|Coca-Cola Enterprises Reports 11 Percent Comparable Cash Operating Profit Growth and Adjusted Earnings Per Share of 29 Cents in 1999|
ATLANTA, January 25, 2000 – Coca-Cola Enterprises today reported that 1999 cash operating profit increased 10 percent on a reported basis to almost $2.2 billion. After adjusting for acquisitions and the second-quarter 1999 product recall charge of $103 million, the comparable cash operating profit growth rate was 11 percent. The 1999 cash operating profit results reflect the Company’s focus on margin improvement to drive more acceptable returns in certain future consumption channels and continuing efforts to minimize operating expenses. Fourth-quarter 1999 cash operating profit was $516 million, up 18 percent on a reported basis and 14 percent after adjusting for common territories.
Currency translations had no material impact on the full-year 1999 cash operating profit growth rate. In the fourth quarter of 1999 currency translations reduced the growth rate by slightly more than 1 percent. However, the negative impact of currency was substantially offset by one additional fourth-quarter 1999 selling day compared to fourth-quarter 1998.
"For Coca-Cola Enterprises, 1999 was a year of transition in the way we approached the marketplace," stated Summerfield K. Johnston, Jr., chairman and chief executive officer of Coca-Cola Enterprises. "In 1999 the industry shifted away from a pure price discounting strategy to an emphasis on building brand equity and creating value for the Company and all of our business partners. As a result, we enter 2000 with our business in the best condition we have seen in many years. The focus is now on the products, packaging, and marketing programs we bring to our customers and consumers rather than the unsustainably low pricing that occurred in the last several years."
In management’s opinion, comparable cash operating profit growth represents one of the key indicators for measuring operating performance in the beverage bottling industry. Cash operating profit is defined as earnings before deducting interest, taxes, depreciation, amortization, and other nonoperating items. Comparable, or acquisition-adjusted, 1998 results include all material 1998 and 1999 acquisitions as if the transactions occurred on January 1, 1998. In addition, the second-quarter 1999 nonrecurring product recall costs of $103 million have been excluded from 1999 comparable results.
In 1999 reported net income applicable to common share owners was $56 million, or 13 cents per diluted share compared to reported 1998 results of $141 million, or 35 cents per diluted share. Excluding nonrecurring items in 1999 and 1998, 1999 net income per diluted share was 29 cents compared to 1998 adjusted results of 28 cents. The 1999 nonrecurring product recall costs reduced earnings per share by 16 cents, and the third-quarter 1998 one-time benefit from the United Kingdom tax rate change increased 1998 results by 7 cents per share. In the fourth quarter of 1999, the Company reported a net loss per share of 4 cents compared to the reported fourth-quarter 1998 net loss of 9 cents per share.
For 2000 the Company expects approximately 12 percent comparable cash operating profit growth from 1999 results adjusted for nonrecurring product recall costs of $103 million and approximately $30 million of cash operating profit lost in June when the Company’s products were not available in certain markets in Europe. 2000 cash operating profit results are expected to reflect continued focus on improving profitability in the future consumption channels from the depressed levels experienced throughout the mid-1990s, moderate volume growth, and leveraging operating expenses. 2000 diluted earnings per share should exceed 70 cents reflecting strong operating results and a reduction in depreciation expense.
The lower depreciation expense is a result of 1999 capital expenditures of slightly under $1.5 billion, expected 2000 capital spending levels of approximately $1.4 billion, and an extension of the estimated useful lives of certain equipment categories. Since beginning its accelerated capital spending levels, the Company has implemented several new programs designed specifically to extend equipment useful lives through asset management and structured maintenance and refurbishment plans. A comprehensive study of the effect of these programs was completed in the fourth quarter of 1999. The extension of equipment useful lives lowers 2000 depreciation expense by approximately $160 million, or approximately 23 cents per diluted share after tax.
"In 2000 we will continue to develop and implement brand equity building strategies along with The Coca-Cola Company to drive long-term, sustainable, profitable growth in per capita consumption," stated John R. Alm, president and chief operating officer of Coca-Cola Enterprises. "These value creation strategies should result in strong cash operating profit growth which, with prudent capital spending levels, should result in more than 35 percent growth in operating income, approximately $200 million in free cash flow, and an improved return on invested capital of approximately 7 percent in 2000."
Full-year 1999 net operating revenues increased 7 percent to more than $14 billion on 3.8 billion unit cases (192 oz bottle, can, and fountain cases). The 1999 revenue growth reflects the Company’s strategy of increasing net revenues per case combined with the impact of 1998 acquisitions. Fourth-quarter 1999 net operating revenues of $3.5 billion were 8 percent above fourth-quarter 1998 results. In both fourth-quarter and full-year 1999, North American operations represented 74 percent of total revenues while European territories generated the remaining 26 percent.
In 1999 consolidated physical case bottle and can volume was below constant territory 1998 results by slightly under 1 percent. The 1999 consolidated volume performance resulted from 3 percent growth in Europe and a decline of less than 2 percent in North America. Full-year 1999 volume results reflected declines in Coca-Cola classic and diet Coke and strong increases in Sprite, Fruitopia, POWERaDE, and Dasani. North American volume declined primarily due to decreases in 6-pack and 24-pack can packages sold in the future consumption channels where the most significant focus on margin improvement occurred. North American volume in the high-margin immediate consumption channels increased significantly with 20-ounce PET packaging up approximately 9 percent and vending volume up by more than 12 percent.
Fourth-quarter 1999 constant territory and constant fiscal period consolidated volume growth was 1 percent, with slightly under 1 percent growth in North America and 3 percent growth in Europe. In the fourth quarter of 1999, some of the Company’s European territories implemented price increases that resulted in slower volume than originally anticipated.
Constant territory bottle and can net revenues per physical case to retailers increased 4 percent in full-year 1999 and 3 1/2 percent in the fourth quarter of 1999. While slightly reduced by the effect of currency translation rates, the net revenues per case increases reflect the significant progress the Company made in 1999 with improving returns in future consumption channels and packaging. After several years of declining retail pricing, much of the 1999 wholesale price increase was passed on in retail price increases, providing margin improvement for both Coca-Cola Enterprises and its customers.
The impact of currency exchange rates and favorable packaging costs offset higher ingredient costs, resulting in full-year and fourth-quarter 1999 constant territory bottle and can cost of sales per case that did not change materially from the same periods in 1998.
In full-year and fourth-quarter 1999, net interest expense increased significantly from 1998 reported results, primarily due to higher debt balances from the Company’s capital expenditures and share repurchases. In the fourth quarter of 1999, the Company repurchased approximately 5 million shares for a total purchase price of approximately $95 million.
The 1999 effective tax rate was 33 percent, approximately equal to the 1998 effective tax rate excluding the 1998 United Kingdom tax rate change.
Included in this news release are several forward-looking management comments and other statements that reflect management’s current outlook for future periods. As always, these expectations are based on the currently available competitive, financial, and economic data along with the Company’s operating plans, and is subject to future events and uncertainties. Among the events or uncertainties which could adversely affect future periods are lower-than-expected net pricing resulting from increased marketplace competition, an inability to meet performance requirements for expected levels of marketing support payments from The Coca-Cola Company, material changes from expectations in the cost of raw materials and ingredients, an inability to achieve the expected timing for returns on cold drink equipment and employee infrastructure expenditures, an inability to meet projections for performance in newly acquired territories, unexpected costs associated with Year 2000 compliance or the business risk associated with Year 2000 noncompliance by customers and/or suppliers, unexpected costs associated with conversion to the common European currency (the Euro), and unfavorable interest rate and currency fluctuations. The forward-looking statements in this news release should be read in conjunction with the detailed cautionary statements found on page 19 of the Company’s 1998 Annual Report and in the Company’s third-quarter 1999 Form 10-Q.
Coca-Cola Enterprises Inc. (NYSE: CCE) is the world's largest marketer, distributor, and producer of bottle and can liquid nonalcoholic refreshment. Coca-Cola Enterprises sells approximately 74 percent of The Coca-Cola Company's bottle and can volume in North America and is the sole licensed bottler for products of The Coca-Cola Company in Belgium, continental France, Great Britain, Luxembourg, Monaco, and the Netherlands.