The Coca-Cola Company
Q4 2010 Earnings Call Transcript

Published: 9 Feb 2011

[Operator:]

At this time, I would like to welcome everyone to the Coca-Cola Company's Fourth Quarter and Full Year 2010 Earnings Results Conference Call. [Operator Instructions] I would now like to introduce Jason (sic) [Jackson] Kelly, Vice President and Director of Investor Relations. Mr. Kelly, you may begin.

[Jackson Kelly:]

Good morning, and thank you for being with us today. I'm joined by Muhtar Kent, our Chairman and Chief Executive Officer; and Gary Fayard, our Chief Financial Officer. Following prepared remarks this morning, we will turn the call over for your questions. Before we begin, I would like to remind you that this conference call may contain forward-looking statements, including statements concerning long-term earnings objective, 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.thecocacolacompany.com, under the Reports and Financial Information tab in the Investors section, which reconcile 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 our discussing our financial performance to our results as reported under Generally Accepted Accounting Principles. Please look on our website for this information. Now with that, I'll turn the call over to Muhtar.

[Muhtar Kent:]

Thank you, Jackson, and good morning, everyone. I'm pleased to report that once again, the Coca-Cola Company delivered strong results this quarter and ended 2010 having realized another year of solid growth and success. In 2010, we met or exceeded all of our long-term growth targets. And we achieved these results against a backdrop of an unbalanced global economic recovery and while completing our acquisition of CCE's North America business. At the same time, we once more gained volume and value share in Global non-alcoholic beverages. We also gained global volume in both the sparkling and still ready-to-drink beverage categories. Together, with our global bottling partners, we are decisively executing our 2020 Vision and are advancing our momentum. Our brands are stronger and healthier, fueled dynamically by our marketing and innovation. Brand Coca-Cola, the very oxygen of our business, grew 4% for both the quarter and the full year, the highest full year growth our wonderful flagship brand has achieved in over a decade. Our investments are rising as we keenly focused on expanding our profitable operations in a sustainable way across more than 200 markets where we do business today. Our business in North America is growing again. We delivered positive organic volume growth for the full year in North America. This complements the rapid and successful work we're doing to integrate our North America business, all designed to bring greater growth, profitability and value to our flagship market. And today, our system is more aligned than it has been in a decade. In 2010, the first year of our 2020 Vision, we executed and performed as one closely coordinated global system. No question, the journey to our 2020 Vision is underway. Turning now to our performance results. I'm happy to report that our volume growth grew a strong 6% in the quarter. Excluding the benefit of our new cross-licensed brands, primarily Dr. Pepper brands in North America, our quarterly volume growth was a strong 5%. This was fueled by organic volume growth in every one of our five geographic operating groups. As for the full year, we also grew our global volume 5%, again ahead of our long-term growth target and delivered over $1 billion unit cases of incremental organic volume growth. That is more than the equivalent of adding another Japan to our business. We increased fourth quarter net revenues 45% on a comparable currency neutral basis. For the full year, we grew comparable currency neutral net revenues 14% in line with our long-term growth target, even after excluding the benefit of structural changes, principally due to the CCE transaction and the benefit of new cross-licensed brand. This quarter, we reported comparable earnings per share of $0.72, up 9% versus the prior year and at the high end of our long-term growth target. On a full year basis, we delivered comparable earnings per share growth of 14%, well ahead of our long-term growth target. And our fourth quarter comparable currency neutral operating income growth was 10%. This brings our full year comparable currency neutral operating income to 11%, also above our long-term growth target. In fact, this is the fifth consecutive year we have either met or exceeded our long-term profit growth target. These strong fourth quarter and full year 2010 performance results further strengthened the foundation of our business and provide us with great momentum as we embark on 2011, the second year of our journey to 2020. Now let's review our performance results across our global markets in more detail beginning with North America, our flagship market. North America volume was up 8% this quarter, with organic volume growth of 3%, excluding the benefit of our new cross-licensed brands. This was North America's third consecutive quarter of positive organic growth. On a full year basis, our North America volume was up 2% and organic volume was up 1%, excluding again the benefit of our new cross-licensed brands. The same time, this past quarter, we completed the acquisition of CCE's North America business on plan and on schedule. Today, we're very pleased to report that our new operating structure and our leadership teams are well in place, and that our integration efforts are proceeding exactly as planned. Sparkling beverages in North America, excluding the benefit of our new cross-licensed brands, were up 1% in the quarter and even for the full year. Including the benefit of our cross-licensed brands, North America sparkling beverages were up 8% for the quarter and 1% for the full year. Importantly, North America grew sparkling volume and value share for the quarter and full year versus the total category, as well as versus our primary competitor. Trademark Coca-Cola in North America was up 1% in the quarter, led by Coke Zero, which delivered double-digit volume growth for the 19th consecutive quarter. Sprite had a third consecutive quarter of positive growth up 4% for the quarter and 2% for the full year. Fanta also delivered positive growth for the quarter and the full year. We also extended the footprint of our innovative Coca-Cola Freestyle fountain dispensers. This game-changing innovation is now available in more than 400 locations across 20 U.S. markets, providing a greater choice of brands to our customers and our consumers. Plans for further expansion in 2011 are well on track with availability expected to reach more than 80 U.S. markets by the end of 2011. All of these developments reaffirm the fact that our system is executing the right strategies to sustainably drive growth across our entire North America sparkling beverage portfolio. Turning to North America still beverages. I'm pleased to report a strong 7% increase for the quarter and 5% growth for the full year. We have now grown volume share for our still beverages for 12 of the past 14 quarters and value share for 13 of the last 14 quarters. Our North America Juices and Juice Drink business delivered positive full year growth of 2%. This was fueled by our Simply brand up double-digits for the full year. In the North America Tea category, we saw 11% growth in the quarter and 12% for the full year, led by Gold Peak, which more than doubled its volume in 2010. Our glacéau brands grew 19% in the quarter, and our vitaminwater trademark growth up double digits was led by the further expansion of vitaminwater zero. In addition, smartwater delivered another quarter of strong double-digit growth. POWERade was up a solid 20% in the quarter, outperforming the North America's sports drinks category and gaining share versus our primary competitor for the ninth consecutive quarter. For the full year, POWERade delivered strong 19% growth, including over 60% full year growth for POWERade Zero, our innovative zero calories sports drink. These strong results in North America are a testament to our long-held belief that through strong marketing and focused execution, we can accelerate our leadership position within North America and drive profitable and sustainable growth in our flagship market. Now let me turn to Eurasia and Africa. This operating group saw broad-based growth, up 14% in the fourth quarter and 12% for the full year. Once again, all nine business units in this operating group delivered positive volume growth. Importantly, brand Coca-Cola was up 12% for the quarter and up 10% for the full year, benefiting from our strategic investments across the entire region. This strong performance in Eurasia and Africa was led by Russia, up 31% this quarter and finishing the full year up 16%. We once again outperformed the market in Russia this quarter, led by the continued strong performance of our core sparkling brands. Brand Coca-Cola in Russia was up 37%, for the quarter and up 26% for the full year. This performance represents the largest ever single-year incremental volume growth for brand Coca-Cola in Russia. It is no surprise therefore that Coca-Cola was recently awarded the Best Soft Drink of the Year at Russia's Brand of the Year Award ceremony. As such, we believe we are ideally positioned to outperform our primary international competitor in Russia. India, meanwhile, returned to double-digit growth, up 12% in the fourth quarter and 17% on a full year basis. This market has now achieved double-digit growth in nine of the last quarters. And India captured share growth across our sparkling and still portfolio in both the quarter and on a full year basis. This shows, demonstrates that India is delivering high-quality growth consistently across our entire portfolio rather than relying on select growth from any single category. Sparkling beverage growth in India was led by trademark Coca-Cola and trademark Sprite, both up double digits in the quarter and for the full year. In fact, our brands now represents four of the top five sparkling brands in India. And our still beverage growth in India benefited from the further expansion of our Maaza juice brand, up double digits in the quarter and for the full year. We also grew double digits in both the quarter and the full year in Turkey, Southern Eurasia and the Middle East. As for performance in Africa, South Africa delivered 8% unit case volume growth for the quarter and 5% for the full year, building on our momentum coming out of last summer's FIFA World Cup activation program, as well as our ongoing in-market investments. We also saw double-digit growth in East and Central Africa and high single-digit growth in North and West Africa, providing a very strong and consistent finish to our full year performance throughout the African continent. Moving to our Pacific Group, overall volume growth was up 1% in the fourth quarter, cycling 11% from the previous year, bringing our full year volume growth to 6%. These results were driven by a second consecutive quarter of positive growth for Japan, which was up 2% for the quarter and 3% for the full year. This growth in Japan was widespread across our beverage portfolio. Leading the way was Coca-Cola trademark, up 5% in Japan this quarter, a fourth consecutive quarter of positive growth. On a full year basis, Coca-Cola trademark was also up 5%, making this the fourth consecutive year Coca-Cola trademark has grown 3% or more in Japan. We are encouraged by the recent momentum in this highly profitable developed market. But having said that, we remain cautious about the current and ongoing economic challenges in Japan. Turning to China. Our full year volume grew 6%, with fourth quarter volume down 3%. You will recall this quarter that we are cycling 29% volume growth from the prior year. As we indicated in our first quarter 2010 earnings call, it is not uncommon to see quarter-to-quarter volume swings in China. This is especially true between the fourth quarter and the first quarter of every year, given that fluctuating end of year trading activity, driven by the very timing of Chinese New Year. That said, our Sparkling Beverages and Juice and Juice Drinks captured volume and value share in China in the fourth quarter. For the full year, 2010, we grew our business in China by over $100 million incremental unit cases, our seventh consecutive year of achieving this level of incremental unit case growth. And cumulatively over the last two years, we've expanded our volume in China by 24%, significantly widening the gap with our primary international competitor. Over the same two-year time period, our compounded annual growth rate in China was 11%, in line with our long term double-digit growth objectives for China. This last quarter of 2010 marked a significant milestone for our business in China as Minute Maid Pulpy, a brand born and launched in China achieved $1 billion brand status in only five years. Minute Maid Pulpy is now our company's 14th billion-dollar brand. The rapid scalability of the Pulpy brand across 18 other markets is actually a testament to our systems' ability to rapidly adopt and scale brand innovation from any part of the world. Looking ahead to 2011, we are adapting our in-market strategies to make sure that we keep building on our strong foundation and remain well positioned to win in China between now and 2020. As more remote areas of China experience accelerated economic growth, we are investing heavily to expand the scale of our distribution. In the fourth quarter of 2010 alone, we opened three new plants to further enhance our ability to serve China's growing consumer and customer base. As the retail trade in the coastal regions further evolves from traditional local outlets to newer and larger channels, we're also investing heavily to grow in the hyper and supermarket channels. And as the Chinese consumer demands increasingly varied and sophisticated offerings, we are innovating and introducing a wider variety of packaged choices that will drive increased transactions and build brand equity. Our team in China is executing all of these strategic actions to build greater brands across categories to drive strong and sustainable growth in this important market. As we've said before, the real measure of our success in China will be how we continue to seize growth opportunities in that region between now and 2020. While we may see some quarter-to-quarter fluctuations, we're confident that we have the right strategy, the right execution plans and the right capabilities in place today, and are better positioned than our competitors to deliver long-term sustainable double-digit growth in China. Our positive full year results in Japan and China were further complemented by our performance across the region. For example, the Philippines, Thailand, Korea and Vietnam each grew double digits for the full year. These four specific countries combined grew well over $100 million incremental unit cases in 2010. This demonstrates the strength and value of our Pacific Group's broad geographic portfolio. In addition, Brazil, Russia, India and China, commonly referred to as the BRIC nations, grew 10% as a whole for the full year. It is worth noting that these four BRIC countries represented over $400 million cases of incremental growth in 2010 or almost 40% of our company's total incremental volume growth for the year. Moving now to Latin America. Volume grew a steady 5% for both the quarter and the full year. We also gained volume and value share in the total non-alcoholic ready-to-drink beverages, as well as sparkling and still beverages. This broad-based growth was led by brand Coca-Cola, up 4% for the quarter and 5% for the full year. Brazil delivered strong results, with volume up 7% for the quarter and 11% for the year. This also marked the fourth consecutive quarter that Brazil has gained volume and value share in total non-alcoholic ready-to-drink beverages. Mexico volume was up 8% for the quarter and 3% for the full year as weather conditions normalized from the previous quarter. Mexico has now gained non-alcoholic ready-to-drink beverage volume share from 15 of the last 16 quarters and value share for 16 consecutive quarters. Our South Latin business, which includes Argentina and Chile, delivered mid-single digit growth for both the quarter and the full year, rounding out another solid and consistent year for our Latin America operating group. Moving to Europe, we saw positive growth in the quarter despite ongoing economic challenges. Volume was up 2% for the quarter and even for the full year. Our performance in sparkling beverages in Europe was led by trademark Coca-Cola up 2% for the quarter and 1% for the full year. Our still beverages in Europe were up 5% for the quarter, with tea up 9% and energy drinks up double digits. France was up mid-single digits for both the quarter and the full year, making this the fifth consecutive year of positive growth in this key developed market. Additionally, trademark Coca-Cola was up 5% for the full year. Great Britain delivered low single-digit growth for both the quarter and the full year, supported by growth across both our sparkling and still beverage portfolios. And while economic challenges remain across many parts of Europe, we're starting to see initial signs of recovery. In fact, several Central European countries including the Czech Republic and Slovakia, saw double-digit growth in the quarter, and others such as Romania, Switzerland, Austria, grew mid- to high-single digits in the quarter. And Germany closed the year up 1% its first full year of positive volume growth since 2007. Importantly, we gained volume and value share in Germany to both the quarter and the full year. Now let's turn to an overview of our brands and their performance. As we've said before, we always place our brands first in all that we do across each and every one of the 206 countries around the globe. As a result for the total company, our sparkling beverages grew 3% in the quarter, excluding the benefit of new cross-licensed brands, with international sparkling beverage volume up 4%. Coca-Cola Zero continues to be one of our fastest growing global sparkling beverages. Earlier, I referenced Coke Zero's uninterrupted string of success in North America. In fact, this momentum extends around the world with Coca-Cola Zero up 9% for the quarter and up 7% for the full year across our international markets. And in 2010, Fanta grew 4% for the quarter and 3% for the full year and became our company's third brand to surpass $2 billion annual unit case sales, along with Coca-Cola and Sprite. We're also successfully expanding our global still beverage portfolio. Total worldwide still beverage unit case volume increased 9% in the quarter and 10% for the full year, led by the further expansion of our global Juice and Juice Drinks and Sports Drinks businesses. In 2010, we grew our overall Juice and Juice Drink business by double digits in the quarter and 9% for the full year. These results build on a very successful decade for our global Juice and Juice Drink business, which delivered a compounded annual growth rate of greater than 9% over the past decade. Our global Sports Drink business registered a very strong result in 2010, up 14% for the full year. These results, driven by our global FIFA World Cup programs, were balanced across key geographies, including North America, Japan, Spain and Mexico. We also saw ongoing success with the global expansion of vitaminwater with international sales nearly doubling in 2010. vitaminwater is now present in 20 international markets, with plans to launch into four new markets in the first quarter of 2011. This great momentum in our brand portfolio is further supported by a balanced customer-growth plans and our disciplined execution culture. For example, our full year results with our top 10 global retail customers saw high single-digit volume and revenue growth. Our sales of immediate-consumption beverages grew 4% for the full year, driven by our focused in-store activation efforts and cold drink equipment expansion. In fact, as a global system, we placed over 1 million new pieces of cold drink equipment in 2010 with more than 1/3 of these placed in China, India and Brazil. We're also focused on expanding our right execution daily for Red program. Red is our world class commercial process designed to improve execution at the output level. Our internal pilot studies show that bottlers implementing Red saw an average volume growth of more than 10% over the life of the pilot period. Today, operations representing nearly a quarter of our global volume utilize Red. And going forward, this program will be an area of increasing emphasis and growth for our system. Our results across operations and with our customers around the world point to a well-aligned and focused global Coca-Cola system, vigorously and passionately executing a common set of strategies and delivering on our 2020 Vision. One of the ways we established such a strong foundation in 2010 was through the innovative and world-class methods

[Gary Fayard:]

Thanks, Muhtar. Good morning, everyone. To recap Muhtar's earlier remarks, we once again delivered consistent quality volume, revenue and profit growth both in the fourth quarter and for the full year. Our volume and profit results were in line with or exceeded our long-term growth targets for the fifth consecutive year, reaffirming that our global leadership teams across our system are executing the right strategic plans to achieve our 2020 Vision. Today, we will discuss our comparable currency neutral results for the fourth quarter and the full year. This is consistent with how we've historically communicated our results, as in our opinion, this provides a more complete picture of our underlying business performance. That said, before going into the details of our financial highlights, we acknowledge that this quarter's comparable currency neutral results include significant structural changes principally related to our recent CCE transaction. For this reason, we're also providing the net impact of these structural changes to help you better understand our results and our performance in relation to our long-term growth targets. To be clear, when we refer to the impact of structural items, these include

[Operator:]

[Operator Instructions] Our first question today is from Bill Pecoriello with Consumer Edge Research.

[William Pecoriello:]

Gary, I know you just had mentioned the long-term target. You delivered really strong 7% organic sales growth here against a tough compare, and that was despite China being down 3% and profit was ahead of the long-term targets. So looking out to 2011, should we expect this kind of growth to be sustained? Will you be disappointed if it wasn't? You mentioned some commodity pressure in investments in the past to 2020, but still looking at the type of growth you're delivering here, what gives you the confidence in sustaining it? And would you be disappointed if it wasn't held at this rate in 2011?

[Muhtar Kent:]

Bill, let me just provide some context over that question first. This is Muhtar. I think what you need to sort of look at is what is driving that growth? And I think what's driving that growth is really, in still a somewhat mixed economy around the world, challenging economy around the world, is the alignment that we're executing with our bottlers, the alignment that we have to strengthen alignment, the investments that we've been making in our brands in our infrastructure over the past, not just the year but multiple years, the strength of the brands, the strength of the geographic portfolio, all of that is coming to the four, I think, in terms of what you're seeing. Now again, in terms of the world economy, Gary mentioned commodities. There's currency, also in terms of the challenge, inflation coming out of commodities, political issues, uncertainties in some parts of the world as we've seen recently, the incredible amount of cash just sitting on the sidelines, about $2 trillion just in the United States, generally still some lack of confidence. But at the same time, as I mentioned, in 2009, we saw a tremendously difficult environment in some parts like Russia, Eastern Europe. We see some signs of improvement in certain parts of the world, better than they've been in the past and many emerging markets continue to grow. And consumer confidence is good in many of the emerging markets. So I think as we execute our long-term strategy, as we build on our momentum, our strategy is working, and that's what you're seeing coming out with a 5% organic growth in our business for the full year. And again, north of $1 billion unit cases added to our business, which we feel good about in terms of what has been achieved in 2010. But we remain resolutely focused on our execution and continue to drive results with our bottling partners.

[Operator:]

Our next question is from Carlos LaBoy with Credit Suisse.

[Carlos LaBoy:]

Muhtar, you're showing tremendous improvement here in your Bottler Investment Group territories. Can you comment on whether there is a new urgency coming into 2011? Or how high a priority there is to make you refranchise some of these territories as you look out over the next couple of years?

[Muhtar Kent:]

As we've always said, Carlos, our intention is to ensure that we have a very strong, well-aligned franchise system operating on all cylinders across the world. We have tremendous belief in that, and as we see the great execution coming out of our Bottling Investment Group in all the markets that they are in, we will evaluate accordingly and even, I mentioned, even Germany coming out with growth for the first time in a number of years is a testament to that execution capability. And when the time is right, we will certainly find the right home and the right financial conditions for those markets that are operated currently, successfully by our Bottling Investment Group.

[Operator:]

Our next question is from John Faucher with JPMorgan.

[John Faucher:]

I want to ask a question about the North American pricing. And you talked about, in your commentary, talking about doing the right thing for the long term with pricing. So let's focus a little bit more on the short term here. If I look at the pricing on the quarter, if you assume non-carb positive mix in North America, that would imply -- and plus concentrate pricing to the non-COBO bottlers, that would imply that bottle/can pricing was likely down a little bit in the quarter. So can you talk about your outlook for bottle/can pricing? How that's changed since you've taken over the CCE North American operations? And then Gary, just a little more color on the CapEx piece, your run rate on CapEx for 2011 will actually be sort of greater than your incoming trend plus all of CCE's CapEx. So can you highlight how much of that increase would you say is sort of CCE-related, and how much of that is sort of these additional opportunities that you mentioned?

[Gary Fayard:]

Let me start with pricing. And in fact, if you get underneath it, in fact in North America, we did have positive pricing. We will have positive pricing in North America in 2011 as well. What we're trying to say is that basically, our pricing will be rational but it will also be pricing that's rational, not only in terms of competitors in the competitive marketplace, but also rational pricing in terms of the consumer. And there, we would much rather -- in rational, I mean, take -- let's say not react totally to, I hope, short term volatility in commodities, but take more consistent rational pricing over a period of time over a number of years, which we believe is the right thing for our customers, it's the right thing for our consumers and in fact, will return much greater value to us and actually to the beverage industry over a longer period of time. So we're being very rational about it, we will take that price, and we are increasing pricing in 2011 in North America. So I can confirm that directly. Relative to CapEx, the increase from -- in fact the CapEx, if you look at it, was about $2.2 billion in 2010. And we're talking about going to $3 billion to $3.2 billion in 2011. CCE North America, Legacy CCE North America was around $600 million, $650 million. There's a large piece of that increase then from, let's say, from $2.8 billion to $3 billion to $3.2 billion. A large part of that, more than half of it actually is incremental CapEx that is related to the integration efforts of CCE North American sales. It is -- a lot of it's IT of having rationalizing the various systems to get us all within North America on the same system. Those types of things -- so in fact, what I would expect you will see is over the next couple of years, those investments actually will peak over about two years or they'll start going back down. Then we do have some real opportunities to increase both production and sales execution in a lot of our work. BIG markets, which are growing rapidly as Muhtar talked about in his section. So we're continuing to increase there, as I say, both in production capacity as well as sales execution capability, cold drink equipment, et cetera in those markets to continue to invest in the long term. And then back to the question asked earlier by Carlos, over some period of time a lot of those bottlers will actually be refranchised. And you'd see CapEx go down again relative to that.

[John Faucher:]

You had said that pricing was positive in the quarter in North America, so that's implying that the mix was negative?

[Gary Fayard:]

No actually what we're seeing is that actually price mix in North America, I think, was actually flat in the quarter. So you got some mix and everything going on within that, but talking about 2011, we are taking positive pricing.

[John Faucher:]

So it probably was down in the quarter, but should be up in 2011?

[Gary Fayard:]

Yes.

[Operator:]

Our next question was is from Kaumil Gajrawala with UBS.

[Kaumil Gajrawala:]

A little bit more on pricing. As it relates to being rational, would you say you're taking pricing up enough to offset commodities based on your view of the consumer? Or is there some that you feel you need to absorb this year?

[Gary Fayard:]

Number one -- thanks, Kaumil, if this was a pretty good year, I hate to ask you what a really good year would be. With that, I don't want to actually get into specifics of exactly what the pricing is because the pricing is not just straightforward. I can't just give you a percentage because what you've got is you've got different pricing by category of beverages. You also have different pricing by channel. You also have different packaging, particularly by package where you got different elasticities on different packages. And we're taking different amounts of pricing on each one of those, what we believe is the right thing to do for the market for customers, for consumers and for the company. So overall, we are pricing at a level that we think is the right thing to do long term, but we are not pricing at a level to say, "Okay, I have to make up for all of this commodity pressure because commodities go up, commodities go down." And I don't want you to then ask me the same question, "Are you taking your pricing down because commodity prices went down?" That's not what you do if, in fact, you're trying to continue to build a stronger and stronger brands over the long term, which is what we're into and not a quarter-by-quarter, "Oh my God, what did commodities do this quarter?"

[Muhtar Kent:]

Kaumil, just one other point about pricing, but also about mix, which is important. We've seen signs, not fully out of the woods, but certainly signs of improvement in our Immediate Consumption business across the world. That business, of course, is higher revenue per unit case and also higher margin. And I think that you will see, I believe that as we move through 2011, that we will continue to see those signs, and therefore, mix will help us also in the way our business moves through 2011.

[Gary Fayard:]

Kaumil, I'd add one other item as well. I think everything, pretty much we've been talking about on this subject is relative to North America. When you get outside of North America, you actually start getting into a different set of answers. Because in those, in many other markets, you've got very different market dynamics. You've got very different inflation rates, et cetera. And so you get into different answers and really is, you have to kind of go country-by-country specifically.

[Operator:]

Our next question is from Mark Swartzberg with Stifel, Nicolaus.

[Mark Swartzberg:]

Building on that notion of a good year, I was wondering if you could step back for us, Muhtar, maybe, Gary, you too, and talk a little bit about the incentive structures you see today inside of Coca-Cola and the incentive structures out there at your bottlers and things you have some influence over to try to build on the success you've had over these last couple of years, kind of promote that notion of constructive discontent? What tweaks do you think are being made, might be made, to incentive structures within Coke and then in your relationship with bottlers that will allow you to deliver on the opportunity you see for yourself over the next few years?

[Muhtar Kent:]

First, just let me take the second piece first, the bottlers. I think what I'm very, I'm consciously pleased with the alignment we have with our bottlers. Obviously, there's always room for improvement, but we're really acting as a holistic, very coordinated system. And I think it's a really win-win approach. And we've always said, we cannot over the long term succeed unless our bottlers succeed in the marketplace. And I think that is the philosophy that permeates through the Coca-Cola organization across every single country where we operate, whether it's a single bottler, multiple bottlers, whether it's a mixture of BIG and franchise bottlers or pure franchise bottlers. So I think that is certainly something that we will guard and build on very, very carefully. In terms of incentive structures, simply said, Mark, I think what you're seeing is we are aligning more and more our incentive structures to our 2020 Vision. It's not about budgets, it's not about the numbers, it's all about achieving and surpassing our 2020 Vision. And that's what we're building, reconfiguring evolving our incentive structures to match the 2020 Vision requirements. And that's what you'll see us engaged in a very material way.

[Mark Swartzberg:]

And can you share with us, Muhtar, as we think about North America specifically in 2020 and of course now, owning the bottler or most of your bottling ops [ph] here, how we might see some of those structures change over the near to intermediate term here in North America?

[Muhtar Kent:]

All I can tell you is that on North America, Mark, I'm very pleased with our execution and also our integration both simultaneously. And so we have a new company with new people, new organization, a great passion to succeed in the marketplace. And as we continue to execute and continue to grow sustainably our business in North America, which we've always believed in and said, I've always said that, this should be viewed as a growth market. It’s got wonderful demographics, and it will have even better ones, better demographics as we move into the next decade. We will continue to work very diligently to make sure that the structure meets the needs for us to achieve our 2020 Vision, and we're working on that too. But I can't give you any further details.

[Mark Swartzberg:]

If I could, this commodity topic, obviously a big topic, and some of this Q&A helpful. But if I could press a little bit more, when we think about that $300 million to $400 million number, it sounds like that is a net number, so to speak. It's net of the pricing you anticipate to take around the world and it's net of any offsetting mixed benefits. Is that a fair understanding of what you're portraying in that $300 million to $400 million number?

[Gary Fayard:]

Mark, this is Gary. No actually, what I was giving you was actually the gross number. So the impact -- what we see today is that the gross impact to the company from commodities will be in that $300 million to $400 million range, again primarily North America and our Bottling Investments Group. That will be offset to the extent we have positive pricing, et cetera.

[Mark Swartzberg:]

Lastly, as we -- I don't know, Muhtar, if we -- how difficult it is to generalize, but this rising commodity pictures is obviously not just a cost issue, it's a purchasing power issue. Can you perhaps just wax a bit here generally about markets where you're seeing it proving more challenging from a purchasing power standpoint and markets where you think it's a lot more manageable, vis-à-vis your ambitions for growth?

[Muhtar Kent:]

We have not seen any -- it's too early to say what the results are and how all of this is going to evolve. And we have to see, obviously a lot of harvest coming up in the next few months, it will have a bearing. There's a lot of -- what you see around the world, there's a short-term and there's a long-term. Over the long-term, no question, demand going up in the world, middle class will continue to put pressure on commodity long term. Short term, there's different things happening that create what we see today, and they will be short term, and they can change. They can go either way. And short term, what are we seeing? Elimination of subsidies, vagaries of the weather, speculation, all of those coming together that's driving up some, creating some of the current situation. Now we haven't yet seen any of the major, any of the big social consequences that we saw two, three years ago because it's too early and also it's a different environment than it was back then. So I think our business is really built for these kind of times. As I said moments of pleasure a sense at a time, and I think that, that's the key. We're not selling big-ticket items and over 50% of what we sell is impulse. And as long as we execute well, we will continue to drive our results.

[Operator:]

And our final question today is from Judy Hong with Goldman Sachs.

[Judy Hong:]

Muhtar, just on China, obviously, you had a pretty tough comp here, but the full year gross was also below what we've been seeing in that market historically. I'm just wondering if you can just talk about maybe whether you're seeing increased competitive pressure. Obviously Tingyi has been pretty aggressive in their growth strategies. You got Pepsi stepping up investments. Is the competitor pressure building in that market more than you anticipated? And some of the adaptation that you talked about to your in-market strategies, is that sort of a function of just a competitive landscape getting tougher?

[Muhtar Kent:]

First, Judy, China is a long-term growth story. And we feel very good about our growth prospects in this market. If you look at last two years, compounded with generated double digits, we're also a multi-category player, being number one in two categories, sparkling and juice, and number three in water. And that we're twice the size of our -- more than twice the size of our primary international competitor. We've got the best distribution, best infrastructure in China. We opened just three very large modern plants in the last quarter of last year, and we believe that growth in China is not only to be measured in quarters. We were cycling 29%, which was a huge number from prior year. But it's about delivering consistent, sustainable double-digit growth over the long term, and I think we see great prospects in China. And if you look again over the last sort of two, three years, yes, the competitive environment is increasing in China. But I think we're well prepared with our brands, with our portfolio, with our infrastructure, with our partners to ensure that we can continue to win in China in that great market.

[Judy Hong:]

Gary, just on the buyback plans for 2011, just given how much cash you have on your balance sheet and how much cash you're generating, it just feels like $2 billion to $2.5 billion is very conservative. So I'm just wondering what is kind of holding the board back from committing to a higher buyback here?

[Gary Fayard:]

Well first, the board hasn't met yet. The board meets next week. Number two, I think it's always prudent to start out the year in a kind of a conservative fashion. And as we go through the year and get into it, that's where we'll update you each quarter as we go through it. I think we just kind of see how we came out and how we're doing through the year, and we'll just update you as we go through.

[Muhtar Kent:]

Thank you, Gary, and Jackson. Before we conclude our call, I'd just would like to remind you that Steve Cahillane, our President and Chief Executive Officer of Coca-Cola Refreshments will join me as we present at Cagney on Wednesday, February 23. We'll provide a further overview of how we're advancing our global momentum around the world, as well as here in North America. Both Gary and Sandy Douglas, our President of Coca-Cola North America, will also be in attendance at Cagney. In addition, Gary and Steve will also present at the upcoming CAGE Conference in London on Wednesday, March 30. We'll look forward to seeing many of you at these great 2011 investor and analyst events. And in closing, I'd like to say that we feel good about how the Coca-Cola Company is performing today and where we are headed tomorrow. We do see tremendous opportunities ahead in all of our global markets, and we remain intently focused on executing our key strategic priorities, all while generating long-term profitable growth for our system and sustainable rewards for our shareowners. Thank you for joining us this morning.

[Operator:]

Thank you. This concludes today's conference. Thank you for participating. You may disconnect at this time.