are cycling, we now expect the full year impact of currency to be a 2 to 3 point headwind on net revenue versus our previous expectation of 4 point. Relative to income before tax, we now expect an 8 to 9 point headwind as compared to our previous expectation of a 9 point headwind.

As you model the second quarter, there are a couple of items to consider. We expect the net impact of acquisitions, divestitures and others structural items to be a 2 to 3 point headwind on net revenue and a 3 point headwind on income before tax. Based on current spot rates, hedging activity and what we are cycling, we expect that currency will be a 2 to 3 point headwind on net revenue and a 6 point headwind on operating income. In addition, we are recycling the euro debt re-measurement gain we recorded in other income during the second of 2015. For this season, we expect an 11 point currency headwind on income before tax as we cycle this gain.

In closing, we are working diligently to deliver our commitment for 2016. We continue on our core capabilities of building brands, driving customer value, and leading the system so that when we complete our re-franchising, we will be a lower risk, higher return businesses with even greater confidence to achieve long-term growth targets.

Operator, we are now ready for questions.

Question & Answer

Operator:

Thank you. We will now begin the question-and-answer session. If you would like to ask a question please press star followed by the number one. Participants will be announced by their name and company.

Our first question is from John Faucher of JP Morgan. Your line is now open.

John Faucher: J.P. Morgan:

Thank you. Good morning everyone.

Kathy N. Waller:

Good morning.

John Faucher: J.P. Morgan:

Good morning. So as I look at your revenue performance this quarter, I guess it highlights a concern that may be portfolio was a still a little CSD-heavy despite some of the great results on the non-carb side and you've talked about, James talked this at CAGNY, 5% NARTD dollar growth longer term. But given the fact that you guys still under-index on the non-carb side that's providing really the majority of the growth in both dollars and volume for the category, don't you need to I guess further accelerate the shift in the portfolio away from CSD sparkling into non-carb, and is there a way to move that faster and sort of I guess, on top of that, obviously the weakness in the CSD side this quarter with flat volumes, what do you think is really the right volume number on the CSD side going forward that gets you to your algorithm? Thank you.

Muhtar Kent:

Hi John, it's Muhtar here. I will just preface just by saying the following and then pass over to James. But first, you know how much we have done and how much we focus on creating successful brands in our still portfolio and of the $20 billion brands we have now, 14 of them are still brands and our still business is performing well and whether you take energy, value-added dairy or enhanced hydration, or juices, nectars or juice drinks, we play in all of those categories. In 2015 we won, we gained share in all of those categories and if you look at how, whether it's in developed markets or emerging or developing, our still beverage portfolio is being enhanced all the time and also, and even in the case of waters and premium waters, from Japan all the way through to Latin America performing very well.

You just heard now again that we've invested in -- we just recently invested, as you know, in Suja in the United States, we have invested in Chi and Culiangwang in China and we continue to always reference that wherever we look and if there is opportunities for bolt-on acquisitions, we will look at those favorably if there're also opportunities for organic development of brands like Fairlife, we will certainly look at those also favorably, as we have done. So I think we are very satisfied with our portfolio and certainly we've got more work to do as we've said in the call and in the remarks, but right now we feel that our portfolio is being transformed very well and transitioned very well and we are in a pretty good place, but and more work to continue. James?

James Quincey:

Yes, just let me add one last thought perhaps, John. I mean, at CAGNY, we talked about we have a 50 share of sparkling and a 15 share of stills, but I think it's worth remembering that over the last 15 years, we have gone from stills being less single-digit part of our portfolio to now over 25% of our portfolio. So I think there is a long term track record of generating growth and value in stills. Even given today, our market position, we expect to continue to grow faster in stills. As we've said in the call, we are gaining share in every subcategory of when we held it and we will continue to look for bolt-on acquisitions to accelerate our growth. So I think it's going to continue to be a faster growing part of the business.

Muhtar Kent:

And also just on sparkling you asked, we certainly see also continued growth opportunities in our sparkling portfolio and that is naturally with the focus on revenues, it will skew more towards revenues, but certainly also as we have demonstrated and with our new campaign, taste appealing campaign just being launched and everything else that we are doing in terms of the investments with our alliance partners, we see growth opportunities in revenue and also in volume in our sparkling beverage portfolio.

Operator:

Thank you. Our next question is from Steve Powers of UBS. Your line is now open.

Stephen R. Powers: UBS Securities LL

Great. Thanks. Good morning.

Maybe sticking with the top line, I just want to better understand where you expect the source top line acceleration from over the remainder of the year. I guess the difficult to environment and increasingly difficult year-over-year compares, I guess that you will probably closer to 4% organic growth this excluding in the calendar shift and the price mix drag of BIG, but BIG will be with you over the balance of the year. So in that context, is there truly enough in your control to have confidence in sequential improvement or are you expecting the macros to improve? And I guess alongside all that, is it fair to say that you are guiding us more towards the lower end of 4% to 5% at this point versus the mid-point of --?

Muhtar Kent:

I see, it's Muhtar. Well, first I think we did expect the first quarter trends to trend slightly below the full year driven by a couple of things. One, the macro is trending to the bottom of the of store to bottom in the first quarter recognizing that environment continues to be challenging but we will continue to monitor that closely and the launch of our new campaign in the first quarter will certainly benefit the back half of the year. The benefit Olympics marketing as we move into second and third quarter one less selling day which certainly that you also mentioned and I think we are confident definitely in the strategy and initiatives in place to support our growth targets over that course of the year and believe that we will land again in the corridor that we've stated in the past in February.

James or Kathy do you want to add anything.

Operator:

Thank you. Our next question from Mark Swartzberg of Stifel . Your line is now open.

Mark Swartzberg: Stifel:

Thanks, good morning everyone. Question on North America we now have the filings that you've given us and we can therefore see the level of profitability here in CCR which is pretty low I think when back up the numbers you get kind of like 2% operating margin and I'm sure there is some accounting matters in there that this in the form to go into but it does raise the question of what really has been going on in terms of profitability for CCR here in North America. Could we if you think it's appropriate I think it will be helpful to talk little bit about the trends in that business as you've seeing them now that we're seeing a level the margin I'm getting its 2% operating margin. So can you talk a little bit about the trends and what do you think they reflect it certainly speaks well to what you get left behind if you will but it raises questions about what someone might pay for that kind of business.

Kathy N. Waller:

Sure, March. They are really raise we look at the margins and CCR the three primary drivers which are seeing. First of all we have shifted some of the territories then we have transition some territories to date and we did that obviously before we put the financials out there earlier this quarter.

Then if you remember we incurred back end its early 2010 to '11-'12 time period there was a significant hit to us from a run up in commodity prices that certainly adversely impacted margins. And then I guess the third thing I would say was we have to incur incremental cost that to prepare that business for now been ready to re-franchise and to strengthen that business and I think what we are seeing is improvement and the results that we'll see today, but those three things really impacting what you saw in the financials that we put out there.

Operator:

Thank you. Our next question is from Bryan Spillane of Bank of America. Your line is now open.

Bryan D. Spillane: BofA Merrill Lynch:

Hi good morning everyone. I just wanted to go back in tie I guess the couple of comments that have been made about the effect that BID had on organic sales growth for the quarter so just want to make sure understand correctly we look at sales excluding BIG and we add back the extra the effective of the extra day organic sales growth was round 4% does that correct.

James Quincey:

It's James here look volume grew 2% core price mix was 2 so that's the right answer.

Operator:

Thank you. Our next question is from Judy Hong of Goldman Sachs. Your line is now open.

Judy Hong: Goldman Sachs:

Thank you, good morning. So I guess one of the markets where you point out you are taking more actions in Europe and certainly from a top-line perspective continuous to be a pretty challenging market deflationary pressure there. So -- just get a little bit more color just really what are some of the more tangible actions that we can see and how much dollars are really going in in terms of the marketing investment that we should expect to see some of that improvement really coming through and how long that would sort of take as you think about for the balance of the year.

James Quincey:

Yes, Judy its James here. A couple of things on Europe, one it is we've noting that in this quarter there was a disruption to the business GB due to supply chain. So as a one of impact that we expect to see not recurring in the balance of the year. So I think that's we'll taking into account and it was a material impact.

Now as looking for the rest of year you will see and the numbers we have pretty decent price mix in Europe in this quarter and we are also looking to see volume improving versus the fourth quarter not just because of the supply situation but also the new programs, the launch of the new marketing campaign, the launch of a new zero variance starting in GB plus the Europe which will be in France this year and of course shortly we will hopefully complete CC Coca-Cola European partners, but very strong plans being put in place to drive that forward. So I think some temporary factors and the build of our ongoing investments should drive a better result in Europe in the balance of the year.

Operator:

Thank you. Our next question is from Dara Mohsenianas of Morgan Stanley. Your line is now open.

Dara W. Mohsenian: Morgan Stanley:

Hi, good morning. I wanted bit more in the Asia Pacific pricing number in quarter negative 5%. Can you run through how much of that was due to geographic or product mix or other factors and though its going forward in the remainder of the year on is that pricing pressure will moderate and how mix should trend in that segment?

James Quincey:

Sure James here. Let me I will come to the new miracle piece let me start off with the Asia Pacific price mix is always a little bit of an -- it's a group that brings together Japan and Australasia which are very high revenue markets, but don't grow as quickly along with a lot of emerging market not just China but India, Indonesia and the Philippines which grow much faster. So there is a kind of a an ongoing mechanical effect that creates a negative price mix to this group which you can see over the years in Asia Pacific. So, in 13 full year was minus 4 in '14 it was minus 2 and '15 it was minus 2.

In the first quarter of '16 obviously was minus 5, but it was cycling a very a typical plus 3 in the first quarter of last year. So I think what you will see is in the future quarters that is a little volatile and bumpy but the long term trend is for a negative price mix in Asia because of the dynamic of the fast growth of the emerging market versus Japan and Australia.

Operator:

Thank you. Our next question is from Ali Dibadj of Bernstein. Your line is now open.

Ali Dibadj: Sanford C. Bernstein & Co. LL

Hey guys so, I am still getting a lot of -- this is from investors about the 4% to 5% organic revenue growth target for the year and openly you don't sound a 100% confident in the fields like there is a lot of kind of messages and moving part. So can you try again can you talk about what's specifically you're seeing right now that gives you confidence in the 4% to 5% organic sales growth for the year I mean clearly, but it's a 3 or 4 you can't delivered to 3 and some cents this quarter your below pace.

So, so may be in that you can tackle kind of way expect your Asia Africa to get to why do you expected to get better Europe you mentioned you are going to invest more in and you hope that to get better, but we've sometimes heard that and before so, why they are going to be better in Europe and then maybe as the jumping up point as well you can talk about what you are learning in North America, because that seems to be doing better for sure and footnote I am not quite sure will you grow organically in North America because you wanted to add 3 points back for concentrate sales up to unit case sales for one day missing and I am not quite sure how to get there, so some explanation there will be great. But just more specifics very clearly on what gives you the confidence in your top-line target for the year. Thanks.

James Quincey:

I'll start just by saying as I indicated, first on the core with one less selling and on the core price mix of the core business with that DIG we certainly did get to the 4% in this quarter. So what we feel looking at the downward comparisons and looking at also all the programs in place looking at how our business performs in all the different quarters and the different groups. We feel confident that we still will achieve what we've said in February in terms of the top-line for the full year. The marketing program the additional marketing, the new marketing program that is just being launched and then not having the one less selling day and then also the continued franchising and all programs that the bottlers have in place.

So our US business is performing very well with its revenue growth, with its price mix, with its brand, with its portfolio and that will continue in this we have every confidence that it will continue. And then we will see we will we do believe that is macros have are at the bottom and there will be in the second half a certain degree of improvement in the macros or even if they do not if they say the same we feel confident with the current macro situation that we will get to the corridor that we have specify we have indicated and share with you in February. Any other comments James, Kathy.

James Quincey:

I think the one thing I would add Ali is obviously there is strong momentum in the North American business we called that out is place where the strategies are working and then the other countries that putting in the other two buckets that the degrees of implementation of the strategy. So you can to around the world that will placed which was struggling in '14 and maybe even in '15 and as we've been executing the strategy the momentum is starting to come back to some of those countries and its starting to build overtime.

So I think as mode offset the first quarter was kind of within the on belief of expectation for our guidance and we can see based on what we are doing within that control or within the reasonable scenarios of macros we will stay within that call we will go for the rest of the year. But in the end I guess only results will answer the question.

Operator:

Thank you. Our next question is from Brett Cooper of Consumer Edge Research. Your line is now open.

Brett Cooper: Consumer Edge Research LL

Thanks. Do we franchising the enough today includes the creation of new bottler from outside of the industry you spoken a lot about the collective -- from your existing bottlers to invest in a desire from where territories. So can you help us to understand why you are outside of the existing system before just we franchising and is there something you are seeing from other new bottlers that make this more -- to guys.

Muhtar Kent:

Yes I think on that predominantly we have existing bottles that are expanding if you look at the percentages of the territories that's have been franchise and the we have in order to ensure that we can get right level of diversity in our bottling business and the right level of also representation we have also selected from new partners like in Florida, like in Chicago and like now the most recent one announced and we feel that is the healthy mix and that's also a healthy balance and we have the right very much the right approach and right alignment with our expanding bottling partners whether they are just entering our system or they are proven expanding bottlers like the one that we've mostly franchised new distribution to in the past year.

Operator:

Thank you. Our next question is from Bill Smith of Deutsche Bank. You line is now open.

Bill Smith: Deutsche Bank:

Hi. Good morning. Can you give us a little bit more granular bridge on the gross margin decline this quarter and then may be some broad sort out what for the rest of the year. I know the comps so to get easier as the year progresses but bit really helpful to kind of to -- get the FX impacts to some of the re-franchise impact so then kind of what you're thinking for the rest of the year?

Kathy N. Waller:

Yes certainly Bill, so really the gross margin decline its really impacted by just two things really it's currency and is the structural impact. Currency I think added up 80 basis points would it about the 80 basis points back to our gross margin and the structural impact actually will added significantly more than that. So is really as simple as that it's really about currency and our structural adjustments.

Operator:

Thank you. Our next question from Kevin Grundy of Jefferies. Your line is now open.

Kevin Grundy: Jefferies LL

Thanks. Good morning. So question how much slipped down in the top on the quarter was macro slowing in the NARTD category versus execution you spoke to share gains and stills and sparkling so it certainly seem to be just broader slowing in the category and then of course there is been a lot of discussion on the top line it would seem like to lower end of your 4% to 5% organic sales outlook would be prudent at this point. So a follow up question on that how much visibility do you have on productivity and other leverage to deliver the high end of the EPS growth guidance range should you coming towards the lower end on the top-line.

Thank you.

James Quincey:

So really take a wide of that Kevin I think the answer on the slowdown we don't get the all the category done was necessarily and the clearly as we've gaining share in that top-line number there is going to be some weakness in the category versus the long-term target of 5% I think we talk a little bit about that CAGNY about how our expectations for '16 and '17 will below the long-term 5% dollar value for any RTD. So there is definitely some of not and I think you can see the macros influencing the industry in the sense that is saw a number of the emerging markets particularly the commodity ones where we have had slowdown and that was clearly flowing through in to the industry.

I think when I would highlight is we are going to focused on what we can control. We have long standing game plan of what to do in countries that are in crisis focusing on really gaining a lot of share to set ourselves up profitability for the long-term as lot of countries in the past and it seems to be working now as we gained share in the China's and Russians and the Brazils. It will in the end I think the visibility look we're managing to that hurdles at the top and the bottom-line we feel that this quarter was within the -- clearly the macros slightly better, slightly worse will be an influence on where we end up but we will got a lot of management left to do in the balance for the year.

Operator:

Thank you. Our next question is from Bill Chappell of SunTrust. Your line is now open.

Bill Chappell: SunTrust:

Thanks, good morning. Can you just talk a little bit more about now that you unveil kind of the one brand packaging and I guess it's been launched in Mexico expectations for that and maybe what you've learned as you tested it out and I said that just I understand it's certainly could be efficient from an advertising marketing front to kind one brand strategy. But did know of you expected a sales lift or if there is been any confusion from consumers as they have seen it just kind of thoughts as expect to launch that.

Muhtar Kent:

Yes, Bill this Muhtar. We said from the beginning first that the new campaign is not just new campaign but also is the new strategy comp in terms of the one brand strategy and they discussed many advantages and we expect it to give us significant efficiencies and effectiveness. But also in terms of how we are communicate with consumers. It will certainly play into that as we execute these strategies and we now launched the new campaign and then I will let James comment in terms of you ask the Mexico's specific example, but also if there is also many other places where it's been tested and tested favorably.

Go ahead James.

James Quincey:

Yes Bill few source one the initial pilot markets the two sources of very clear impact will one. It helps us expand and grow the zero calorie variant of Coca-Cola, but driving availability and driving trials. So we would expect to see benefits on the zero sugar variance. The second big area of benefit is it helps us create what we will call corporate blocking in other words we execute in stills all the variance of Coca-Cola together as one big block has a much bright as s a much greater store impact, visual impact, engagement where the people who are shopping the stores.

I think slightly more strategically and back to moved upward this is an implementation on the strategic idea. I am sure we will evolve it, I am sure we will make it better, but it's the strategic ideas that is important it's not just about the efficiency in advertising. It's about heath in consumers join and stay in the Coca-Cola franchise whatever of the ingredients they want to manage including they're manage without added sugars, with that -- in drinks or any other categories that how added sugar in. So this have a number of benefits they are going to play out strategically and we will keep improving the execution.

Operator:

Thank you. Our next question is from Amit Sharma of BMO Capital Markets. Your line is now open.

Amit Sharma: BMO Capital Markets:

Hi, good morning everyone.

James Quincey:

Good morning, Amit.

Amit Sharma:

James I just wanted to as we looked to the rest of the year and '17 as well, can you also talk about the progresses of the small tag architecture like we've heard a lot about that in North America but if you can give us little more detail or where are we with that in rest of your division and is that a source of incremental growth or price mix as you go forward?

Muhtar Kent:

Yes few source then yes clearly North America has had a lot of traction in pushing forward smaller packages away from the traditional two later and multi-pack of cans. It is worth noting that some of those packages are premium packages and some of those are intended to create affordability or low price point entry points for the category would have been I mean multi as the mini cans and that combination does generally help price mix you can see that side to rollout across other parts of the world I think Latin Americas traditionally being very good at that you do see more of it coming in to Asia pacific and Russia on the global basis the immediate consumption packages out priced, general volume growth so it is part of that strategy to push more into the smaller packages. Just this last month India launched a new technology very small package with the special technology that allows a much longer shelf life in ambient environment of role India so it will be of to get the many more prices. So lot of innovation in the technology lot of innovation in the package and the sizes, and the occasions, in the channels so that we can bring down the price points the for visibility take advantage of premiumization and also offer people the right amount of any beverage that they want to actually consume.

Amit Sharma:

Thank you.

Muhtar Kent:

One point out just add we are not just add I mean would be that the US compared to the rest of the world the provenance of small packages was much less in the United States 3 to 4 years ago compared to the rest of the world. If you look at Europe and place like Spain or if you look at many countries in Latin America you have much more provenance in smaller packages then in the United States. So in a way the United States in the last 4, 5 years, but particularly in the last two and half years has moved very rapidly to the 12 ounces class to 8 ounce class to 7.5 ounces can today -- aluminum bottle and that has really work and those are all growing double-digits in the United States because of two the consumer a customer preferences and also benefiting our system because they have a higher price per liter. And so that's in a way playing out from what was already -- in many parts of the world in the past.

Operator:

Thank you. Our next question is from Vivien Azer of Cowen and Company. Your line is now open.

Vivien Azer: Cowen and Company:

Good morning. I was hoping we could talk a little bit about the health of brand Coca-Cola in your press release you called out softness either around the total brand family or trademark Coca-Cola in a number of geographies well I appreciate that you have a lot of new initiatives between -- feeling and new packaging. In the past you guys have said that it does take time for some of those advertising initiatives actually gain traction and show up in brand health in volume. So how should we think about the trajectory on trademark Coca-Cola as you rollout these initiatives please.

Thank you.

Muhtar Kent:

Yes. Vivian I think a couple of things one obviously most of our campaigns are waited into the second, third and fourth quarter of those of the biggest quarters and even test the feeling we announced this quarter bit is only hitting at towards the end of the quarter and rolling out in the rest of the year as with the Euro Cup and the Olympics. So I think those a lot of the programs going in later this year. The obviously the execution is that so we would expect to see better performance on trademark Coca-Cola going into the downhill I would one all the know which is the relative change in where global growth is coming from or industry growth is coming from a little more and developed and developing little less in emerging tends to create kind of portfolio affect that ways little more against sparkling and therefore Coca-Cola, because those emerging markets tend to be more sparking or entitled and so you see in North America, Latin America, Japan we strongest stills growth.

So we do expect to see growth. We are expected to see it coming back there is a geographic mix impact when we look at the market we believe we will be back on track with Coca-Cola.

Operator:

Thank you. Our next question is from Robert Ottenstein of Evercore ISI. Your line is now open.

Robert Ottenstein: Evercore ISI:

Great. Thank you very much. I wanted to follow up on the question on the one at the brand strategy and specifically ask when you look at let's say the full implementation of that 2, 3 years from now do you think the benefit will be 50-50 between cost saving and efficiency and greater demand or kind of how do you see that breaking out and specifically also in terms of the answer to the prior question on that how exactly is the strategy hoping drive trial and availability for CokeZero. Thank you.

Muhtar Kent:

Yes Robert it's Muhtar here. I think first in terms of the efficiencies the most important benefit will be simpler and less fragmented communication with the consumer that will be the biggest benefit. But also it will certainly help provide create more efficiencies and effectiveness in our non-working DME and therefore will also provide some productivity in that respect. But the most important benefit will certainly be a less clear and better and more direct and communication with the consumer base.

And in terms of trial of product that will certainly come as a result of that of what James mentioned in terms of better presence in the store in terms of better merchandising, in terms of better interruption in the store and also in terms of the communication piece and we believe that the most important benefit of this will infuse and will come to brands like Coca-Cola Zero with more availability better communication and have the broad perspective of the global campaign as oppose to the every different brand under the Coca-Cola trademark having their own campaigns. That will be how I think the benefits will come and we filed and pilot so far have proven that in Europe and other parts of the world.

Operator:

Thank you. I would now like to turn the call back to Muhtar Kent for closing remarks.

Muhtar Kent:

Thank you James, Kathy and Tim. We are in the mix of transforming the Coca-Cola company to one that even more focused on our core value creation model of building strong brands enhancing customer value and leading our franchise system. At the same time we continue to evolve and strengthen our global bottling system as we accelerate re-franchising and we return to our predominantly concentrated driven model with significantly higher margins and returns. We remained confident that the long term dynamics of our industry are promising and we absolutely believe that the Coca-Cola Company is well positioned to deliver long term value to our shareholders.

As always we thank you for your interest, your investment in our company and for joining us this morning.

Operator:

Thank you, Speakers. That concludes today's conference. Thank you for participating. You may now disconnect.