Coca-Cola Reports Second Quarter 2022 Results and Updates Full-Year Guidance

The Coca-Cola Company today reported second quarter 2022 results that demonstrate resilience in the marketplace amidst ongoing global challenges. "Our results this quarter reflect the agility of our business, the strength of our streamlined portfolio of brands, and the actions we've taken to execute for growth in the face of challenges in the operating and macroeconomic environment," said James Quincey, Chairman and CEO of The Coca-Cola Company. "We are staying true to our purpose, executing on our strategy and delivering value for our stakeholders."

• Revenues: Net revenues grew 12% to $11.3 billion, and organic revenues (non-GAAP) grew 16%. Organic revenue (non-GAAP) performance was strong across operating segments and included 12% growth in price/mix and 4% growth in concentrate sales. Concentrate sales were 4 points behind unit case volume, largely due to the timing of concentrate shipments.

• Margin: Operating margin, which included items impacting comparability, was 20.7% versus 29.8% in the prior year, while comparable operating margin (non-GAAP) was 30.7% versus 31.7% in the prior year. Comparable operating margin (non-GAAP) compression was primarily driven by strong topline growth, more than offset by the impact of the BODYARMOR acquisition, higher operating costs and an increase in marketing investments versus the prior year, and currency headwinds.

• Earnings per share: EPS declined 28% to $0.44, and comparable EPS (non-GAAP) grew 4% to $0.70. Comparable EPS (non-GAAP) performance included the impact of a 9-point currency headwind.

• Market share: The company gained value share in total nonalcoholic ready-to-drink (NARTD) beverages.

• Cash flow: Cash flow from operations was $4.5 billion year-to-date, a decline of $1.0 billion versus the prior year, as strong business performance was more than offset by the impact of cycling the timing of working capital benefits in the prior year and higher 2021 annual incentives in the current year. Free cash flow (non-GAAP) was $4.1 billion, a decline of $1.0 billion versus the prior year.

• Leveraging strategic experimentation and scale to create global brand campaigns: The company is focused on leveraging and scaling experiments to better engage with and expand its consumer base. Coke Studiotm, a program that connects the consumer passion point of music with consumption occasions, is one example. Coke Studio first launched in Pakistan, featuring established and emerging artists from various genres collaborating in live, studio recording sessions. Building on the success of the initial program, Coke Studio is evolving and expanding to a global stage as a digital-first, always-on music platform that spotlights breakthrough talent. The program also includes leveraging QR codes on packages to further engage consumers at the point of consumption through a ?Drink. Scan. Enjoy.' activation. Coke Studio represents the latest expression of the Real Magictm global brand philosophy by creating curated multi-channel experiences for consumers.

• Driving customer value and profitable growth through digital enablement: The company is working in close partnership with its bottlers to leverage the power of the system's physical footprint in the online space, creating enhanced value for customers across the globe through eB2B platforms that drive an industry-leading experience. For instance, the myCoketm eB2B platform, which is focused on North America, is a scaled mobile and web application that is generating incremental revenue growth opportunities and achieving strong outlet penetration, with high customer engagement. Year to date, the system revenue generated from myCoke has grown 55% compared to the comparable prior year period, and the company continues to advance on integrating myCoke across its customer base. The Coca-Cola system continues to learn and adapt its digital commerce capabilities and investments.

• Ongoing progress toward being asset light to drive sustainable system growth: The company continues its refranchising efforts, in line with its focus on building consumer-loved brands and driving scalable innovation. Recently, the company entered into an agreement to refranchise company-owned bottling operations in Cambodia and Vietnam with Swire Coca-Cola Limited, a subsidiary of Swire Pacific Limited. Swire Coca-Cola has operations in the Chinese mainland, Hong Kong, Taiwan and parts of the western United States.

• Continuing to work toward a World Without Waste: The company is progressing on its strategy to develop a circular economy for packaging materials aimed at eliminating waste and reducing carbon emissions through the continual use of existing, valuable resources, including high-quality recycled PET. This includes ongoing work in packaging design. Leveraging the success of the label-less package, the company launched the label-less bottle for brand Coca-Colatm in the online channel in Japan, which is delivering strong performance. This is in addition to the use of 100% recycled PET bottles for 37 products under five brands already sold in the Japan market. Also, The Ellen MacArthur Foundation and The Coca-Cola Company recently announced a strategic partnership, increasing their level of collaboration to the highest network tier of the foundation. The company's virgin plastic reduction target and, more recently, global goal to reach 25% reusable packaging by 2030, signal circular economy leadership ambitions.

In addition to the data in the preceding tables, operating results included the following:

• Unit case volume grew 8%, with broad-based growth across all operating segments. Volume performance was driven by continued recovery in away-from-home channels and ongoing investments in the marketplace. Developed markets, as well as developing and emerging markets, grew high single digits. Growth in developed markets was led by Mexico, Western Europe and the United States, while growth in developing and emerging markets was led by India and Brazil.

Category performance was as follows:

• Sparkling soft drinks grew 8%, driven by growth across all geographic operating segments, primarily led by India, Mexico and Brazil. Trademark Coca-Cola grew 7%, driven by growth across all geographic operating segments and operating units. Coca-Cola® Zero Sugar grew 12%, driven by double-digit growth across developed, developing and emerging markets. Sparkling flavors grew 11%, led by Asia Pacific and Europe, Middle East and Africa.

• Nutrition, juice, dairy and plant-based beverages grew 6%, led by Maaza® in India, Del Valle® in Latin America and fairlife® in the United States.

• Hydration, sports, coffee and tea grew 7%. Hydration grew 7%, led by strong growth in Latin America and Europe, Middle East and Africa. Sports drinks grew 7%, primarily driven by strong growth of BODYARMOR and Powerade®. Tea grew 4%, led by growth in Brazil, Western Europe and Japan. Coffee grew 15%, primarily driven by cycling the impact of Costa® retail store closures in the United Kingdom in the prior year and continued expansion of Costa® coffee across markets.

• Price/mix grew 12%, driven by pricing actions in the marketplace across operating segments along with favorable channel and package mix primarily due to cycling the impact of the pandemic in the prior year. Price/mix also benefited from positive segment mix. Concentrate sales were 4 points behind unit case volume, largely due to the timing of concentrate shipments.

• Operating income declined 22%, which included items impacting comparability and a 7-point currency headwind. Comparable currency neutral operating income (non-GAAP) grew 15%, driven by strong organic revenue (non-GAAP) growth across all operating segments, partially offset by higher operating costs and an increase in marketing investments versus the prior year.

• Unit case volume grew 6%, driven by broad-based growth across all operating units. Volume performance was led by strong growth in Western Europe, Turkey and Pakistan.

• Price/mix grew 21%, driven by pricing actions across operating units along with favorable channel and package mix due to cycling the impact of the pandemic in the prior year, in addition to inflationary pricing in Turkey. Concentrate sales were 6 points behind unit case volume, largely due to the timing of concentrate shipments. Year-to-date concentrate sales were 2 points behind unit case volume, primarily due to the impact of one less day in the first quarter of the current year.

• Operating income grew 13%, which included items impacting comparability and a 14-point currency headwind. Comparable currency neutral operating income (non-GAAP) grew 26%, primarily driven by strong organic revenue (non-GAAP) growth across all operating units, partially offset by higher operating costs and an increase in marketing investments versus the prior year.

• The company gained value share in total NARTD beverages with share gains across most categories.

• Unit case volume grew 9%, with strong growth across almost all categories. Growth was led by Mexico, Brazil and Argentina.

• Price/mix grew 12%, driven by pricing actions in the marketplace and favorable channel and package mix, in addition to inflationary pricing in Argentina. Concentrate sales were 13 points behind unit case volume, largely due to the timing of concentrate shipments. Year-to-date concentrate sales were 2 points behind unit case volume, primarily due to the impact of one less day in the first quarter of the current year.

• Operating income declined 1%, which included items impacting comparability. Comparable currency neutral operating income (non-GAAP) was even, primarily driven by strong organic revenue (non-GAAP) growth, offset by higher operating costs and an increase in marketing investments versus the prior year.

• The company lost value share in total NARTD beverages, as share gains in juice and juice drinks, tea and coffee were more than offset by pressure in sparkling soft drinks and other categories.

• Unit case volume grew 2%. Growth was driven by solid performance in away-from-home channels. Sparkling soft drinks and dairy beverages led growth during the quarter.

• Price/mix grew 10%, primarily driven by pricing actions in the marketplace, continued recovery in the fountain business and away-from-home channels, and strong growth in premium offerings. Price/mix growth included a benefit resulting from the timing of price increases in the prior year.

• Operating income declined 12%, which included items impacting comparability. Comparable currency neutral operating income (non-GAAP) grew 19%, driven by strong organic revenue (non-GAAP) growth, partially offset by higher operating costs and an increase in marketing investments versus the prior year.

• The company gained value share in total NARTD beverages, driven by strong performance in at-home channels in sparkling soft drinks, juice and juice drinks, and dairy beverages.

• Unit case volume grew 11%, driven by strong growth in India and the Philippines, partially offset by pressure in China due to reduced consumer mobility resulting from a resurgence in COVID-19 cases. Growth was led by sparkling soft drinks and juice and juice drinks.

• Price/mix declined 3%, as pricing actions in the marketplace were more than offset by negative geographic mix. Concentrate sales were 4 points ahead of unit case volume, primarily due to the timing of concentrate shipments.

• Operating income declined 2%, which included items impacting comparability and an 8-point currency headwind. Comparable currency neutral operating income (non-GAAP) grew 6%, primarily driven by organic revenue (non-GAAP) growth across all operating units, partially offset by higher operating costs and an increase in marketing investments versus the prior year.

• The company gained value share in total NARTD beverages led by share gains in China, Japan and Australia.

• Net revenues declined 2%, and organic revenues (non-GAAP) grew 10%. Net revenues included an 11-point currency headwind. Revenue performance benefited from cycling the impact of Costa retail store closures in the United Kingdom in the prior year.

• Operating income and comparable currency neutral operating income (non-GAAP) both declined, as solid organic revenue (non-GAAP) growth was more than offset by higher operating costs.

• Unit case volume grew 26%, driven by growth in all markets, led by India and the Philippines.

• Price/mix grew 3%, driven by pricing actions across most markets, partially offset by negative geographic mix.

• Operating income grew 22%, which included items impacting comparability and a 13-point headwind from currency. Comparable currency neutral operating income (non-GAAP) grew 86%, driven by strong organic revenue (non-GAAP) growth.

The 2022 outlook information provided below includes forward-looking non-GAAP financial measures, which management uses in measuring performance. The company is not able to reconcile full-year 2022 projected organic revenues (non-GAAP) to full-year 2022 projected reported net revenues, full-year 2022 projected comparable net revenues (non-GAAP) to full-year 2022 projected reported net revenues, full-year 2022 projected comparable cost of goods sold (non-GAAP) to full-year 2022 projected reported cost of goods sold, full-year 2022 projected underlying effective tax rate (non-GAAP) to full-year 2022 projected reported effective tax rate, full-year 2022 projected comparable currency neutral EPS (non-GAAP) to full-year 2022 projected reported EPS or full-year 2022 projected comparable EPS (non-GAAP) to full-year 2022 projected reported EPS without unreasonable efforts because it is not possible to predict with a reasonable degree of certainty the actual impact of changes in foreign currency exchange rates throughout 2022; the exact timing and amount of acquisitions, divestitures and/or structural changes throughout 2022; the exact timing and amount of items impacting comparability throughout 2022; and the actual impact of changes in commodity costs throughout 2022. The unavailable information could have a significant impact on the company's full-year 2022 reported financial results.

Full Year 2022

On March 8, 2022, the company announced the suspension of its business in Russia as a result of the conflict in Ukraine. The approximate direct impacts of this are estimated to be as follows:

• 1% impact to unit case volume ? No Change

• 1% to 2% impact to net revenues and operating income ? No Change

• $0.03 impact to comparable EPS (non-GAAP) ? Updated

These estimated impacts are reflected in the outlook commentary below.

The company expects to deliver organic revenue (non-GAAP) growth of 12% to 13%. ? Updated

For comparable net revenues (non-GAAP), the company expects a 6% currency headwind based on the current rates and including the impact of hedged positions, in addition to a 2% tailwind from acquisitions and divestitures. ? Updated

The company expects commodity price inflation to be a high single-digit percentage headwind on comparable cost of goods sold (non-GAAP), based on the current rates and including the impact of hedged positions. ? Updated

The company's underlying effective tax rate (non-GAAP) is estimated to be 19.5%. This does not include the impact of ongoing tax litigation with the U.S. Internal Revenue Service, if the company were not to prevail. ? No Change

Given the above considerations, the company expects to deliver comparable currency neutral EPS (non-GAAP) growth of 14% to 15% and comparable EPS (non-GAAP) growth of 5% to 6%, versus $2.32 in 2021. ? Updated

Comparable EPS (non-GAAP) percentage growth is expected to include a 9% currency headwind based on the current rates and including the impact of hedged positions, in addition to a 1% headwind from acquisitions and divestitures. ? Updated

The company expects to generate free cash flow (non-GAAP) of approximately $10.5 billion through cash flow from operations of approximately $12.0 billion, less capital expenditures of approximately $1.5 billion. This does not include any potential payments related to ongoing tax litigation with the U.S. Internal Revenue Service. ? No Change

Third Quarter 2022 Considerations ? New

Comparable net revenues (non-GAAP) are expected to include an approximate 7% to 8% currency headwind based on the current rates and including the impact of hedged positions, in addition to a 3% tailwind from acquisitions.

Comparable EPS (non-GAAP) percentage growth is expected to include an approximate 9% to 10% currency headwind based on the current rates and including the impact of hedged positions.

• All references to growth rate percentages and share compare the results of the period to those of the prior year comparable period, unless otherwise noted.

• All references to volume and volume percentage changes indicate unit case volume, unless otherwise noted. All volume percentage changes are computed based on average daily sales, unless otherwise noted. "Unit case" means a unit of measurement equal to 192 U.S. fluid ounces of finished beverage (24 eight-ounce servings), with the exception of unit case equivalents for Costa non-ready-to-drink beverage products which are primarily measured in number of transactions. "Unit case volume" means the number of unit cases (or unit case equivalents) of company beverages directly or indirectly sold by the company and its bottling partners to customers or consumers.

• "Concentrate sales" represents the amount of concentrates, syrups, beverage bases, source waters and powders/minerals (in all instances expressed in unit case equivalents) sold by, or used in finished beverages sold by, the company to its bottling partners or other customers. For Costa non-ready-to-drink beverage products, "concentrate sales" represents the amount of beverages, primarily measured in number of transactions (in all instances expressed in unit case equivalents) sold by the company to customers or consumers. In the reconciliation of reported net revenues, "concentrate sales" represents the percent change in net revenues attributable to the increase (decrease) in concentrate sales volume for the geographic operating segments and the Global Ventures operating segment after considering the impact of structural changes, if any. For the Bottling Investments operating segment, this represents the percent change in net revenues attributable to the increase (decrease) in unit case volume computed based on total sales (rather than average daily sales) in each of the corresponding periods after considering the impact of structural changes, if any. The Bottling Investments operating segment reflects unit case volume growth for consolidated bottlers only.

• "Price/mix" represents the change in net operating revenues caused by factors such as price changes, the mix of products and packages sold, and the mix of channels and geographic territories where the sales occurred.

• First quarter 2022 financial results were impacted by one less day as compared to first quarter 2021, and fourth quarter 2022 financial results will be impacted by one additional day as compared to fourth quarter 2021. Unit case volume results for the quarters are not impacted by the variances in days due to the average daily sales computation referenced above.

The company is hosting a conference call with investors and analysts to discuss second quarter 2022 operating results today, July 26, 2022, at 8:30 a.m. ET. The company invites participants to listen to a live webcast of the conference call on the company's website, http://www.coca-colacompany.com, in the "Investors" section. An audio replay in downloadable digital format and a transcript of the call will be available on the website within 24 hours following the call. Further, the "Investors" section of the website includes certain supplemental information and a reconciliation of non-GAAP financial measures to the company's results as reported under GAAP, which may be used during the call when discussing financial results.