Jul 21, 2009
Executives
Jackson Kelly - Director of Investor Relations Muhtar Kent - President and Chief Executive Officer Gary P. Fayard - Chief Financial Officer José Octavio (Pancho) Reyes - President and Chief Operating Officer of Latin America
Analysts
John Faucher - J.P. Morgan Bill Pecoriello - Consumer Edge Carlos Laboy - Credit Suisse Judy Hong - Goldman Sachs & Company Kaumil Gajrawala - UBS Lauren Torres - HSBC Christine Farkas - BAS-ML Damian Witkowski - Gabelli & Co.
Mark Swartzberg - Stifel Nicolaus & Company Ann Gurkin - Davenport & Co.
Operator
Welcome everyone to The Coca-Cola Company second quarter 2009 earnings results conference call. (Operator Instructions) I would now like to introduce Jackson Kelly, Vice President and Director of Investor Relations.
Jackson Kelly
Good morning and thank you for being with us today. I am joined by: Muhtar Kent, our Chairman and Chief Executive Officer; Gary Fayard, our Chief Financial Officer; and Pancho Reyes, our Latin America Group President.
Following prepared remarks this morning, we will turn the call over for your questions. Before we get started I would like to remind you that this conference call may contain forward-looking statements, including statements concerning 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.
In addition, I would also like to note that we have posted schedules on our company website at www.thecoca-colacompany.com under the Reports and Financial Information tab in the Investor section which reconciles certain non-GAAP financial measures that may be referred to by our senior executives in our discussion this morning and from time to time in discussing our financial performance as reported under generally accepted accounting principles. Please look on our website for this information.
Now, let me turn the call over to Muhtar.
Muhtar Kent
Good morning everyone. I am pleased to report another excellent quarter of growth for the Coca-Cola Company despite difficult global market conditions.
Today we are positioned better than ever to grow share and build value in the dramatically changing world. The fundamentals of our business remain strong.
Our company is growing: growing volume, growing revenue, as well as profits on a currency neutral basis, building share, and strengthening brand health. And importantly, we're delivering against our expectations with first half results in line or above our long-term growth targets.
For the first half of the year, unit case volume increased 3%, adding another 200.0 million unit cases, or about the size of our annual volume in Chile, our 18th largest market globally. On a comparable currency neutral basis, net revenues increased 3% and operating income increased 9%.
For the first half of the year, comparable EPS is down 7% due to the expected currency translation impact. We continue to invest our robust cash flow and profits into key markets and growth strategies, which in turn enables us to deliver solid performance in fast-growing economies like India, Brazil, Mexico, and China.
These investments also give us the ability to expand our footprint in these key market economies. Consider China, for example, where we just opened two new plants last month and the PanAsian Innovation Center at the end of last year.
We now have 38 fully operational factories in this growing and dynamic country. I am also pleased with how our associates are acting as true owners, running this high-margin business with a low-margin mentality while redoubling their efforts to identify areas of cost savings, savings that are being prudently reinvested back into the business.
And we are executing on our productivity initiatives and delivering tangible results. We are on track to achieve our $500.0 million target by the end of 2011 and expect to deliver more than half of the promised savings by the end of this year.
I am confident that our strong brands and solid business fundamentals are the assets that are being leveraged by our seasoned management team to meet our long-term targets this year. And while we are on track and performing well in the first half of the year, as I said on our last call, there may be bumps along the way, given the continued global recession and economic volatility.
For the quarter, we continued to deliver consistent and balanced top- and bottom-line performance results. Globally, our unit case volume for the quarter increased an outstanding 4% at the top end of our long-term growth targets.
Our international operations remain significant contributors to our solid performance results and increased unit case volume by 5%, factoring 5% from the prior year. Our franchise system leveraged the strength of our leading brands geographic footprint and global reach and scale to drive unit case growth around the world.
In Latin America, Mexico and Argentina grew 6% and Brazil was up 5%. In Europe, Northwest Europe was up 6% on strong performance in Great Britain as well as France.
And in Eurasia and Africa, India was up 33%, Nigeria grew 9%, Southern Eurasia was up 5%, and Turkey up 4%. And in the Pacific, China grew 14%, the twentieth consecutive quarter of double-digit growth.
Viet Nam was up 12%, Korea and Thailand increased 9% and Japan volume grew 2% despite GDP contracting 8%. Finally, we continue to gain strength in many emerging markets.
For example, in our 120 countries with per caps less than 150, our volume growth was 8% for the quarter, factoring 6% from the prior year. Our volume results also underscore the continued efforts of our system to deliver our consumers the right brand, in the right pack, at the right price, in the right channel, for any consumption occasion.
We can do this because of the strength and alignment we have with our bottling partners across the world. As we have said before, share gain and brand health are key success metrics.
For billions of consumers around the world, Coca-Cola and all our brands remain an affordable luxury. In fact, once again this quarter, we gained non-alcoholic, ready-to-drink volume and value share, marking the eighth consecutive quarter of globally winning share in both.
We have continued to outperform the industry across most key categories and geographies and are aggressively looking for opportunities to profitably gain share from competitors. Sustained and increasing levels of consumer spending are driving improvements in our brand health scores, which measure consumers' favorite brands.
Our scores have improved in markets that account for over 75% of our current volume. We are leveraging this growth in brand health by creating the perfect shopper experience, outlet by outlet, with a unique system that visits 20.0 million customers weekly.
These improvements in share and brand health provide us confidence that we will continue to experience growth across key categories and geographies. Our system must also continue working together to commercialize innovations faster than ever before and to accelerate growth of trademark Coca-Cola to win with consumers, both today and tomorrow.
This is a wonderful growth business to be in. Alongside our system partners, we are focused on investing together for growth to achieve what we call our 2020 Vision.
You will continue to hear more about this throughout this year. Now let me move to our strategic initiatives by taking a look back and a look forward from our vantage point, halfway through this year.
At the beginning of the year, we told you that we believe there would be continued and even increasing challenges for our global economy and that these challenges would create a tough environment for our consumers, our customers, and our franchise system. However, we also told you that we remain resolute in our belief that the unique value and quality of our brands, the strength of our system and the result of our people would deliver sound performance despite these headwinds.
Our management's clear focus on a consistent set of strategic initiatives is proving successful and we're taking advantage of all opportunities to emerge strong from this crisis. We remain realistic about the risks and excited about the opportunities that we face in the short term as well as the long term.
We must win every day: win with consumers; win with customers; and franchise partners—the three pillars of our business. All of this starts with consumers and winning with our portfolio, first and foremost with Coca-Cola and sparkling beverages.
Globally, Coca-Cola, the world's most valuable brand at almost $80.0 billion in retail sales grew volume 3% and Coke Zero grew 11% for the quarter. Unit case volume for sparkling beverages was led by broad base international growth of 4%.
Some highlights for sparkling beverage growth from around the world include: India, up 35%; China, up 14%; Great Britain growing 7%; Japan, 6%; Brazil, 4%; Argentina, 3%; and South Africa, 2%. Sprite was driven by international growth of 11%, led by China, India, and Pakistan.
An interest and highlight is brand Coca-Cola's performance in Latin America. In what many would consider as one of the world's most developed sparkling geographies, we grew brand Coca-Cola 3% in both Mexico and Argentina and 6% in Brazil this past quarter.
We're often asked how we are able to do this, given the strength of our per caps that already exist in this part of the world. Simply said, it is a result of the pure strength and momentum of a brand that has been built in Latin America over a hundred years.
Revenue growth strategies based on consumer and customer insights provide us with the capabilities to clearly figment with packaging, pricing, and channel initiatives. Across Latin America and in close alignment with our bottling partners, we are focused on special price points to drive consumption, adjusting packaging initiatives towards refillable and value propositions, expanding cooler placements to ensure our products are within an arm's reach of desire, and I know Pancho Reyes, president of our Coca-Cola Latin America group looks forward to answering your questions about our business and inner geography during our Q&A session this call.
Our integrated Open Happiness campaign is now running in markets that represent 75% of total Coca-Cola volume. This is the fastest global roll out of a campaign from our company and it speaks to speed as a strategic initiative as we operate in a real-time world.
Recruitment, as well as retention, are the focus of strong point-of-sale execution targeted towards moms and teens, as well as Coke and Meals programming. If you dialed into the call early enough this morning, you will have heard the number one pop song in China, Open Happiness.
The single recently hit the number one spot on four leading Chinese music charts and the Open Happiness music video premiered just last week on MTV in the U.S. While traditional marketing avenues will continue to play a critical role as a key medium to connect our brands with consumer passions, we are also shifting to more digital media.
Globally, 19.0 million consumers, of which over 40% are under the age of 25, are registered in our databases to engage with our brands by our loyalty and online brand experiences. In the United States My Coke Rewards, with 12.0 million members, is the largest online consumer packaged goods program.
Our still beverage unit case volume increased 8% as we focused on organic growth and leveraged our recent strategic acquisitions. Internationally, still beverages were up 12%.
We gained beverage volume and value share globally, driven by VitaminWater and our global juice, tea, sports drinks, and energy brands. We continue to provide consumers with innovative products across diverse beverage occasions.
Valley Fruits is delivering significant results in juice drinks across Latin America and building the Hugos de Valle acquisition using an innovative product formula developed in the Pacific under Minute Maid Pulpy. Also late in the quarter we launched Hugo.
This dairy and juice beverage, introduced in Chile, represents our commitment to create new categories that meet new consumer needs. We are also making strategic investments in exciting new beverages like Innocent, the premium smoothie and juice brand in the United Kingdom.
Glauceau, led by VitaminWater and SmartWater continues to gain volume and value share. In the U.S.
VitaminWater 10 is is generating incremental transactions and reaching an expanded consumer base with strong repeats and minimal cannibalization. We'll be launching four brand new VitaminWater 10 flavors early in the third quarter.
Our second pillar is winning with our customers. When we sit down with our customers, it's a simple conversation.
We want to understand their growth plan and then develop programs for our brands to drive revenues at rates in excess of our customers' plans. We want our customers to be as excited about investing in beverages as we are.
And our conversations are working. In this difficult environment, larger retailers are the ones taking share and we are winning with our key customers.
Through May, we grew volume 8% in our top ten global retail customers. Part of the success is continuing to innovate with equipment that engages consumers and drives traffic for customers.
Freestyle, our break-through fountain dispensing technology, which enables consumers to select from over 100 branded beverages, continues to test well in field trials. Our interactive video vending machine won the global award at the 2009 Cannes Lions International Advertising Festival.
This video vendor transforms simple transactions into dynamic brand interactions. In North America, Fuze is being significantly expanded in a fountain format.
This past quarter we announced the addition of Fuze in 22,500 subway outlets. Additionally, McDonald's has agreed to introduce VitaminWater Triple X into a majority of their U.S.
restaurants over the next 18 months. These are just a few examples of our commitment and clear focus on finding the right solutions to grow together with our customers.
Our strategy is winning with our franchise systems. During the quarter we continued to deliver balanced growth and performed well in Latin America with volume up 6% and we remain optimistic about growth in Latin America for the remainder of the year.
Also China and India both continue to be strong contributors to our growth in the way of winning volume and value share in both sparkling and full categories in these important geographies. To drive continued growth in these critical geographies, we are investing significantly in route to market strategies, technology, infrastructure, and consumer marketing, as well as in our talented people.
Japan outperformed the non-alcoholic beverage industry resulting in our fifth consecutive quarter of share gains. Our success in growing sparkling beverages in Japan continues with trademark Coca-Cola up 10%, the eleventh consecutive quarter of growth.
This demonstrates that by applying the basic Coca-Cola way of marketing and selling and by executing flawlessly, we can keep growing Coca-Cola in one of our most developed markets in the world. Additionally, Coca-Cola Zero continued its strong performance in Japan, further winning category share.
SokenbichaTea rebounded with a 9% growth and we recently launched two high-value brands, En Café and Glauceau VitaminWater. Georgia coffee's results were disproportionately impacted by the economic slowdown in vending channels but we are optimistic that this brand will turn around as market conditions begin to improve.
We continue to work hard to ensure that we are delivering solid performance in Japan during this challenging economic climate. In Europe we are weathering the storm better than many despite the fact that the economic crisis is a constant reality for consumers.
Volume in Europe increased 1% for the quarter. We are winning where it counts, with consumers in the market.
We gained volume and value share across key countries as the non-alcoholic beverage industry slowed, especially in away-from-home channels. We are applying consistent global strategies in Europe with a clear focus on winning at the point of sale, appealing to moms and teens through programs such as Coke with Meals, offering value propositions and positive price points and adjusting packaging for the right occasions.
We expect the retail environment in Europe to remain challenging throughout 2009 but we continue to proactively identify opportunities to capture share and maintain a strict focus on winning behind our key brands, particularly trademark Coca-Cola. In North America, just like everywhere else in the world, our operations are focused on building healthy brands, healthy consumer and customer relationships, and a healthy system which are the keys for sustainable growth.
During the quarter volume was down 1% as we continued to outperform the industry, gaining slight volume share and significant value share. Separately, our still beverage portfolio led the industry in growth for the eight consecutive quarter, driving volume and value share gains in sports drinks, active lifestyle beverages, teas, and energy drinks, as well as the continue value share gains in juice.
We have a clear and aligned systems strategy for delivering sustainable, profitable growth and we are leading the industry in building value creating brands. And in concert with our bottlers we are building on our successes to get our vocation, brand, price, pack, and channel architecture right.
The implementation of incidence pricing is going well and is being applied to more than 80% of our volumes. Our new pricing model supports our new sparkling package architecture, including the new immediate consumption recruitment packs.
This enables our company and bottling partners to jointly focus on building consumer occasions maximizing brand reach and generating value. Importantly, having the right pricing architecture in North America as we do internationally is part of how we will unlock sustainable, profitable growth.
For example, we believe that today's equivalent of the old nickel Coke is our ninety-nine cent cold contour bottle. Today, in 90% of the U.S., we offer an ice-cold contour bottle of Coca-Cola for ninety-nine cents, an affordable price point that recruits new consumers.
This initiative is generating 1.0 million new and incremental transactions for our system every single week. Additionally, on the productivity side, Coca-Cola supplies already delivering savings which are being reinvested by the system to build sustainable, competitive advantages.
We are encouraged about our growth opportunities in North America. We believe we have the right strategy and a system that is jointly committed to being more effective and efficient.
To recap, I am pleased with the results we have delivered in the first half of the year. Our business fundamentals remain strong.
We continue to be a consistent and stable cash generator with increasing dividends and a commitment to investing diligently for the future while rewarding our shareholders. We have the brands, the reach, and the scale to capture real opportunity, both today and tomorrow.
And we remain relentlessly focused on effectively operating in what I consider to be world's best consumer business. And with that, let me now turn the call over to Gary.
Gary P. Fayard
As Muhtar indicated, our company is growing in volume, revenue, profits, and share. The fundamentals of the business remain strong.
Our further share gains and brand health improvements reflect our experienced management teams ability to utilize the assets of the Coca-Cola system to deliver tangible results and value for our shareholders. We delivered on our commitments, growing volume and profits in line with our long-term growth model for the first half of the year, even excluding the impact of the five additional selling days that we had in the first quarter.
For the second quarter, we delivered solid results across a diverse geographic footprint with unit case volume growth at the top end of our expectations. This, of course, includes some benefit to our volume growth from the holiday shifts of Easter and the Fourth of July, and the cycling of 3% volume growth in the prior-year period.
Reported operating income declined to 9%, primarily related to a 14% currency headwind. Comparable currency neutral operating income for the quarter came in better than we expected at 4%, cycling 9% from the second quarter of last year.
For the first half of the year we exceeded our long-term currency neutral profit target, increasing operating income 9%. As outlined in our release, we reported earnings per share of $0.88 per share on a diluted basis for the second quarter of 2009.
As expected, this included charges related to our restructuring and ongoing productivity initiatives at both the company and our equity invested bottlers. In total, we had a net charge of $0.04 per share.
Therefore, our adjusted earnings per share was $0.92 per share, a decrease of 9% after considering items impacting comparability in both the current and prior year and again, significantly impacted by currency headwinds in the quarter. Additionally, $0.01 per share was related to the timing of expenses in corporate, which we expect to reverse in the second half of the year.
Net revenue in the quarter decreased 9%, which included a 9% effect from currency headwinds and a 2% drag from structural changes primarily related to our divestment of bottlers. At the same time, net revenue was positively impacted by a 3% increase in concentrate sales.
Price mix for the quarter was slightly negative, reflecting our current focus to drive greater affordability initiatives across many markets to ensure we continue building brand relevance and equity with consumers. Additionally, our Japan business was impacted by shifts away from the at-work vending channel, due to the economic environment.
We believe this is temporary and will moderate as more manufacturing facilities in Japan come back on line. As a result, net revenues, excluding the structural changes, were up 2% for the quarter.
Now let me address some of the factors that we see for the remainder of the year. First, our picture of success for 2009 remains the same: to meet our long-term growth targets.
On currency, as expected, global currency fluctuations negatively impacted the translation of reported results this quarter, however, our operators, who are held accountable in their local currencies, are driving local investments to support sustainable growth. While currency exchange rates have generally improved throughout the year, it is important to look at today's rates relative to the prior year.
For example, the average spot rate was $1.54 for the Euro in Q3 2008 versus our current spot rate of around $1.42. Also, note that the U.S.
dollar has appreciated significantly against a basket of emerging market currencies. Therefore, based on current expectations, including the rates we're cycling and hedges in place for key hard currencies, we anticipate a 12% to 14% currency headwind for the third quarter and a low single-digit currency headwind for the fourth quarter.
Of course, there are many different scenarios that could play out as the market's risk perspective continues to evolve. But I can assure you we will continue to carefully manage our risk exposure and keep you updated as we move through the remainder of the year.
Next let's move to operating expense leverage. First, as we move in the second half, we will begin to cycle the initial savings benefits of our productivity programs.
Second, we will continue to incur higher pension costs and cycle lower incentive costs for the remainder of the year. And third, we will have six fewer selling days in the fourth quarter.
This means that while we will continue to reduce our expense base in the fourth quarter, the rate of reduction will be lower than the revenue decrease we will experience as a result of having six fewer days in the quarter. So essentially, the opposite of the significant benefit we experienced in the first quarter when we had five additional selling days.
Therefore, you should expect operating leverage to be essentially flat for the second half of the year, even as we continue to benefit from our ongoing productivity initiatives. Below the operating profit line, we will have the full impact of higher interest costs related to the $2.25 billion in term debt that we placed in March and the continuing impact of currencies on equity income related to our bottlers.
As a reminder, our revenues will continue to be impacted by the sale of our Pakistan bottler investment at the end of the third quarter last year. Next to taxes.
We ended the quarter with an underlying effective tax rate of 23.5% and we estimate that our underlying effective rate will remain in the range of 23.5% for the remainder of the year. Finally, a comment on our cash.
Given the 14% increase in year-to-date cash flow from operations, we are restarting our share repurchase program and expect to repurchase up to $1.0 billion of our stock during the remainder of 2009. In closing, I believe our first half performance is indicative of a company that is growing and delivering in a challenging market while continuing to build on our record of success.
We are on track to meet our long-term growth targets for the year and are optimistic about the tremendous growth opportunities in the beverage industry. Our 2020 Vision lays out a clear road map for our system and we have a skilled leadership team with the right plan and capabilities to achieve our goals alongside our bottling partners.
Again, Muhtar and I are pleased that Pancho Reyes has joined our call this morning. I know he looks forward to addressing any of your questions related to our Latin American operations.
We are now ready for questions.
Operator
(Operator Instructions) Your first question comes from John Faucher - J.P. Morgan.
John Faucher - J.P. Morgan
A question for Pancho. Can you talk a little bit about some of the regional differences in performance in Mexico.
We had been hearing that the north was a little bit weaker, given concerns about swine flu and the U.S. economy, but looking at the overall numbers it seems that the south must be holding it's own.
And secondly, we're that Big Cola may be expanding in Brazil, so any thoughts on that in terms of with the economy having softened a little bit whether you're seeing it a little more right from a B brand standpoint.
José Octavio (Pancho) Reyes
Our performances in Mexico, they are pretty stable throughout the country. The north and the south have performed relatively in the same terms so the overall numbers that you are seeing are comfortable both in every geography in Mexico.
B brands, yes, B brands are always a consideration, especially under tough economic situations like the one we're facing. But I have seen in the specific was the birthplace, if you will, of the B brands, back twenty years ago probably, so therefore it's not unusual for somebody else to come into that market.
I would think that it is a crowded B brand market, by the way. And we welcome the competition come in from Big Cola if that would be the case.
I think that we have a system that can deal with that threat and hopefully we will continue to prove it, as we go along in this environment.
Operator
Your next question comes from Bill Pecoriello - Consumer Edge.
Bill Pecoriello - Consumer Edge
If you could flush out a little bit more for us the price mix that was down around 1% in the quarter and you made comments about driving affordability. The underlying kind of concentrate revenue per unit, is that going up in line with the bottlers raising price around the world to recoup offsetting effects and commodity increases?
And also, what exactly is happening in the price mix in the bottling division in markets like Germany, Philippines? How much is that a drag on the price mix?
Should we expect that to continue into the second half?
Muhtar Kent
I'll let Gary talk about this, but just in general, basically our price mix generally improved around the world with a couple of exceptions that somewhat relate to those deterrents with BIT certainly. But in general terms I think we are on track and on target with our price mix plan and we are actually progressing better than our plan in many of our geographies.
Gary P. Fayard
A little detail, if you looked at price mix, it was about 1% negative in the quarter and flat year-to-date. Something like that, or plus 1% year-to-date, I guess.
If you look at it, we have positive price mix in every operating group across the world except for two: Bottling Investments Group and the Pacific. On Bottling Investments Group it is pretty much entirely a function of what's happened in the Philippines and in Germany, two markets that are significantly impacted economically.
And within the Pacific is almost entirely all because of Japan. And there it's really a function of channel brand function.
It's really Georgia Coffee primarily in at-work vending. And what we've got is you've got a lot of automobile factories, etc., that have been closed due to the economic environment.
We are seeing those start to come back on line now and that's why we are cautiously optimistic that this thing is going to turn around. But you've got a high revenue channel and high profit brands in that at-work vending.
Basically the Japan vending at-work and Germany and the Philippines is the whole thing. Everybody else was positive.
Just to follow up one other piece on your question, generally, most of the world, I'd say, is on some type of incidence pricing and therefore we and the bottlers are both benefiting, and both investing jointly together in driving the right brands, the right packages and the right channels. So we're doing it together and we 're in this together.
Bill Pecoriello - Consumer Edge
So maybe a little bit of improvement in the back half as Japan vending comes back a little bit?
Gary P. Fayard
Yes, I would expect so. I think we will continue to see, probably a difficult situation in the Philippines.
Probably in Germany as well. You've got a little negative just because kind of channel and all in Spain, because as you know, the Spanish unemployment is sky-high right now.
So much related to the construction industry. So it's some specific markets.
Operator
Your next question comes from Carlos Laboy - Credit Suisse.
Carlos Laboy - Credit Suisse
Pancho, Muhtar referenced the strength of the brands in his comments in Latin America. But how critical is it to the performance of the region that Latin American is anchored by a bottler with a 10-year concentrate price model?
In a core market in a 50/50 long term profits but for non-cores? But could you be hitting these numbers without this kind of clarity and profits with looking out over the long term.
And on a related basis for Muhtar, as you go into the round of planning sessions with bottlers, why not embrace some of these multi-year incidence agreements?
José Octavio (Pancho) Reyes
I cannot speculate on how important that is. I believe that our bottlers in Latin America, and I've said this time and time again, are perhaps the best bottlers in the world.
I think we have a great system. I believe that we have a great brand.
I believe we have a firm belief on the power and on the potential of brand core cola. And I believe that we have a system that knows what to do and how to do it and that is the important piece.
Muhtar Kent
I think the key question, the key thing, in this business is how do you really ensure that you have constructive dialogue and constructive alignment and constructive tension in this business that moves the business forward in one direction continuously and that it operates as a single system, focused on generating consumer occasions and customer partnership. And I think incidence does that in many respects and I have always, as a bottler, worked very well under incidence and have instituted many incidence programs with our bottling partners.
So I you ask me in terms of multi—and it has to be multi-year because the picture of success in this business, as I've outlined before, is you get into a room of bottlers and you actually agree on a picture of success, five, ten years down the road. Long-term planning is key.
And continuing to invest in this business, always with a focus is key, with both innovation on our side, inspirational marketing on our side, equipment on the side of the bottlers, and new sales systems and socioeconomic segmentation that drives revenue in a proper way. And I think incidence does all of those in the best way.
So you're talking to someone who believes it's a great way to align the system.
Operator
Your next question comes from Judy Hong - Goldman Sachs & Company.
Judy Hong - Goldman Sachs & Company
Muhtar, can you give us your assessment of the macro, the consumer environment, particularly markets like Russia or Eastern Europe where trends have been pretty weak. Are you seeing trends stabilizing and as you think about the 4% volume growth number in the fourth quarter and as you look out maybe 6 to 12 months out where GDP growth broadly should start to accelerate, are we at a point where now volume growth, even that 4% number, could start to show even better trend going forward?
Muhtar Kent
Think of four different quadrants. That's how I like to think of the future that's going to be ahead of us.
Think of four different quadrants as far as the consumer sentiment is concerned. On the top left quadrant, you've got Europe, you've got North America, and maybe a couple of other economies where we will probably be experiencing resets in terms of the consumer psyche where they will probably do things differently than they have done in the past.
And mostly related to probably non-durable, you know, in terms of durable consumer consumption habits. But also in general, there'll be a reset in the mind.
And then on the top right you've got markets like China, India, other parts, Brazil, where I think very strong, quick rebound. Then on the bottom left quadrant you've got a Japan, stagnation.
And then you've got part of the question that you asked about Eastern Europe, Russia, Ukraine, on the bottom right quadrant, which is basically I call volatility. More zigs than zags.
It could come back quickly and then it could go back down quickly. I think we're in for some few years of zigs and zags for Russia, Eastern Europe and so forth.
So that's sort of a quadrant of, you know, tale of four different cities, I think in terms of how we are going to look at what's happening in the world.
Judy Hong - Goldman Sachs & Company
Just a follow-up on the share repurchase question, Gary. Can you help us understand the $1.0 billion announcement today sort of in the context of obviously your balance sheet is still very healthy, generating a lot of cash.
It seems like the billion could be read as a conservative number. In the past you've also talked about acquisition opportunity.
Maybe help us flush out those issues.
Gary P. Fayard
There are a couple of things there and you've heard me talk about it in the past. One of the real items that you've got to consider are credit ratings and those are important to the system of maintaining those.
We are very comfortable that with up to $1.0 billion in share repurchase that we maintain the credit ratings and where we are relative to all of the rating agencies. And we are being somewhat conservative but in the environment in which we're operating I think it's prudent to be conservative, and we will continue to update you on our plans of where we are relative to that as we go through the year.
I think you saw us start the year being very conservative with not being in share repurchase at all. We're through half the year, we've announced we'll do up to $1.0 billion and then I'll just continue to update you as we go forward.
Muhtar Kent
Just on that, we said to you in the last call that we would be looking at it as we approached the summer and as per what Gary said, we have looked at it and we believe that it's right to reinstitute it. And I think you will always be seeing us look proactively for bolt-on acquisitions as we go around the world.
And in this environment we see increasing opportunities in that area. Just like the Innocent announcement.
But again, I reiterate, organic growth is the key to our success and the key to our business and I think that when you look at our volume results this past quarter, organic growth was strong. I mean, we had basically less than 0.5% of acquired volume in our numbers.
And I'm pleased to see that as we go forward.
Operator
Your next question comes from Kaumil Gajrawala – UBS.
Kaumil Gajrawala - UBS
You spoke a bit about 2020 Vision. Can you talk about as you went through studying 2020, how the conclusions might have varied from the manifesto?
And specifically, are there some strategic tweaks that you might be making that we need to be thinking about?
Muhtar Kent
It's an evolution coming and it's important that all our bottlers, we develop the 2020 Vision together with our bottling partners, that's perhaps one of the major differences as to how we saw the manifesto from the previous years. And I think importantly, we've added a sixth "P", which is productivity.
It's embedded into everything we do. It's part of our transformation exercise and what we continue to want to do to even deliver even more than what we've said.
But I think it's a very sound 12-year vision with very specific strategic initiatives attached to it. It's a system document and we believe that we've put a stake in the ground in terms of where we want our system revenues to go from where they are today, from the base of around $90.0 billion today to where we want the system revenues to go to.
And we believe that it's a real road map and we are very actively, today as we speak, double-clicking that document into each geography and applying it to different geographies with all our bottling partners across the world. All our senior leaders, as Pancho is doing in Latin America, is generating Vision 2020 for each of the geographies, each of our 39 business units around the world.
Operator
Your next question comes from Lauren Torres – HSBC.
Lauren Torres - HSBC
In the quarter in North America we saw retail volume down 4% with food service up 7%. I was curious to get your thoughts of what was behind these numbers.
I guess being somewhat surprised to see food service doing so well. I was hoping you could talk about trends, be it by channel or by product category, for seeing some changes here.
Muhtar Kent
We held our food service at 4% versus Q1 2009 in the United States in the second quarter. I am very pleased with the dynamics of our food service business and our retail business.
As I said, we held the 4% in our retail business versus Q1. And I think that we are seeing some very good results of very good strategies being applied in our food service business.
But I'm also very pleased with the developments that are taking place in terms of our brand, price, pack, channel architecture and working very closely with our bottling partners in the United States and what we're doing in our retail business. And I think that what I'd like to say, I mentioned the ninety-nine cent single cold drink pack which is now in 90% of the United States generating incremental transactions every week.
And that's proving very successful. But also the contourization of our 2-liter which is now in a quarter of the United States.
Our pricing is generating significant value share gains for us in the retail business. That's very positive compared to previous quarters.
So we're holding volume at where it was and we're generating revenue growth, both for us and our bottling partners. That program is, we believe, sustainable and is getting good customer traction across the United States.
And I think looking forward, we basically see sequential improvement from here on in our retail bottling-can business in the United States.
Lauren Torres - HSBC
And with that said, we're seeing sparkling beverages do better here in the U.S. so just curious could you talk on that and what's really driving that, how sustainable that is.
How should we think about those trends as we course through the second half of the year?
Muhtar Kent
As I've said, you should think of it as sequential improvement. We are pleased with the results of all the actions that we're taking.
New package initiatives, new brand initiatives. Coca-Cola Zero driving growth.
And the strength of our brands, the metric of our brands, with how our consumers see our brands getting better in the United States, which leads us to believe, again, that you will see sequential improvement in retail and in sparkling.
Operator
Your next question comes from Christine Farkas - BAS-ML.
Christine Farkas - BAS-ML
I have a global question, but just to clarify back on the North America top line, we saw net sales drop 3%, there was a negative point from currency, shipments were down 1%, which implies price mix was slightly negative. I just want to understand, given how strong the retail pricing environment was and your concentrate—incidence phase, concentrate model, was this a channel shift switch or with fountain being so much stronger than retail, is that what impacted the price mix part of the top line?
Muhtar Kent
I'll let Gary also reflect on this, but I think generally speaking what we see is a shift, some shift from cold drink due to the economy. So there is a shift in retail more to the home market, so cold drinks continues to be under pressure in North America and there's more movement to quick service in North America, some movement to quick service from bottling can cold drinks.
You're seeing some of that being reflected in that number. And also the shift in general, as we said in terms of the pressure on pricing in North America.
So I think overall, though, we are confident that our activity, all the actions that we're taking to drive sparkling, to drive cold drink with new price points, will bear fruit as we go into the second half of the year.
Christine Farkas - BAS-ML
On the global question, you've noted certainly potential bumps along the way but your volume growth in the second quarter did pick up from the first quarter. When you look at the year here, is it fair to say that perhaps first quarter really was the bottom in terms of volumes or is there anything you can foresee that would suggest a hiccup like that in the second half of the year?
Muhtar Kent
I can't say that with confidence, given where the economies are. All I can say is that all the programs that we have in place with our bottling partners are bearing fruit so what you've seen is improvements in key geographies compared to the second quarter of 2008, so you've got improvements in many geographies compared to the second quarter of last year.
And certainly sequential improvement in many, many geographies versus the first quarter, if you look at Europe, if you look at many parts of the world, in Eurasia and Africa, in the Pacific. You know, the Pacific group went from 4% to 6%.
China went from 10% to 14%. Japan went from flat to 2%.
So you've got sequential improvements from Q1 2009 to Q2 2009. I think we are very pleased that we've been able to have a volume growth of 4% versus the 2% in the first quarter but certainly I think, and certainly we have comps of 5% in Q3 and 4% in Q4, so there are pretty significant comps as we go into the second half of the year, and we will continue to drive our business forward.
Invest in our business and drive our business forward.
Operator
Your next question comes from Damian Witkowski - Gabelli & Co.
Damian Witkowski - Gabelli & Co.
On currencies, are you still actively hedging your Euro in the first half of 2009 even as the Euro was weak against the U.S. dollar?
You mentioned you're proactively always looking for acquisitions. Is it more domestic or more international.
Gary P. Fayard
On currency, on the hard currencies, we do use an option strategy so that we participate on any appreciation of the currency, but to protect us against downside. And we do continue to do that even in the environment in which we're in on Euro, yen, All-C dollar, sterling, etc.
Muhtar Kent
On acquisitions it's absolutely not focused on a single geography. At any point in time we are always talking with our group presidents around the world, like Pancho here, and all our other group presidents, about opportunities on a very, very regular basis.
And then if we see any opportunities then our M&A team gets involved and we'll look at it very rapidly. So it's not related to a focus in North America or international per se.
It's across the globe.
Operator
Your next question comes from Mark Swartzberg - Stifel Nicolaus & Company.
Mark Swartzberg - Stifel Nicolaus & Company
A question on marketing spend per case globally. If we think about that number on a currency neutral basis, am I right in thinking that number was up in the quarter and can you tell us how much it was up, or at least tell us how it compared to rate of growth in the first quarter and in 2008?
Muhtar Kent
Yes, I mean I think you see us continuing to drive efficiencies in our opex line and you see us continuing to invest. I've said before, there is no better time to invest in our brands than today.
And we are trying to ensure that we manage this business on both a long-term basis and a short-term basis, on a quarterly basis. But one of the key drivers of what we're doing every day is to make sure that we come out of this crisis stronger.
Stronger with our brands, stronger with our system, than when we went into this crisis. We are driving efficiencies in media.
So when you look at our spend, which was about even for Q2 in marketing, in 17 of our top 21 countries in the world, we drove efficiencies in marketing. That means our GRP costs were down and therefore look at our marketing spend with a view that there's tremendous pressure on pricing in terms of advertising.
So we're getting really good deals, in all markets. In Europe particularly, in Latin America Pancho has driven efficiencies together with Joe Tripoti, our chief marketing officer in media programs.
So I think that's the way you should look at our media spend and our marketing spend.
Mark Swartzberg - Stifel Nicolaus & Company
And what about impressions? What would you say rate of change on that is, given the efficiencies you are seeing.
Muhtar Kent
I think our target is always to get more for our money and steadily build up our impressions.
Mark Swartzberg - Stifel Nicolaus & Company
And is that happening?
Muhtar Kent
Absolutely. And that's why you see our brand health improving around the world.
Operator
Your final question comes from Ann Gurkin - Davenport & Co.
Ann Gurkin - Davenport & Co.
First of all, we've heard some comments that perhaps consumption of soft drinks in the on-premise channel in China is slowing, so if you could comment on that. And then secondly, switching back to the U.S., any comment on the prospect for a tax on soft drinks and what is Coke doing and the industry doing to combat that?
Muhtar Kent
On China, we haven't seen that happening. I think what you see is in China not a shift in channels but a shift in geographies.
We have traditionally, you know, the stronger parts of China for our business have been the coast, have been the export-driven areas of China, and I think some of that dynamism of growth has shifted to the inland, as most consumers have moved in fairly large numbers. Millions and millions, tens of millions of consumers have shifted and moved back into the country into their home towns.
But now, with the very effect of stimulus plan of China, those consumers have more money to spend and I think we're seeing a shift from the coast into more central and western cities, but not shift in channels. I think what you referenced as a possible tax issue around non-alcoholic beverages, and I think we're certainly doing our fair share to impress upon all parties concerned that this would not be the right move and that we have never seen a move like that work and we don't believe it will work this time and I think that as far as the Congress bill is concerned, there is no evidence of it in the Congress bill and we are waiting to see what happens in the Senate bill.
Muhtar Kent
So with that, I would like to thank you all, thank Gary and Pancho and Jackson, as part of our continued efforts to provide you with a deep exposure across our business. I hope that you found the information that we've shared with you today valuable.
I would like to say also that Abmet Bozer, our group president of our Eurasia and Africa group will be speaking on behalf of the company at the upcoming bottlers conference in early September. As you can tell, all of us at the Coca-Cola company see tremendous opportunity and remain intently focused on our key strategic priorities to generate long-term sustainable growth.
Our robust business model is built to withstand tough times. Great companies always plan with external trends in mind but do not over-react.
While these trends help shape the future, the Coca-Cola system is creating its own future. And as we move through the halfway mark of 2009 we remain optimistic about our business and the future we are creating together with our system for long-term sustainable growth.
Thanks for joining us this morning.
Operator
This concludes today’s conference call.