Operator: At this time I would like to welcome everyone to the Coca-Cola Company's Second Quarter 2013 Earnings Results Conference Call. Today’s call is being recorded. If you have any objections, please disconnect at this time. All participants will be on a listen-only mode until the formal question-and-answer portion of the call. Due to the interest in this call, we request a limit of one question per person.
I would like to remind everyone that the purpose of this conference is to talk with investors, and therefore questions from the media will not be addressed. Media participants should contact Coca-Cola's Media Relations department if they have questions.
I would like to now introduce Jackson Kelly, Vice President and Investor Relations Officer. Mr. Kelly, you may begin.
Jackson Kelly - IR: 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 from Muhtar and Gary this morning, we will turn the call over for your questions. Ahmet Bozer, President of Coca-Cola International; Steve Cahillane, President of Coca-Cola Americas; and Irial Finan, President of our Bottling Investments Group, will also be available for the Q&A session.
Before we begin, 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 under the Financial Reports and Information tab in the Investors section of our Company website at www.coca-colacompany.com. These schedules reconcile certain non-GAAP financial measures which should be referred to by our senior executives during this morning's discussion to our results 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 - Chairman and CEO: Thank you, Jackson, and good morning, everyone. Our second quarter volume performance came in below our expectations. There was a confluence of factors that effectively led to unusually weak second quarter volume results. We continued to be (indiscernible) in Europe slowing economic conditions across some markets like Asia and Latin America and social unrest in Southeast Europe, Middle East, and Brazil.
On top of this, we were faced with unusually widespread wet and cold weather conditions across multiple regions, including North America, across Northern Europe and India, although which impacted the entire industry. Consequently, we grew global volume 1% in the second quarter leading to year-to-date volume growth of 3%.
Our comparable currency neutral operating income, excluding structural, grew 5% year-to-date. And both in the quarter and year-to-date, we gained global volume and value share in nonalcoholic ready-to-drink beverages as well as in both sparkling and still beverages. These gains included volume and value share increases in core sparkling, juice, tea and water, although which underscores the real strength of our brand and the global reach of our system.
While we are not happy with our second quarter volume performance, I can assure you that we are intensely focused on improving those areas we can control and show better performance in the second half of the year. Looking forward, we remain absolutely confident in our 2020 Vision and in our system's ability to execute, to grow and to create value all across the world.
As we've often said during these challenging global economic times, there will occasionally be a bump in the road and the real strength of the business is how you deal with that bump. In that respect, together with our system bottling partners, we continue to invest in our brands to strengthen our system for the future and to achieve our long-term growth target. The fact that we have outperformed the industry in this most recent quarter reinforces our belief that we are navigating these circumstances in a way that further strengthens our position of leadership within this extremely vibrant and resilient beverage industry.
Let me now provide you with an overview of our business performance by operating groups, starting with North America. In North America, volume declined 1% in the quarter, as a 4% decline in sparkling beverages offset 5% volume growth in our still beverage portfolio. Year-to-date, volume in North America was even. Prior to this quarter, we consistently grew our business in North America for 12 consecutive quarters. Unfortunately, we experienced an extremely wet and cold second quarter with more rain in the U.S. in June than we've seen in 50 years, and 44% more precipitation than in June of last year. This weather clearly impacted our entire industry's volume growth. Nevertheless, we gained sparkling volume and value share both in the quarter and year-to-date, reflecting the strength of our brands, and we have robust marketing plans in place for the balance of 2013.
Still beverages gained volume and value share in the quarter, making this the 24th consecutive quarter that our still beverage portfolio has either maintained or gained value share. Our growth in still beverages this quarter was led by strong performance across the ready-to-drink tea and packaged water categories, with brands such as Gold Peak, smartwater and Dasani leading the way.
Further, our volume and value share gains in the juices and juice drinks category were driven by solid growth for Simply and Minute Maid.
We are confident that we are on the right track in North America and we continue to work diligently with our bottlers as we advanced our refranchising plan. Indeed, we saw sequential improvement across the quarter in both the convenience retail and quick-service restaurant channels, suggesting that the category trends are beginning to improve.
While we do recognize that we still have work to do in North America, we remain laser-focused on the strategies that we have shared with you. First, we are building a balanced portfolio of strong brands, led by Coca-Cola, and ensuring that our portfolio remains relevant to all generations of consumers and across all beverage locations.
Second, we are focused on translating this brand value into unsurpassed customer value by delivering best-in-class customer service each and every single day. And third, we're continuously investing to build the capabilities we will need to sustain and to repeat our success.
These strategies are taking a real hold and we're building on them with the evolution of the United States franchise system announced earlier this year. We, therefore, believe we are well positioned to continue outperforming the nonalcoholic ready-to-drink beverage industry for the balance of the year.
Turning now to Latin America, we grew volume 2% in the quarter and 3% year-to-date. Volume growth was a little softer in the quarter due to macroeconomic challenges in a few major markets, specifically increasing consumer debt levels and higher food inflation, along with concern over transportation fees contributed to some civil unrest and softer consumer spending in Brazil. In Mexico, weaker job creation and higher inflation impacted disposable incomes, resulting in reduced retail sale. These macro factors led to low single-digit volume growth in Mexico while volume results in Brazil were even. Given slower growth rate in personal consumption across the region, we estimate that year-to-date beverage industry growth rates are currently 1.5 percentage points to 2 percentage points lower than the average of the last four years in Latin America. In the second quarter, we again gained volume share in Latin America in nonalcoholic ready-to-drink beverages including both volume share gains in both sparkling and still beverages.
Moving to brand performance, Trademark Coca-Cola grew 1% during the quarter and maintained volume share within the sparkling beverages category. These results reflect sustained marketing across the brand and the category.
Our other sparkling brands grew volume and value share in the quarter as we expanded Mundet in Mexico and Fanta in Colombia, while reigniting marketing behind Schweppes in both Brazil and Argentina. High single-digits growth in still beverages led to volume share gains in the quarter. These results were driven by the expansion of Fuze Tea, continued strong performance of the del Valle portfolio and strong share gains in Powerade, thanks to superior execution of our programs.
We expect that our Latin America Group will return to rates of volume growth that we have been more accustomed to in the last few years given current dynamics. Continued marketing and bottling investments along with solid execution plans for the second half of the year will also contribute to this improvement.
I will bring my Americas update to a close by congratulating the associates of Solar, our new bottling partner in Brazil. With the close of this transaction, Solar forms the second largest operation in the Coca-Cola Brazil system serving over 70 million consumers.
Now, turning to Coca-Cola International starting with Europe. A weak economy continues to be a key factor affecting our performance in Europe especially in the southern regions where unemployment remains high while consumer confidence and expenditures remain low. We are seeing this continuing to play out across most fast-moving consumer goods categories with several of them slowing between the first and second quarters. Additionally, historically wet and cold conditions across Europe including the coldest spring for Germany in 40 years further dampened already weak consumer sentiment and industry trends and contributed to volumes declining 3% in Germany in the quarter. While our European volume fell 4% in the quarter and is down 2% year-to-date, we maintained the positive share momentum of the first quarter growing volume and value share across total nonalcoholic beverages and core sparkling beverages.
Across the continent, our team and bottling partners are activating a number of marketing and trade execution programs. Among them is our new Share a Coke summer campaign launched across Europe in May and early signs are very positive. In fact, excitement surrounding the launch helped to partially offset the impact of weather on immediate consumption. Our current European outlook remains cautious for the time being given ongoing macroeconomic conditions. However, we believe with our commitment to our brands and execution, we should continue to gain share through the remainder of the year.
Moving on to our Eurasia and Africa Group, we achieved 9% volume growth in the quarter, up double-digits year-to-date. All business units grew in the quarter with our Middle East and North Africa business unit as well as our Central, East and West Africa business units delivering double-digit growth. For the quarter, we strengthened our competitive position as we gained volume and value share in nonalcoholic ready-to-drink beverages.
Local execution of our global marketing campaign, along with continued price pack innovation fueled this growth, which was led by brand Coca-Cola up 7% in the quarter and 9% year-to-date. Fanta and Sprite further contributed to core sparkling growth, while our still brands grew double-digit, led by Rani, Crystal, and Fuze Tea.
Volume in Russia grew 3%, with Trademark Coca-Cola up double-digit. The successful sparkling promotions fueled Coca-Cola, Fanta, and Sprite growth as consumers collected under-the-cap points to obtain a limited edition set of Winter Olympics-themed glassware.
In Spain and Portugal, we are encouraged by the early integration efforts underway at Coca-Cola Iberian Partners, our bottler in Spain and Portugal. We now have eight bottlers in those markets now operating as a single entity.
Shifting to our Pacific Group, we saw volume growth of 2% and we maintained nonalcoholic ready-to-drink value share. As is well publicized, China's economy has been slowing and this is now being felt in consumer spending. China's first half retail sales were the slowest in 10 years, while much of the growth in the nonalcoholic ready-to-drink beverage industry in the second quarter came from the value-orientated water category. As a result, our volume performance in China remains soft and was even for the quarter, cycling 7% growth from prior year.
We command a leadership position in China in both brand preference and market share in sparkling as well as in juices and juice drinks. Sparkling volume grew 2% and our juices and juice drinks volume grew 7% year-to-date. This is driven by solid execution of key consumer and commercial initiatives and continual new product innovation. Looking forward, we're keenly focused on adjusting our strategies and improving our business in China. We've recently strengthened our management team in that region adding to the already strong talent that we have in China, and we are evolving our strategy reallocating resources across our brand portfolio and strengthening our consumer communication. We anticipate a return to growth in our China business in the second half of the year.
In India, volume grew low single-digits in the quarter cycling 20% growth last year and importantly, we again improved our volume and value share of total nonalcoholic beverages as well as sparkling and still beverages, further strengthening our competitive position as Trademark Coca-Cola grew by double-digits.
Our business in Japan delivered 1% volume growth while cycling 4% growth last year, and we are seeing sequential improvements on share trends as we're moving through the year. Japan's sparkling beverage volume grew 1% in the quarter supported by music themed integrated marketing campaigns such as the Zero Limit campaign for Coca-Cola Zero up 13%. Solid growth in tea and sports drinks up 3% and 7% respectively also contributed to this momentum.
Our Georgia Coffee performance was below our expectation and we're keenly focused on strategies and new launches to improve performance in the second half of the year. I do want to acknowledge and congratulate our Coca-Cola East Japan associates on the successful completion of their merger, and the launch of their company on July 1. With this merger, our system is building on its deep roots and its 50 year history of strong partnerships in Japan. Coca-Cola East Japan will be well positioned to meet the business growth needs of our customers while also engaging and refreshing consumers of all ages and lifestyle.
Lastly, our ASEAN business unit delivered strong results with 10% volume growth, cycling double-digit growth from the previous year as Thailand, Indonesia and Vietnam all delivered strong double-digit growth. Going forward, we expect to see an improvement in our Pacific Group's performance in the second half of the year. On a global scale, we were recently humbled by several accolades including rising to number five on Barron's list of world's most respected companies and on receiving the '2013 Creative Marketer of the Year Award' at the Cannes Lions International Festival.
In my 35 five years of experience in the Coca-Cola system, I've learned that we participate in one of the fastest-growing and most dynamic industries in the world. As I think about the second quarter, nothing has changed in our ability to continue winning in this industry. There's no question that our system's commitment to superior execution is stronger than ever before; and our business fundamentals remains firmly intact. Our leadership team is firmly in place and I'm confident in our ability to capitalize on the abundant opportunities that lie ahead. Given, this, we are confident that we have the right strategies, we have the right vision and the right initiatives to drive long-term sustainable growth and value.
Our focus on achieving our 2020 Vision is unwavering with current dynamics leading us to believe that our performance will be better in the back half of the year. Why? Quite simply, three important reasons. First, our global brands are stronger than ever and we will continue to invest in them to capture long-term volume and value share. Second, we have an unparalleled global business system focused on delivering on our 2020 Vision. And third, we have great confidence in our plans; and we will sharpen our focus to ensure our resources are directed to those strategic priorities that will drive our business and certain key markets will return to growth. The nonalcoholic ready-to-drink industry is and always will be a terrific, terrific business. We will continue to capitalize on our unprecedented global reach, the broad portfolio of preferred premium brands, and superior system execution.
We continue to invest alongside our global bottling partners, and we are well positioned to effectively manage our business for long-term profitable growth, both in today's economic environment and also as we look forward to our future.
With that, let me now turn the call over to Gary.
Gary P. Fayard - CFO: Thank you Muhtar, and good morning, everyone. As Muhtar has shared, the industry clearly slowed a little due to a number of factors that impacted various markets around the world. The combination of these factors resulted in weaker volume performance in the second quarter than we expect. At the same time, we recognized the need for improved performance in certain markets.
Having said that, we remain absolutely focused on doing the right things for the long-term health of the business and investing for long-term sustainable growth. Increasing share during times like these further strengthens our position and can ultimately lead to accelerated growth as market conditions normalize. And we continue to win on this front, gaining, both, global volume and value share in both total nonalcoholic ready-to-drink beverages, as well as volume and value share in global sparkling and still beverages.
So let's review our results in more detail, starting with a review of the key drivers of our financial performance. Our second quarter and year-to-date financial performance reflects concentrate sales growth in line with unit case volume growth, as well as a strong increase in direct marketing expenses as we sustain our commitment to invest in the health and the strength of our brands.
From an operating segment standpoint, our operating income growth this quarter reflected strong profit growth in Latin America and Eurasia and Africa, as well as the continued solid financial performance of the Bottling Investments Group. Operating income in North America and Pacific was even, while Europe experienced a slight decline in profits. Comparable currency neutral net revenue declined 1% this quarter and we were even year-to-date. However, excluding the impact of structural items, primarily the sale of the Philippines bottler, net revenues increased 2% both for the quarter and year-to-date.
We continue to earn pricing in the marketplace, but at the consolidated level, the positive pricing was offset by the impact of geographic mix resulting in even price/mix for both the quarter and year-to-date. Although geographic mix unfavorably impacted price/mix at the consolidated level, it contributed to the improvement of our gross margin in the quarter and year-to-date.
Our comparable gross margin was 61.2%. This represents a slight improvement compared to the prior year, primarily due to the impact of geographic mix, structural items, and our foreign currency hedging program. As we shared in our first quarter earnings call, we expect our gross margin to moderate somewhat over the remainder of this year, primarily due to a shift in geographic mix. Excluding the impact of structural items, we achieved 2 points of favorable operating expense leverage for both the quarter and year-to-date, and we now expect to achieve low single-digit operating expense leverage for the full year.
Our comparable currency neutral operating income; it was up 4% this quarter and year-to-date. Excluding the impact of structural items, operating income grew 5% year-to-date.
On a comparable basis, the impact of currency was a 3% headwind on this quarter's operating income results. Based on our hedge positions' current spot rates and the cycling of our prior year rates, we expect currencies to be a 4% headwind on our operating income for the third quarter and full year.
Below the line, we benefited from an increase in net interest income, an improved tax-rate and fewer shares outstanding due to our continued share repurchase program. We expect net interest income in the second half of the year to be relatively in line with comparable net interest income year-to-date. Additionally, we now expect our full year tax-rate to be 23% and we expect to hold this rate through 2014.
Comparable earnings per share grew 4% in the second quarter despite currency headwinds of approximately 2%. Year-to-date comparable earnings per share also grew 4% despite currency headwinds of approximately 4% as well as the impact of two fewer selling days. We continue to generate a strong $4 billion from cash from operations year-to-date providing us significant financial flexibility.
As I've shared with you over the years, we redeploy our cash flows (indiscernible) a consistent and disciplined framework. Our first is to reinvest back into the business and to strengthen our global system; secondly, to continue to expand our portfolio and capabilities through bolt-on acquisitions and partnerships; third, continue to return cash to shareholders through our dividends – and we increased our dividend 10% in 2013; our 51st consecutive year of dividend increases. And lastly, repurchase shares. Year-to-date, our net share repurchases totaled $2 billion and we continue to expect full year share repurchase to be between $3 billion and $3.5 billion.
As you model our 2013 operating results, let me again remind you that the steps we have taken along with our bottling partners to strengthen our global system will have a structural impact on our operating results over the remainder of the year.
As you're aware, we closed the transaction in the Philippines earlier this year and the merger of our bottling partners in Brazil and Japan recently closed. As I shared in our 2012 year-end call, we do not expect these transactions to have a material impact on our 2013 earnings results. However, these transactions will impact various line items within our P&L.
We anticipate that these transactions will have a 3% structural impact on our full year 2013 net revenues. Likewise, our full year operating income results should see a 1% structural impact However, there should be a corresponding improvement in our equity income to account for our share of the results of these operations moving forward.
Additionally, the structural impact from these transactions will be larger in the second half due to the impact of the deconsolidation of our Brazilian bottling operations beginning in the third quarter.
In closing, we delivered solid financial performance through the first two quarters of 2013 and we expect to continue our solid financial performance during the second half of this year. Our Company and our system are well positioned to capitalize on the real opportunities for growth. We remain very confident as we continue to win in the marketplace with volume and value share. We continue to deliver solid financial results. We continue to innovate and invest in our brands. Our global system continues to get stronger. And we are best positioned to continue capturing growth in the dynamic nonalcoholic ready-to-drink industry.
Operator, we are now ready for any questions.
Operator: Bill Pecoriello, Consumer Edge Research.
Bill Pecoriello - Consumer Edge Research: Muhtar, I was hoping you could step around the world and dive a little bit deeper into certain markets and regions to help us separate out the impact of non-recurring factors that hit your second quarter versus any macro-related factors that continue to pressure the business in the second half. You had mentioned macro factors in Brazil, Mexico, Europe and China. Will those continue to be as big an impact in the second half of the second quarter, and if not, why? And then maybe – if you can help quantify maybe what you think the weather-related impact was in the second quarter?
Muhtar Kent - Chairman and CEO: Yeah, I think overall both in Europe, United States, India, some other parts, we did have a pretty significant impact from weather; unusual weather, monsoon coming very early in India. You probably all read many thousands missing in flooding, worst flooding since the tsunami back 10 years ago; and then Europe also, Central Europe, Germany all the issues around the riverbeds rising and flooding and very heavy wet conditions. So we did, yes, have impact both from a consumer sentiment, both from a mobility sentiment in the United States also and both also from just a pure – in some cases, distribution issues that hindered our performance, and as you know, when we lose a sale that doesn't recur anymore, we lost at that day. Also, in some cases, we were cycling very unusually warm and favorable weather conditions from prior year in some cases. Like India, last year, the monsoons actually started later. That gave us a 20% growth in India, unusual for the second quarter in India. Usually the first half in India is always less than the second half in India because of all the anomalies of weather. So, yes. And then macro conditions, we all have felt it in social issues in Southeast Europe, demonstrations across the Middle East, and then more recently in Brazil. But we feel confident both in terms of looking at plans in place, looking at current dynamic that both Brazil will have a better second half, China will have a better second half, Russia will have a better second half, and certainly a better quarter than this last quarter where we grew volume 3% overall; Mexico, as well as India. So, while we continue to invest in our brands, our brands are stronger than ever before. We've taken market share. Our system is stronger. So all these key markets we believe will perform better in the second half. In fact, as I said, we have seen this. We always know that the second half in a country like India is significantly better than the first half, in any case, if you look back at our performance over the last few years. So, and then in the United States, I think we've got very robust plans to return back to growth. So we feel pretty confident that this was a confluence of events that happened all at the same time. The portfolio effect of our global business did not work in our favor in this particular case in the second quarter. And I feel and my colleagues feel and our bottlers feel very confident. I've been across many markets recently. I have traveled to China, Japan, Thailand, Myanmar; many other parts of Asia. I've been in Southeast Europe. I've been in France, and all in the last sort of four, five weeks, and I feel that we will look towards definitely a better quarter volumetrically. And again, we can talk to you about how we feel about the financial numbers too later in the call. And I can ask Gary to reflect on that too in terms of the second half. You want to – Gary?
Gary P. Fayard - CFO: Sure. Well, let me continue then versus the volume. On the second half on the P&L, I think we had a very solid first half. We would expect to have a solid second half of the year as well. We have said there'd be bumps along the road. The industry had one obviously and it slowed, but we continue to take share. And we feel very confident about the second half. As we look at the second half financial results, I think we'll be very close to our long-term growth targets, particularly in volume, and earnings per share should be coming back in line with what we would all have been expecting at the first of this year.
Muhtar Kent - Chairman and CEO: Yeah, I'd just add, Bill, that I think this is more an anomaly. We should not see this as a trend or a systemic issue, and that is simply how I believe one should think about it. And again, I can ask Steve and Ahmet to reflect upon how they see the second half from their vantage point in both Americas and International. Maybe, Steve, you can start.
Steve Cahillane - President, Coca-Cola Americas: Sure. Thanks, Muhtar. Starting with Latin America, Muhtar said it well. We saw things in Brazil that we hadn’t seen before, the economy slowed, there was social unrest, it didn’t last very long. Things are slowly getting back to normal and we expect better performance sequentially as we progress through the year in Brazil and in Mexico. In Latin Center and in South Latin, we’ve seen very good results, high single-digit results continue. So there is a lot still going very well that continue to go well in Latin America and Brazil and Mexico getting back to what we would expect to see on a normal basis. In North America, Muhtar said it – we don’t like to talk about the weather. But, first half of last year saw unusually good weather conditions. We had warm weather, we had dry weather coming out of winter and going into spring. This year in North America, we had some of the worst weather and you’ve all seen it. It’s been very wet. It’s been very cold. It’s been historically wet and cold, which obviously impacts our business. On top of that, we have the payroll tax effect, which started at the beginning of the year, which affects lower income households obviously much more, affects their disposable income, their ability to spend. We saw late payroll tax refunds coming into the marketplace. But as we look forward, we expect the weather pattern to obviously normalize. The weather will not continue to be a factor in a country as big as the United States like it’s been. And from an economic standpoint, people are used to the payroll tax now. They’ve had four to five months to moderate their household budgets to get used to it. The refunds, obviously, have been in back in the marketplace and we are already starting to see better trends in QSR, better trends in convenience retail, better trends across our business. So, we look forward to the second half of the year across the Americas much more favorably than the first half. Muhtar used the word anomaly. I think it's especially an anomaly in North America, and we see ourselves coming out of that.
Muhtar Kent - Chairman and CEO: Ahmet?
Ahmet Bozer - President, Coca-Cola International: Thanks Steve. Thanks Muhtar. Yeah, just to build further on Muhtar's comments, I'll start with India. That's definitely completely weather-related. All our investments in the route-to-market, coolers and capabilities will continue to deliver the kind of levels that we are used to having from India in the rest of the year. So we're quite comfortable on that. On China, there were probably impacts of, as you hear, the continuing slowdown in macro levels as well as there were some weather impacts, but we do expect volume to return for a number of reasons. First of all, China is a country with very, very low per capita. I've been there a number of times in the last three, four months, and we have been working on evolving our strategy with better OBPPC, more price points, and more packs as well as improving our capability. As Muhtar mentioned, we have recently strengthened our management team there and I'm very confident that in the second half of the year we're going to start returning to growth in China, maybe not at the levels of double-digit that you might have been seeing but we will certainly be looking to returning to growth in China. Now, the other anomaly in the international results was Europe. I can comfortably say that a very, very big part of that 4% decline was driven by unseasonable weather as it has already been mentioned. It shows the strength of our system that we were able to gain volume and value share in both sparkling and NARTD. As we see weather normalizing, we again look forward to coming back to our normal range of growth in Europe, the rest of the international territories such as EAG continued to deliver its historical growth rate.
Gary P. Fayard - CFO: Bill, this is Gary. I'll just add one or two rather quick data points as well. When we talk about 1% volume, I think you have to wonder, is that a weak one or a strong one. Let me just assure you, it's as strong as it can be and still be 1%. So that's number one. The other thing is we talk about some of these anomalies on some of these markets. One of the things that gives me some confidence as well, because there's been a lot of discussion about what's happening with the emerging markets and all around the world with the slowdown from China, et cetera, but we've always talked about the markets where the per capita consumption is less than 150, and it's always been a real strength of ours. Again, even in the second quarter, if you looked at those markets under 150 and exclude China and India, which we've just discussed separately – if you excluded those, our volume in those markets was plus 7% in the second quarter, so it still shows underlying strengths of the markets in those emerging markets.
Operator: John Faucher, JPMorgan.
John Faucher - JPMorgan: Gary, I just want to ask a clarification about the back half of the year. Your commentary on the financials; it sounds like you're saying you're going to get to that level in the back half of the year, not the back half of the year will get you to the long-term algorithm for the full year. At least that's how I interpreted it. Can you just sort of clarify that?
Gary P. Fayard - CFO: Here's how I would say. We're actually very close in the first half of the year. Year-to-date, if you look at operating income, I think year-to-date ex-structural, currency neutral is plus 5 and our volume is plus 3. So we are not that far away. So our view would be that we should be, and that impact year-to-date earnings per share, ex-currency is 8, rounds up to 8. So we are not that far away in the first half. That’s why I was saying solid results, and I when I say solid, I think you've followed us long enough – we like to be at the top end of ranges and not at the bottom end of ranges. Unfortunately, we are at the bottom end right now but that’s the world we are dealing with. But we feel very good about the second half.
Muhtar Kent - Chairman and CEO: John, this is Muhtar. Just one point that I can add to that is the following. It’s customary sometimes that in the kind of business that we are in, when you have a blip in your volume because of a confluence of events some of which are not in your control, the first thing you do is go out and cut marketing. And I think if you look at our numbers, we have continued to invest aggressively in our brands through the second quarter, in the first half. And as you know, every investment in marketing does not pay back in that quarter, it pays back in future quarters. Therefore, we are confident with the share gain, we are confident with the strength of our brands. We are confident about the metrics on our brands, both in sparkling and still, across the world. We are confident in our bottling partners' investment plans that have taken place in the second quarter that we can continue our momentum going into the second half of the year, and also improve on it volumetrically, but also continue with our mission to achieve our 2020 Vision through the next years ahead.
John Faucher - JPMorgan: Then my actual question here was, Gary, you got positive price/mix in the vast – I think in every region this quarter with the exception of Pacific, I think. And yet it's not sort of going up to full positive price/mix here. How do we view the regional price/mix versus the geographic offset and how does this fit into your long-term algorithm because it seems like this is something that's most likely going to continue to be a notable overhang?
Gary P. Fayard - CFO: Okay, John, first, I want to complement you on your creativity with that first question, then here is the real question. But anyways, it's a great question actually. The first thing I would say around pricing is, we believe strongly that we have premium brands and our brands should command a premium in the market; and they do command a premium across the world. Number one, we're seeing pricing across rational, and within the industry, we think pricing is rational, particularly in the United States. But if you look at price/mix – and I'm not going year-to-date, but the second quarter is essentially the same thing. If you look at price/mix, price/mix year-to-date is even. But within that, you've got positive pricing and you've got negative geographic mix. So, year-to-date consolidated, we actually have positive 1% pricing. If you look at it by region, year-to-date, North America has positive pricing, up 1%, Eurasia and Africa has positive pricing, up 8%, Europe has – it looks like positive pricing up 2%, although I'll tell you, a lot of that is because of innocent and our acquisition of innocent. So absent innocent, I think Europe is closer to flat. Latin America is positive, 8 points of pricing year-to-date, Pacific is even, and Bottling Investments Group is plus 2% as well. So we are actually getting very nice positive pricing as well as category mix, brand mix, channel mix; all of those things are working. What's happening to us and where the ding comes in, if you will, is that we've got negative geographic mix, so we've got significant negative geographic mix across many of those regions which brings us back to even when you put price and geography together overall at the consolidated level. As I've often said, geographic mix is always going to be probably negative because you're going to expect those emerging market countries to be growing faster than the developed market countries and you've got better pricing in the developed market countries. What's amplified it a little bit this quarter particularly was the result in Europe that we talked about and North America being coming at even where they were. So, you put all that together, we're actually getting the kind of pricing we would expect to be getting in the market.
Operator: Judy Hong, Goldman Sachs.
Judy Hong - Goldman Sachs: I just wanted to go back to the second half expectations, and clearly, you can't control the macros and the weather, but I'd just like to hear a little bit more specifically on some of the actions that you're doing to improve the volume performance, particularly in markets like China where there's a macro issue but there's also competitive issue, there's also portfolio issue just in terms of not participating in some of the fast-growth segment. So, can you just talk about how you're thinking about marketing investment, how you're thinking about your portfolio? Can you accelerate price pack architecture strategy more aggressively to really get the volume performance even if the macros don't come back and/or the weather continues to be challenging?
Muhtar Kent - Chairman and CEO: Judy, let me just reflect on that and I’ll ask Ahmet also to comment. But I think what we have said again is there was a coming together of many events that usually don’t come together all the time. I mean we have performed overall globally at rates that are much more commensurate than what you have been used to in the last three, four years, despite the fact that we’ve had issues – some of these issues happening to us from quarter-to-quarter. But you haven’t felt them because of the fact that the portfolio works. In this time you had the issues in Latin America and the two key markets, Brazil and Mexico, on slowing down and also consumer spending being impacted because of the Brazilian crunch in consumer credit that was taken away from the consumers, and generally the consumer spending went away. And then you also had China, the issues in China – that was consumer spending is actually much below GDP level and that documented across the macro numbers in China. And as well as the weather issues related to India and also other issues coming together in North America where it went for the first time in 12 quarters from a plus to a negative which we don’t expect. All of these things, we don’t expect to continue at the same time. Some of these things may still continue to impact us. Therefore, the portfolio will work. Now, related specific to China, we are participating in two great categories in China and we're the leaders, which is sparkling and juices; those categories we’ve grown in and they are adding tremendous value to our portfolio and to our business in China. We have also, as we said, retargeting all our efforts in China, refocusing all our efforts, yes, there is a different competitive landscape. We feel that, actually, that has not been the issue for us. The main issue for us is to ensure that we can continue to distribute in outlying areas in China that we have had some issues, and we are correcting those; and also, that our marketing is working which we feel definitely our brands are stronger. Our innovation pipeline is working in terms of what we are providing to the consumer also in terms of packaging. We feel confident that those two categories, playing in those two categories and then also innovating across some other categories like Dairy is going to create the growth and the value for us starting in the second quarter, but also continuing. We also feel confident that the Chinese leadership, the new Chinese leadership are going to ensure that they take the right actions, and we're seeing that, to reposition and transform the economy without creating a major bump as they transform the economy from a purely export led economy to a more balanced economy with also consumer spending. Both the Deputy Prime Minister – Vice Premier, Yang, in charge of the economy as well as the new team, we feel confident, have the plans in place to ensure that that takes place. So again, Ahmet, you can reflect more on that as well as any other markets you want to.
Ahmet Bozer - President, Coca-Cola International: A couple of messages here, Judy. Message number one is that the economy may be down, but the growth prospects in China even in the short-term is there simply because of the very low level of per-capitas and strength of our system. Point number two, if you look at all the competitors in China, nobody really participate in all the categories. All the players have one or two categories that they are strong in, and then they drive their businesses through those categories and maybe extend into others. Our position is the same. So our strategy is basically, first of all, we definitely can do better in the categories that we already exist, such as sparkling. So, to give you some specific actions we're taking to do that, I have highlighted the OBPPC and that's actually accelerated. We have pilots running on various multi-serve and single-serve packages for different price points in different parts of China, and as those things roll out of the pilot, we'll be rolling some of them nationally. So those are already in a way in the market and they will be accelerated into the second quarter. We've also relooked at our communication strategies and we're going to be communicating more intensely on the intrinsics of our products as well as extrinsics. You might have heard about our nickname promotion. That's the similar promotion to the Share a Coke promotion around the world elsewhere, which is getting incredibly positive reaction from the consumer. And all the other things of improving our route-to-markets, et cetera, those are all underway and we're very confident that that's going to give us our strength in sparkling. Now, we also play in juices, as you know, and as Muhtar mentioned, we’re the number one player there. We are refocusing our efforts back around Pulpy, and we're just looking at an extension of that into Mango, which is getting very strong consumer reaction. So, as we consolidate our efforts behind that, you would see continued increase. Now, obviously, we are not only focused on just our existing categories. We have a pretty successful brand in Super Milky Pulpy, which is a value-added dairy, and we're beginning to increase our focus on that and we're getting high single-digit growth of that brand. And we are building our innovation pipeline for the future. So, it’s a fairly robust strategy, and yes, under lower economic environments we might have lower growth rates than what you are used to, but we are ever strengthening our position in China to capitalize on this market for not just the immediate future, but very long term.
Muhtar Kent - Chairman and CEO: We have Irial also, which oversees Bottling Investments Group, and as you know, we are one of the three system players in China in terms of bottling. Maybe Irial, you can comment on what you are seeing down very close to the ground.
Irial Finan - President, Bottling Investments Group: Just to build on something Muhtar said earlier, which was around investment, I would say from a bottling perspective, we continue to invest heavily in the markets and particularly in our execution capability, route-to-market capability, and critically in developing the talent to be successful in the next years ahead. So, when you add those to the revitalized marketing strategies OBPPC, I actually feel very confident about the future. I mean, yes, we've had bumps along the way, but our business is growing. Our challenge is to grow a healthy, long-term business, and I think from a bottling perspective, we are really putting in place the infrastructure and the capability to really drive success for the future, and that’s basically what I believe is.
Muhtar Kent - Chairman and CEO: Judy, what I would just say finally is, I wouldn’t read anything more into this than what it is. As Gary said earlier, we were fractionally away from rounding up to 2 and we could -- it would not have been hard for us to do something which would not be right for this business and take the volume up to 3 and selling low key products. That is not what we are about; we are about investing. We are about doing the right thing for this business. And I have always said, there may be a bump along the road. The one bump along – that we've grown this business consistently in line every year on an annual basis since 2008 on our way to our 2020 Vision in this range and the upper range of our long-term growth plan despite very, very challenging macroeconomic conditions, and that's going to happen in 2013 also.
Operator: Bill Schmitz, Deutsche Bank.
Bill Schmitz - Deutsche Bank: Just two quick questions. What are the trends like recently? It seems like you are pretty bullish in the back half. So kind of as you exited June and got into July, it looks like some of the weather normalized. So kind of what are you seeing more recently? And then kind of minutiae, but the big margin decline percentage year-over-year in Europe, what's the primary driver of that?
Muhtar Kent - Chairman and CEO: Yeah, let me just comment on what you just said. Look, we're not – this is not about managing on a – yes, we manage this business on an hourly basis. But it's not, I think, healthy to comment on what has happened in the last two weeks. Yes, of course, we expect the weather to normalize. As you or whoever is in the Northeast now and whoever was in the West Coast of the United States in the last 10 days, you know that the weather has itself normalized; as a matter of fact, the probability and the statistics. So, it just happened all in a very short period of time where everything was negative in many major markets, and it will normalize. And that's what we are seeing, part of what we are seeing. So, I have every confidence that with the normalized conditions, as I said, we will again, 2013 will be another year when volume will grow at the range of the long-term growth model. As far as the margins are concerned, I'll turn it over to Gary in terms of the margin – what you mentioned in terms of the margin numbers in Europe.
Gary P. Fayard - CFO: Yeah, in Europe, it's a structural anomaly. It's actually innocent. So, when the juice business – juice having lower margin, when it came in, that's what changed the margin. It is nothing more than that.
Bill Schmitz - Deutsche Bank: So they should be down going forward though because of that, because innocent is now fully consolidated?
Gary P. Fayard - CFO: Yes.
Bill Schmitz - Deutsche Bank: Okay.
Gary P. Fayard - CFO: And that's actually the flip side, if you will, of what I said when I was answering John's question that if you looked at price, the price inside of price/mix in Europe is actually plus 2, but it's really innocent giving us a lift on price, but it gives the opposite effect on the margin.
Bill Schmitz - Deutsche Bank: Got you. So from like a dollar margin perspective, it's almost neutral, but the percentage has changed because of the price component?
Gary P. Fayard - CFO: Yes, exactly right.
Operator: Bryan Spillane, Bank of America.
Bryan Spillane - Bank of America: Gary, just a question for you related to share repurchases. With the stock the way it's performed in the second quarter, did you accelerate or do anything different in terms of timing of maybe pulling forward share repurchases? And then, I mean, the business right now is kind of bouncing around the low end of your algorithm, and the stock has kind of bounced around in a pretty tight range here recently. So, is there any consideration to maybe even buying back more stock than you originally planned just because you've got an opportunity to buy it here around the $40 level?
Gary P. Fayard - CFO: Yeah, great question, Bryan. Well, first, you'll see that we did accelerate purchases in the first half of the year. As I said, if our annual target was in the $3 billion to $3.5 billion range and we actually have repurchased $2 billion in the first half, we did exactly what you said and we accelerated in the first half of the year. Where we are right now is we are sticking with the annual target which we originally set at 3% to 3.5%; and I just tell you, we will give you an update on that at the end of the third quarter.
Bryan Spillane - Bank of America: Okay. But not at a realm of possibility that you could go higher if you chose to.
Gary P. Fayard - CFO: I have learned to never say never to anything.
Operator: Mark Swartzberg, Stifel Nicolaus.
Mark Swartzberg - Stifel Nicolaus: Muhtar or Gary, a question on the gross margin evolution. I think – I don’t want to put words in your mouth, but it seems like one of the silver linings here is that the price-pack architecture work you've been doing over several years has allowed you to put up a pretty decent gross margin number and offset some of the corresponding earnings discipline that comes from the revenues being what they were in the quarter. If that is a fair assessment, can you give us a bit of an update of what’s going on in terms of innovation not in terms of the price of the pack, but in terms of what’s really in the bottle because that seems to be one of the problems you are facing, kind of, from a larger share performance absolute NARTD performance perspective?
Gary P. Fayard - CFO: Perhaps, Mark, let me let me take the margin question and then we can come back to the innovation question. But this is actually – let me get back into actually what I talked about price/mix and margins, when I was talking about innocent. The same thing applies actually at a higher level for the total Company. So what we’ve got is very positive pricing and you're seeing that, and that's being offset by geographic mix. But what you are seeing is when an operation like North America is minus 1 in the quarter, that actually – this is counterintuitive, but it actually improves margins, okay, because North America having the finished product business has lower margins. So, our expectation is; number one, to continue to get positive pricing and we're going to be rational in pricing, and we intend to stay premium, as I said earlier. But in addition to that, we expect North America's performance to improve in the second half of the year, which will likely put pressure on margins, which is why we said earlier that we would expect gross margins to moderate over the second half the year; and it's really the geographic mix of where the income is coming from. Did that make sense?
Mark Swartzberg - Stifel Nicolaus: It does, yeah, absolutely. The geographic headwind is what it is.
Gary P. Fayard - CFO: Yes.
Muhtar Kent - Chairman and CEO: Yeah, also on innovation, I think as we've said before, we don't look at invitation only as ingredients, we look at it as packaging, ingredients, equipment, even in terms of marketing, social media, the brand, price, pack, channel architecture, occasion-architecture, all of that is working for us. Also, in terms of our new campaign to be part of the solution, around the world, working closely with local governments, national governments, working with the government of Mexico, working with mayors in Chicago and San Antonio, other parts of the United States, in different states, in Atlanta. You can look at the patents that we've been filing are recent. So we are working in the Freestyle, and the next-generation of what's behind – what's coming next after that. We are working on a host of new innovations. Also, ingredients, we continue to work with our partnerships across the world in different incubators around the world. The best – we always believe here in the Coca-Cola Company the best ideas are outside. So the PlantBottle came from the outside from one of the incubators in India. Many new ideas are coming from different incubators in Israel or in China or in Japan or in Latin America. We have substantial partnerships from here with the University of Georgia to across many institutions around the world in Techno Park. So, yes, we are very, very active and we're content that we have the right pipeline. And maybe I can ask Steve to reflect on – from just sort of North America and Americas' perspective.
Steve Cahillane - President, Coca-Cola Americas: Starting with the Latin America perspective, we've got Coca-Cola Life which we're kicking off in Argentina and which we're excited about watching the prospects of that. We're doing some terrific innovation around our Jugos del Valle platform in juices in Latin America. As well as in North America, we've launched fruitwater, brand new product, off to a very good start. POWERADE ZERO DROPS has joined DASANI DROPS, is a very exciting innovation. NOS Active, which is a fusion between sports drinks and energy. kicked off in April, again off to a very good start. From a packaging perspective, we continue to innovate around our price package architecture. We've just launched 16-ounce sparkling IC cans in our major packages. We've got Taylor Swift slim cans coming in, in the marketplace. We've got 19.2-ounce sparkling cans coming into the marketplace; again, lots of excitement around the packaging innovation. In terms of some marketing innovation, we've got Coke Zero, which is going to be launching College GameDay this fall which we're very excited about. We've got caffeine-free Coke Zero coming into the marketplace. We feel very good about that – really building out the Coke Zero platform as an all-day – and as an all-day brand. So, we've got lots in the marketplace and lots more coming into the marketplace. And it builds on one of Muhtar’s earlier points that throughout this rough period of time, we've continued our marketing pressure, we've continued our marketing investment. We have not cut it, we've increased it and it allows us to continue to innovate and bring new innovations into the marketplace.
Mark Swartzberg - Stifel Nicolaus: That’s helpful. And if I could simply follow-up on this subject of a stevia-based sweetener in the brand, on the door, so to speak, Coca-Cola. We’ve seen what you’ve said recently about globally taking down the portion of your volume that is in the full-cal portion of your business. Should we infer here that there is an increased resolve to use organic sweeteners against the main brand here, and there is some optimism globally for that potential?
Muhtar Kent - Chairman and CEO: Yeah, I’ll just comment on that. I think it’s all about ensuring that you provide the right choices at the right time for the right consumers in the right environment and I think that you shouldn’t read that we have an increased resolve to use any specific ingredient. It’s all about ensuring that we do have viable Lights and no-calorie versions for every one of our major brands available to the consumer, ensure that we – in front of the pack label transparently, ensure that we have active lifestyle programs as per all our global commitments and ensure that we have responsible marketing. Those are our four commitments. Our business, as we’ve said many times is about brands. Today we have 16 billion dollar brands, they are growing. We have in the pipeline another 19 brands that are bigger than $750 million in revenue and less than $1 billion. Those are all going to become billion dollar brands in the next incremental time because they are growing. We are confident that we will have multiple, more billion dollar brands than we have today, and I think that's what this business is all about, adding value through brands to our system. I'm confident that you will see us add many more billion dollar brands to our rostrum in the near future.
Operator: Ali Dibadj, Sanford C. Bernstein.
Ali Dibadj - Sanford C. Bernstein: So I think the general theme of my couple of questions is really what we are all trying to figure out, which is, what's going to get better from here and why. And not only in terms of volume, but also in terms of some of the other key drivers of profitability. So if I may, my first question is around North America; and although you say in the press release, you remain committed to rational pricing, price/mix is only up 1%. I guess, do you think volume-mix would have been down more than negative 4% if you had taken more than 1% pricing? So taking a 2% or 3% pricing? Or can we hope for that part of the business, the pricing in North America improving going forward? And as a follow-up to that, and it's a truly different per-cap market like China, following up to Ahmet's point a second ago, I just want to get a better sense of, if evolving a strategy has anything to do with increased price promotion as well as it sometimes does with some companies.
Gary P. Fayard - CFO: Thanks Ali, I'll start. In terms of pricing, we've always said that our pricing strategy in North America is consumer based and it continues to be consumer based. We captured, if you look at Nielsen, we captured very good pricing across our portfolio in North America. We think it was an appropriate amount of pricing by channel. The unfortunate 4% volume decline was – as we said, it had a lot more to do with weather and the economy. At least 60% to 70% having to do with the one-time really poor weather event. So we didn't put more price in the marketplace to try and change volume that wasn't there. We put appropriate price increases in the marketplace and we maintained our margins and we maintained our price strategy going forward. We continue to bring new products and new packages into the marketplace to help our whole architecture achieve the type of pricing that we deserve. We've given some examples of this in the past, and a good one is our 1.25 liter which continues to be very successful; a third of the 1.25 liter volume is in fact incremental volume. So it's good in and of itself, but it has also allowed us, if you look at our 2 liter pricing, over the course of the past 12, 15 months, we are out of the $0.99 price promotion for 2 liter and have been for quite some time. So we're not going to put too much price in the marketplace. We take appropriate price based on what the consumer, and what's right for the consumer and what's right for the customer. We fully expect that based on the price plans we have in place for the back half of the year, based on the innovations we have on the back half of the year that sparkling volume will in fact improve from what happened in the second quarter.
Muhtar Kent - Chairman and CEO: Ahmet?
Ahmet Bozer - President, Coca-Cola International: Yeah, Ali, I'd move on to your question on China. The answer is there is absolutely no plans for increased price promotion. In fact, the reason for having a evolving OBPPC is to have more sustained volume at the right price points, and the right tracks for all the consumers. Now, to give you example, you might be familiar that there's been a lot of upsizing going on in China and we have launched our 300-ml package last year. Now, we will tactically respond to such upsizing to be able to balance our volume and share performance, but those are limited tactical moves rather than a strategy to have increased price promotion. So that's not really in the cards. Now, to maybe build on this a little bit and also to address some of the innovation questions that I didn't have a chance to share is that, we have small can; either slim can or sleek can and small PET launches all across the international territory, all across Europe, all across Eurasia Africa Group and some of the Pacific markets. That I believe is an important innovation in a way, and also allows us to drive revenue and gross margin. In addition to that, let’s also keep in mind that we have some very successful products such as Pulpy that hasn’t been fully launched in all of our international territories. Eurasia Africa group, for example, have taken that and they have launched in Morocco in a very short period of time. We are able to achieve a 20% plus market share with that launch. We’ve just had a recent launch of extensions of coffee into PET in Japan in the CDS channel recruiting female consumers. We're quite happy and pleased with the results of that. We're innovating in energy drinks in Russia and Turkey by extending them into PET packages, receivable PET packages that the consumers want. So we continue to innovate in different packages, different categories across our international territory as well as using successful innovations from the previous years.
Muhtar Kent - Chairman and CEO: Thank you, Jackson, Irial, Steve, Ahmet and Gary. Our business continues to grow and to capture global volume and value share even in the midst of ongoing global economic challenges. Importantly, we do not manage our business for the short-term but rather for the medium and long-term. And as I mentioned earlier, our focus on achieving our 2020 Vision is unwavering with current dynamics leading us to believe that our performance will be better in the back half of this year and beyond. As always, we thank you for your interest, your investment in our Company and for joining us this morning.
Operator: Thank you. And this concludes today's conference. You may disconnect at this time.