Add
CCE to Portfolio
Set Alert
Email to a
Friend
| |||
|
|
Quotes & Info
|
| CCE > SEC Filings for CCE > Form 10-Q on 30-Apr-2009 | All Recent SEC Filings |
30-Apr-2009
Quarterly Report
OVERVIEW
Coca-Cola Enterprises Inc. ("CCE," "we," "our," or "us") is the world's largest marketer, producer, and distributor of nonalcoholic beverages. We market, produce, and distribute our bottle and can products to customers and consumers through license territories in 46 states in the United States (U.S.), the District of Columbia, the U.S. Virgin Islands and certain other Caribbean islands, and the 10 provinces of Canada (collectively referred to as North America). We are also the sole licensed bottler for products of The Coca-Cola Company (TCCC) in Belgium, continental France, Great Britain, Luxembourg, Monaco, and the Netherlands (collectively referred to as Europe). Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the unaudited Condensed Consolidated Financial Statements and accompanying Notes in this Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2008 (Form 10-K).
We operate in the highly competitive beverage industry and face strong competition from other general and specialty beverage companies. Our financial results, like those of other beverage companies, are affected by a number of factors including, but not limited to, cost to manufacture and distribute products, general economic conditions, consumer preferences, local and national laws and regulations, availability of raw materials, fuel prices, and weather patterns.
Sales of our products tend to be seasonal, with the second and third quarters accounting for higher unit sales of our products than the first and fourth quarters. In a typical year, we earn more than 60 percent of our annual operating income during the second and third quarters of the year. Sales in Europe tend to experience more seasonality than those in North America due, in part, to a higher sensitivity of European consumption to weather conditions. The seasonality of our sales volume combined with the accounting for fixed costs, such as depreciation, amortization, rent, and interest expense, impacts our results on a quarterly basis. Accordingly, our results for the first quarter of 2009 may not necessarily be indicative of the results that may be expected for the full year ending December 31, 2009. For reporting convenience, our quarters close on the Friday closest to the end of the quarterly calendar period. There were three additional selling days in the first quarter of 2009 versus the first quarter of 2008 (based upon a standard five-day selling week). Year-over-year selling days will be the same in the second and third quarters, and there will be four fewer selling days in the fourth quarter of 2009 versus the fourth quarter of 2008.
Relationship with The Coca-Cola Company
We are a marketer, producer, and distributor principally of products of TCCC with greater than 90 percent of our sales volume consisting of sales of TCCC products. Our license arrangements with TCCC are governed by licensing territory agreements. TCCC owned approximately 35 percent of our outstanding shares as of April 3, 2009. Our financial results are greatly impacted by our relationship with TCCC. Our collaborative efforts with TCCC are necessary to (1) create and develop new brands and packages; (2) market our products in the most effective manner possible; and (3) find ways to maximize efficiency. For additional information about our transactions with TCCC, refer to Note 5 of the Notes to Condensed Consolidated Financial Statements in this Form 10-Q and Note 3 of the Notes to Consolidated Financial Statements in our Form 10-K.
Financial Results
Our net income in the first quarter of 2009 was $61 million, or $0.13 per diluted common share, compared to net income of $8 million, or $0.02 per diluted common share, in the first quarter of 2008. The following items that are included in our reported results affect the comparability of our year-over-year first quarter financial results:
First Quarter 2009
• a $45 million ($33 million net of tax, or $0.07 per diluted common share) charge related to restructuring activities, primarily in North America and to streamline and reduce the cost structure of our global back-office functions;
• a $9 million ($6 million net of tax, or $0.01 per diluted common share) loss related to the extinguishment of debt; and
• a net tax benefit totaling $3 million ($0.01 per diluted common share) primarily related to state tax law changes.
First Quarter 2008
• a $31 million ($22 million net of tax, or $0.04 per diluted common share) charge related to restructuring activities, primarily in North America; and
• a net tax expense totaling $8 million ($0.02 per diluted common share) related to the deferred tax impact of merging certain of our subsidiaries.
Financial Summary
Our financial performance during the first quarter of 2009 was impacted by the following significant factors:
• Improved operating trends in North America including strong pricing growth, benefits from our price-package architecture strategies, and operating expense reductions from our recently implemented Ownership Cost Management (OCM) practices;
• Difficult macroeconomic conditions contributing to persistent weakness in higher-margin products and packages, and lower than expected performance for some higher-margin emerging beverage categories;
• Increased input costs in North America due to supply agreements and hedging instruments entered into during 2008 that locked us into higher than market prices;
• Balanced volume and pricing growth in Europe, particularly in Great Britain, driven by strong marketplace execution and solid brand development;
• Continued strong performance of Coca-Cola Zero throughout our territories, and the benefit of recent product additions including Monster Energy drinks in all of our territories, vitaminwater 10 and POWERade Zero in North America, and Schweppes Abbey Well mineral water in Great Britain;
• The benefit of three additional selling days in the first quarter of 2009 versus 2008, offset partially by the shifting of the Easter holiday to the second quarter of 2009; and
• Unfavorable currency exchange rate changes that reduced earnings per diluted common share in the first quarter of 2009 by approximately $0.04 versus the first quarter of 2008.
North America Results
In North America, we achieved net pricing per case growth of 10.0 percent, which was primarily driven by sparkling beverage rate increases implemented in the latter part of 2008 and early 2009, and slight mix impact related to our still beverages. North American sales volume declined 3.0 percent during the first quarter of 2009 reflecting the negative impact of higher sales prices, persistent weakness in higher-margin products and packages, significantly lower sales of Dasani multi-serve and single-serve packages, and lower volume of glacéau's vitaminwater versus strong 2008 introductory volume. Our volume benefited from solid growth of Coca-Cola Zero, improved performance of our POWERade brands, and recent product additions including Monster Energy drinks and vitaminwater 10. Our bottle and can cost of sales per case increased 10.0 percent during the first quarter of 2009 reflecting the impact of (1) higher raw material costs as a result of supply agreements and hedging instruments entered into during 2008 that locked us into higher than market prices; (2) package mix shifts associated with higher cost still beverages purchased as finished goods; and (3) increased cost of sparkling beverage concentrate.
During the remainder of 2009, we expect the current macroeconomic environment to remain challenging and we will continue to monitor key business indicators. We will focus our efforts on growing volume and margin for our sparkling beverages, stimulating demand in single-serve consumption channels, further increasing the availability of Coca-Cola Zero, and executing our operating plans for Monster Energy drinks and glacéau's vitaminwater. We will also continue to focus on improving our operating effectiveness and managing our operating expenses through our OCM practices. In addition, we expect our cost of sales to moderate during the latter part of 2009 as we begin to realize the benefit of lower prices for several of our key input costs.
Europe Results
In Europe, we achieved volume growth of 5.5 percent as we were able to successfully lap strong volume in the first quarter of 2008. Our volume performance reflects solid growth in both sparkling and still beverages, which grew 6.0 percent and 3.0 percent, respectively. Great Britain experienced low double-digit growth, while continental Europe grew modestly. Solid marketplace execution, increased promotional activity, and the continued success of our "Red, Black, and Silver" three-cola strategy were the primary drivers of our first quarter of 2009 volume performance. We also had several key product additions including Monster Energy drinks across all of our territories and Schweppes Abbey Well mineral water in Great Britain. Net pricing per case increased 2.5 percent, and bottle and can costs per case grew 1.0 percent, which led to positive margin expansion year-over-year. Our European results were significantly impacted by negative currency exchange rate changes. During the remainder of 2009, we will continue to monitor key business indicators so that we can react swiftly to any changes in European market conditions that may result from global economic conditions and/or changing consumer buying habits.
OPERATIONS REVIEW
The following table summarizes our Condensed Consolidated Statements of
Operations data as a percentage of net operating revenues for the periods
presented:
First Quarter
2009 2008
Net operating revenues 100.0 % 100.0 %
Cost of sales 62.8 63.5
Gross profit 37.2 36.5
Selling, delivery, and administrative expenses 32.4 33.1
Operating income 4.8 3.4
Interest expense, net 3.1 2.9
Income before income taxes 1.7 0.5
Income tax expense 0.5 0.3
Net income 1.2 % 0.2 %
|
COCA-COLA ENTERPRISES INC.
Operating Income
The following table summarizes our operating income by operating segment for the
periods presented (in millions; percentages rounded to the nearest 0.5 percent):
First Quarter
2009 2008
Percent Percent
Amount of Total Amount of Total
North America $ 204 84.5 % $ 106 65.0 %
Europe 175 72.5 171 105.0
Corporate (138 ) (57.0 ) (114 ) (70.0 )
Consolidated $ 241 100.0 % $ 163 100.0 %
|
Our operating income increased $78 million, or 48.0 percent, in the first quarter of 2009 to $241 million from $163 million in the first quarter of 2008. The following table summarizes the significant components of the change in our first quarter of 2009 operating income (in millions; percentages rounded to the nearest 0.5 percent):
Change
Percent
Amount of Total
Changes in operating income:
Impact of bottle and can price, cost, and mix on gross profit $ 146 89.5 %
Impact of bottle and can volume on gross profit (11 ) (7.0 )
Impact of bottle and can selling day shift on gross profit 62 38.0
Impact of post-mix, non-trade, and other revenues on gross profit 16 10.0
Selling, delivery, and administrative expenses (93 ) (57.0 )
Net impact of restructuring charges (14 ) (9.5 )
Currency exchange rate changes (26 ) (16.0 )
Other changes (2 ) 0.0
Change in operating income $ 78 48.0 %
|
Net Operating Revenues
Net operating revenues increased 3.0 percent in the first quarter of 2009 to $5.1 billion. This change includes an approximately 8.0 percent reduction from currency exchange rate changes, offset partially by an approximately 4.0 percent increase due to the three additional selling days in the period. The percentage of our first quarter of 2009 net operating revenues derived from North America and Europe was 72 percent and 28 percent, respectively.
During the first quarter of 2009, our net operating revenues in North America benefited from strong pricing growth driven by sparkling beverage rate increases implemented in the latter part of 2008 and early 2009 and slight mix impact related to our still beverages. North American sales volume declined 3.0 percent during the first quarter, reflecting the impact of higher sales prices and persistent weakness in our higher-margin products and packages, including a double-digit decline in the sale of 20-ounce Dasani packages. Our volume benefited from the continued strong performance of Coca-Cola Zero and recent product additions including Monster Energy drinks and vitaminwater 10. In Europe, our net operating revenues reflect strong volume growth in both sparkling and still beverage categories, solid marketplace execution, increased promotional activity, and the continued success of our "Red, Black, and Silver" three-cola initiative.
Net operating revenues per case were flat in the first quarter of 2009 versus the first quarter of 2008. The following table summarizes the significant components of the change in our first quarter of 2009 net operating revenues per case (rounded to the nearest 0.5 percent and based on wholesale physical case volume):
North
America Europe Consolidated
Changes in net operating revenues per case:
Bottle and can net price per case 10.0 % 2.5 % 8.0 %
Bottle and can currency exchange rate changes (1.5 ) (19.0 ) (7.0 )
Post mix, non-trade, and other (0.5 ) (1.0 ) (1.0 )
Change in net operating revenues per case 8.0 % (17.5 )% 0.0 %
|
During the first quarter of 2009, our bottle and can sales accounted for 91 percent of our total net operating revenues. Bottle and can net price per case is based on the invoice price charged to customers reduced by promotional allowances and is impacted by the price charged per package or brand, the volume generated in each package or brand, and the channels in which those packages or brands are sold. To the extent we are able to increase volume in higher margin packages or brands that are sold through higher margin channels, our bottle and can net pricing per case will increase without an actual increase in wholesale pricing. The increase in our first quarter of 2009 bottle and can net pricing per case in North America was primarily driven by sparkling beverage rate increases implemented in the latter part of 2008 and early 2009 and slight mix impact related to our still beverages. Offsetting this growth was persistent weakness in the sale of our higher-priced single-serve packages, particularly 20-ounce Dasani, which declined double digits.
Volume
The following table summarizes the change in our first quarter of 2009 bottle
and can volume versus the first quarter of 2008, as adjusted to reflect the
impact of three additional selling days in the first quarter of 2009 versus the
first quarter of 2008 (rounded to the nearest 0.5 percent):
North
America Europe Consolidated
Change in volume 1.0 % 9.5 % 3.5 %
Impact of selling day shift (A) (4.0 ) (4.0 ) (4.0 )
Change in volume, adjusted for selling day shift (3.0 )% 5.5 % (0.5 )%
|
(A) Represents the impact of changes in selling days between periods (based upon a standard five-day selling week) and rounding due to our 0.5 percent rounding convention.
North America comprised 73 percent and 74 percent of our consolidated bottle and can volume during the first quarter of 2009 and 2008, respectively.
COCA-COLA ENTERPRISES INC.
Brands
The following table summarizes our first quarter of 2009 bottle and can volume
results by major brand category, as adjusted to reflect the impact of three
additional selling days in the first quarter of 2009 versus the first quarter of
2008 (rounded to the nearest 0.5 percent):
Percent
Change of Total
North America:
Coca-Cola trademark (2.5 )% 57.5 %
Sparkling flavors and energy (3.5 ) 24.5
Juices, isotonics, and other 5.0 10.5
Water (13.0 ) 7.5
Total (3.0 )% 100.0 %
Europe:
Coca-Cola trademark 7.0 % 69.5 %
Sparkling flavors and energy 1.5 17.0
Juices, isotonics, and other 0.0 10.5
Water 14.0 3.0
Total 5.5 % 100.0 %
Consolidated:
Coca-Cola trademark 0.5 % 60.5 %
Sparkling flavors and energy (2.5 ) 22.5
Juices, isotonics, and other 3.5 10.5
Water (10.0 ) 6.5
Total (0.5 )% 100.0 %
|
Our North American sales volume declined 3.0 percent during the first quarter of 2009. This performance reflects the negative impact of higher sales prices, persistent weakness in higher-margin products and packages, significantly lower sales of Dasani multi-serve and single-serve packages, and lower volume of glacéau's vitaminwater versus strong 2008 introductory volume. Our volume benefited from solid growth of Coca-Cola Zero, improved performance of our POWERade brands, and recent product additions including Monster Energy drinks and vitaminwater 10.
We experienced a 2.5 percent decline in our Coca-Cola trademark products in North America during the first quarter of 2009, which included a 3.0 percent decline in our regular Coca-Cola trademark products and a 1.5 percent decline in diet Coca-Cola trademark products. The decrease in our regular Coca-Cola trademark products was primarily attributable to a 2.5 percent decrease in the sales of Coca-Cola, but also reflects reduced sales of Cherry Coke and Vanilla Coke. The decrease in our diet Coca-Cola trademark products was driven by lower sales of Diet Coke and Caffeine Free Diet Coke, offset by strong volume gains of Coca-Cola Zero, which increased over 20.0 percent.
Our sparkling flavors and energy volume in North America declined 3.5 percent during the first quarter of 2009 versus the first quarter of 2008. This decrease was primarily driven by lower sales of our Sprite, Dr Pepper, and Fanta products, offset partially by significant volume gains in our energy drink category due to the addition of Monster Energy drinks to our energy drink portfolio.
Our juices, isotonics, and other volume in North America increased approximately 5.0 percent during the first quarter of 2009. The primary driver of this growth was significant volume gains for our POWERade brands, including our recently introduced POWERade Zero. Offsetting this volume growth were lower sales of glacéau's vitaminwater versus strong introductory volume levels from a year ago and reduced performance for our Minute Maid products and tea portfolio. During the first quarter of 2009, we introduced vitaminwater 10, a new low-calorie beverage, to increase our product offerings in the enhanced water
category. Sales volume for our water brands decreased 13.0 percent during the first quarter of 2009. This performance reflects double-digit declines in the sale of single-serve and multi-serve Dasani packages, offset by volume gains in the sale of glacéau's smartwater.
In Europe, we achieved volume growth of 5.5 percent as we were able to successfully lap strong volume in the first quarter of 2008. Our volume performance reflects solid growth in both sparkling and still beverages, which grew 6.0 percent and 3.0 percent, respectively. Great Britain experienced low double-digit growth, while continental Europe grew modestly. Solid marketplace execution, increased promotional activity, and the continued success of our "Red, Black, and Silver" three-cola strategy were the primary drivers of our first quarter of 2009 volume performance. We also had several key product additions including Monster Energy drinks across all of our territories and Schweppes Abbey Well mineral water in Great Britain.
Our Coca-Cola trademark products in Europe increased 7.0 percent in the first quarter of 2009 as compared to the first quarter of 2008. This increase was driven by strong volume gains from each of our "Red, Black, and Silver" three-cola initiative products - Coca-Cola, Coca-Cola Zero, and Diet Coke / Coca-Cola light. Our sparkling flavors and energy volume in Europe increased 1.5 percent during the first quarter of 2009 reflecting higher sales of Sprite and Dr Pepper products, offset partially by declining sales of Fanta and Schweppes products. In addition, we recently enhanced greatly our energy drink portfolio in Europe with the introduction of Monster Energy drinks across all territories. Our juices, isotonics, and other volume remained flat during the first quarter of 2009, reflecting slight declines for certain of our juice products, including Minute Maid and Fanta still, offset by volume gains for Capri-Sun. Sales volume of our water brands increased 14.0 percent during the first quarter of 2009, reflecting the key addition of Schweppes Abbey Well mineral water in Great Britain and a moderate increase in the sale of Chaudfontaine mineral water in continental Europe.
Consumption
The following table summarizes our first quarter of 2009 volume results by
consumption type, as adjusted to reflect the impact of three additional selling
days in the first quarter of 2009 versus the first quarter of 2008 (rounded to
the nearest 0.5 percent):
Percent
Change of Total
North America:
Multi-serve (A) (3.5 )% 72.5 %
Single-serve (B) (1.5 ) 27.5
Total (3.0 )% 100.0 %
Europe:
Multi-serve (A) 7.5 % 59.5 %
Single-serve (B) 2.5 40.5
Total 5.5 % 100.0 %
Consolidated:
Multi-serve (A) (1.0 )% 69.0 %
Single-serve (B) 0.0 31.0
Total (0.5 )% 100.0 %
|
(A) Multi-serve packages include containers that are typically greater than one liter, purchased by consumers in multi-packs in take-home channels at ambient temperatures, and are consumed in the future.
(B) Single-serve packages include containers that are typically one liter or less, purchased by consumers as a single bottle or can in cold drink channels at chilled temperatures, and consumed shortly after purchase.
COCA-COLA ENTERPRISES INC.
Packaging
The following table summarizes our first quarter of 2009 volume results by
packaging category, as adjusted to reflect the impact of three additional
selling days in the first quarter of 2009 versus the first quarter of 2008
(rounded to the nearest 0.5 percent):
Percent
Change of Total
North America:
Cans (3.5 )% 57.0 %
PET (plastic) (1.0 ) 42.0
Glass and other (33.5 ) 1.0
Total (3.0 )% 100.0 %
Europe:
Cans 8.0 % 38.5 %
PET (plastic) 4.5 45.5
Glass and other 1.5 16.0
Total 5.5 % 100.0 %
Consolidated:
Cans (1.5 )% 52.0 %
PET (plastic) 0.5 43.0
Glass and other (5.5 ) 5.0
Total (0.5 )% 100.0 %
|
Cost of Sales
Cost of sales increased 2.0 percent in the first quarter of 2009 to $3.2 billion. This change includes an approximately 8.0 percent reduction from currency exchange rate changes, offset partially by an approximately 4.0 percent . . .
|
|