Good day and welcome to the Coca-Cola Enterprises Second Quarter 2009 Earnings Conference Call. At the request of Coca-Cola Enterprises this conference is being recorded for instant replay purposes. At this time I'd like to turn the conference over to Mr. Thor Erickson, Vice President of Investor Relations. Please go ahead, sir.

Thank you and good morning everybody. We appreciate you joining us this morning to discuss our second quarter 2009 results and 2009 outlook. Before we begin, I would like to remind you all of our cautionary statements. This call will contain forward-looking management comments and other statements reflecting our outlook for 2009 as well as future periods. These comments should be considered in conjunction with the cautionary language contained in this morning's earnings release, as well as the detailed cautionary statements found in our most recent annual report on Form 10-K and subsequent SEC filings. Our earnings release also contains a reconciliation of the non-GAAP comparable figures referenced during this call. A copy of this information is available on our website at www.cokecce.com. This morning's prepared remarks will be made by John Brock, our CEO; Bill Douglas, our CFO. and Steve Cahillane, President of our North American Group and Hubert Patricot, President of our European Group are also with us on this call this morning. Following prepared remarks, we will open the call for your questions. In order to give as many people as possible the opportunity to ask questions, please limit yourself to one question and we will take follow-up questions as time permits. Now, I'll turn the call over to John Brock.

Thank you Thor. And we thank each of you for joining us today as we discuss our second quarter results and our revised outlook for the remainder of the year. As you can see from our news release this morning, we achieved strong operating income growth in the second quarter with comparable earnings per share of $0.67 and net income of $328 million. This is our second consecutive quarter of strong result. And we have raise our full year guidance to a range of a $1.44 to a $1.49, including currency impact and excluding nonrecurring items. We are pleased with this progress as we've achieved these results with profit growth in both North America and Europe. We believe our financial results, including revenue growth of 6%, excluding currency impact, and consolidated comparable operating income growth of 12% are a testament to our operating strategies and the commitment of our employees to succeed in the marketplace. As you know over two year ago, we initiated our global operating framework, to focus our company on three key strategic objectives. Being number one or a strong number two in every category in which we choose to compete. Being our customer's most valued supplier and establishing a winning and inclusive culture in our work force. This framework has guided our work at every juncture. Today, even as we work through the challenges created by current macroeconomic conditions, it is clear to us that our efforts to obtain these objectives and support this framework, have strengthened our company. Nevertheless, there remains much work ahead to reach our goal of creating sustained long term profit and value growth. In fact, operating conditions remains challenging and we face continuing pressures in key segments of our business as we seek to build on our year-to-date success. In North…

Thank you, John. And we appreciate each of you for taking the time to be with us this morning. As John mentioned today, we announced strong quarterly results with reported earnings of $0.64 per share in the second quarter. After adjusting for $0.03 of restructuring cost, comparable earnings per share were $0.67. These comparable results include a negative currency impact of approximately $0.08 for the quarter. On a reported basis, total second quarter revenue declined 1.5% including a negative currency impact of 6.5%. Excluding currency, revenue grew 6%. In the second quarter, we benefited from balanced profit growth as North American performance remained strong and Europe sustained its pattern of continued solid growth. In North America, our profit growth was driven by strong market place execution and increasing efficiency and effectiveness, as we continue to benefit from the restructuring activities, begun last year. Our execution, including our price package architecture initiative is a key factor in creating important margin gains. Margins also benefited from stability on PET costs as the average crude oil prices remained below $60 per barrel for the second quarter. Net revenue per case increased 8.5% while costs of good sold increased 7%. This represents a third consecutive quarter of margin stability or growth. In addition, execution is contributing to improving volume trends and in the sparkling category, and enabling us to see seize growth opportunities with brands such as Coca-cola Zero, Monster and Glasso. Moving to Europe, our sustained growth continues to be driven by a combination of several key factors. First, we continue to achieve excellent volume gains with growth of 6.5% driven by strong sparkling performance particular in our Red, Black and Silver portfolio. Volumes growth was balanced throughout the territory with growth of 6% on a Continent and 7% in Great Britain. Currency…

Thank you. (Operator Instructions). And we hear first from Judy Hong with Goldman Sachs.

Thanks. Good morning everyone.

Good morning.

Hey John. Can you give us some perspective on how you see pricing unfolding in the back half of the year? Are you planning to take post Labor Day pricing in light of presumably a much more benign cost outlook and as you just start to lap the fourth quarter pricing that you have taken last year are you expecting volume to turn positive in the fourth quarter.

Yes, let me ask Steve to talk about talk pricing from a North American standpoint and then Hubert can comment on Europe.

Yeah, morning Judy. As you know we always evaluate pricing opportunities in the marketplace and will continue to do that in the latter part of this year as well as going into January. And its important to note this doesn't always mean front line price increases but also the more efficient usage of promotions. And I should note that we are pleased that for third quarter in a row, our pricing per case growth matched or exceeded our increased cost of goods sold. Going forward, our focus will be to continue to be growing revenue and capturing and building the value of our excellent brand portfolio. And its also important to note that our traditional price gap versus our main competitor is currently at a historic high. We basically achieved twice the level of pricing that they have so far in 2009. At our current pricing levels, there will continue to be a significant gap even if there were able to take more pricing announced towards the end of the year. And our long term growth depends on balanced volume and value growth that strengthens our brands, our margin and our ability to win in the market place. And that's exactly what we intend to do for the rest of this year.

Okay. I think that's an excellent summery of our plans for North America. Hubert, If could ask you to comment on European brands.

Okay John. We are pleased by the level of pricing we achieved this quarter as this was driven notably by the price increase in GD, February 1. So we have on this quarter, the full impact of three months of pricing in GD. Going forward we intend to balance volume and rate and we will have some pricing increase on the Continent, in Belgium and Holland.

Okay. Thank you.

Okay, thanks.

Thanks, Judy.

We'll take our next question from Kaumil Gajrawala with UBS

Hi guys.

Hi.

So can you help me a little bit with a how much of the COGS benefit came from input costs versus some of the restructuring savings, was most of the restructuring in SG&A? Was there something in cogs as well?

There was a modest amount in cogs, but most of the cogs impact was due to commodities and most of the favorability from restructuring would have been in SG&A.

Got it. And then, as we think about commodities they have picked up from the lows but as we think about them going forward, how should we look at the sustainability of some of the margins that we're seeing now?

I think given the pricing actions that we already have in the market place in both Europe and North America, we feel very comfortable with our margin position for 2009. And I think if we look at our pricing actions that we will put in the market place Q4, Q1 and the current outlook for commodities in 2010, we would feel pretty comfortable of maintaining modestly expanding margins throughout '09 and 2010. I will say with the hedging activities that we already have in place, most of the benefit in the back half of the year from commodities in North America is going to be skewed towards Q4.

Got it. Thank you.

Okay.

We'll go next to Lauren Torres with HSBC.

Good morning. John, you mentioned once again obviously a better relationship and working more closely with The Coca-Cola Company. I was just hoping to get any update on any developments or new initiatives that you may have in place, generally getting a sense if things are progressing as you had hoped. And also, relating to that topic, if you still need to look at what needs to get done as a system, just curious to get your thoughts what will be at the top of that list.

Yeah. I think our relationship with the Coca-Cola Company is excellent. And perhaps, is good as it has ever been. We're very pleased with the kind of progress that we've made over the last eight to 10 months. And we have a number of activities that are continuing to move ahead and now, are part of our normal way of doing business. Everything from Coca-Cola supply to Fountain Harmony where we're really working hard to make sure we have a completely coordinated fountain and bottle and can business arrangement in North America to a variety of other programs, outlet service solutions where we are expanding our coverage of outlets. So those programs are moving ahead very nicely. We're confident that we're going to continue to make progress on the portfolio front. Again, if you look at what's transpired in terms of new brands into the system, over the last two years or so, it's a sea change in our total portfolio and we really pleased about that. Besides that in terms of going forward, what I would suggest and I think its going to be very important is the views that we share with the Coco-Cola Company, that particularly as we think about North America, we need to think about how we can be either more transparent, more seamless and more virtually integrated. We're obviously not going to comment on what's going on with our principal competitor other than to say our working assumption is that those transactions will happen and that they will have structural integration. And so we are really thinking volumes or how about all the things we can do as a complete system in North America, not just CCE and Coca-Cola Company but the complete system to be virtually integrated and to be ready to actually win in the market place by maintaining the franchise system and all the benefits and opportunities that come with that but at the same time win versus a structurally integrated system by ensuring we're virtually integrated. Muhtar has made it very clear, and we're very supportive of that but that's what he has in mind and we need to act as one system and really think about the kind of major programs and changes in our business going forward that will allow us to win in the market place. So, in terms of what's the most important thing going forward, that's what it is. It's to do all the various programs part and parcel of being transparent and virtually integrated system and frankly I'm confident that's really going to go.

Great. Thank you.

We'll hear next from Bill Pecoriello with Consumer Edge Research.

Thank you. Good morning John. Follow up on the virtual integration question, I guess would that include issues such as expending this Internet based (ph) pricing arrangement more to a multi-year agreement, since it sounds like it's going well so far, taking the systems energy plan already articulated to the next level and then a willingness to be flexible on the market changes for certain products and channels.

Well, I think it's a reasonable assumption that all the things you mentioned are reasonable things to be talking about and working hard on with the Coca-Cola Company and with the entire bottling system in North America. On incident pricing specifically we think it's really been part, significant part of the reasons are -- we're looking at the same, we're looking at things in a way that means we have similar incentives to drive our business forward and that's a really good thing. If we can work out of plan that's a multi-year plan I think that's really something that worth discussing. And I would similarly on route to market I mean DSD is the corner stone of our business and will always be. We've got to be world class, the best in the business at DSD but again as I think we've said for time it is now time to really think about how we go beyond that and what are the some of things we can do to win in a market place by having some routes to market that are somewhat different in certain situations than DSD. So I think everything you mentioned is on the table for discussion.

Thank you.

Your will hear next from Carlos Laboy with Credit Suisse.

Good morning everyone.

Good morning Carlos.

John I was hoping you could expand on the last comment you made on, Muhtar has been very open, was very open in the last call about talking about the need for multi-year concentrate agreements and for long term non-carb agreements, what's your vision of what an optimal multi-year agreement looks like and do you think you're going to get one?

I don't think we're in the position to say something quite that explicit today other than we are very interested in having discussions about a multi-year incidents model. It's been done in the rest of the world, this is our first year in to it. It's working well. And as we think about the future I guess the obvious question is well why not think about it, I think it's in our mutual benefit to do that and we plan to do it. But it's kind of- - its one crayon in the box of a whole host of things that we and Coca- Cola need to work through and work toward and really use to cement our relationship even stronger as we go forward. So I think that's about the extent that we could say today as we clearly support the concept. We're interested in working with KO to get there but absolutely we've got a lot of work to do.

Can you expand then on how it might change your business to have a multi-year agreement versus what you have now, how would it change the way you recruit people, attract people, the way you, the type of one time investment you might be able to make?

Carlos, I think the most important thing is that it just gives us a multi-year agreement and we and KO would both know where we're going and how we're going to be tackling economics going forward. And so just it makes for a more seamless and transparent relationship. I don't really think it changes the other things you talked about there and those are the kind of things that we're going to work together on anyway. It's just more long-term aligns our economic interest. And so therefore, it's a good thing to do.

Thanks.

Thanks. Next we'll hear from John Faucher with JPMorgan.

Yes, good morning, thanks. I've a question for Bill. Bill, I think in your guidance you talked about operating profit being up 10% for both North America and Europe for 2009, is that correct?

That is correct.

Okay. And is that's on a reported basis, that's on a dollar basis?

That's currency neutral.

That's currency neutral. Okay, thanks. And that makes little more sense and although it looks as though that still implies the U.S being down year-over-year for the back half of the year unless my math is a little off, can you talk a little bit about kind of what's built into that estimate, from that standpoint. And then also can you talk a little bit about volume expectations for Q3. Thanks.

I'll talk about the financial aspect. Then I will probably turn over to Steve to talk about volume. But if you look at the second half of the year in North America, specifically John, I think your math is directionally accurate. And what I would say is if you look at the shift of a very strong Q4 holiday period into Q2 and you look at the four less selling days in Q4, we're probably looking -- if you factor that out we're looking at a flattish OY performance to maybe very slightly up, excluding those two shifts in the calendar. And we remain fairly sanguine about the outlook given the current economic environment in our forecast in North America.

I think Bill explained absolutely right on target, except you said Q4 to Q2 and even Q3.

Sorry.

We are trying to be specific about the 4th of July holiday which was in Q3 last years and is in Q2 this year.

And then we have the four fewer selling days in Q4 '09 versus Q4 '08.

Okay. So, it sounds like balance -- the conservatism there is really based more. It sounds like they are on the calendar than anything else out there so transitory.

Correct. But we are assuming no material impact in the current economic environment in our outlook.

And John on the volume front I think Bill said it well with the shift of a very strong 4th of July into the second quarter. We always knew that our volume performance in 2009 was going to be lumpy and it’s proving to be lumpy. The third quarter is easily our toughest comparisons because of the 4th of July shift, because of the Olympic program that we had last year. And then in fourth quarter will be recycling our very significant price increase so we will have easier hurdles in the fourth quarter. So 2009 is shaping up from a volume standpoint as expected and if anything slightly better than expected.

Okay. Great thanks.

Moving on we hear from Christine Farkas with Merrill Lynch.

Thank you very much. Good morning. A question for John or Steve, I am wondering if you can dive a little bit into consumer behavior or overall trends across the channels on specifically take-home versus immediate consumption or supers and Z stores and clubs. I think you had some strong promotions in Wal-Mart or Club stores over July 4th. Can you comment on how the dynamics might have changed, and I have a follow up for Bill?

Let me ask Steve to tackle that one.

Yeah. Good morning Christine. We are definitely seeing some short -- at least short term shift in consumer's behavior benefiting Sparkling which a lot of people have been writing about. So there is definitely a benefit to Sparkling as consumers are looking for good value and enjoyment. In terms of some of the channels we're continuing to see very soft performance in On-Premise. Obviously as people are watching the dollars a bit more closely and we're seeing very strong performance in Supers and mass merchant and kind of the middle of the store. In terms of our overall our C performance it's actually weathered the storm fairly well, albeit not in On Premises I mentioned. And from a long term outlook we've really pretty confident based on the strength of our portfolio that we've got the right mix of packages. We brought new $0.99 package in. We got contour two liter coming out, we've got 18 and 20 pack configuration. So we're operating very much with this new consumer dynamic in mind and looking to benefit from the current economic environment.

So on the margin nothing incremental in C stores On Premise and still pretty tough.

Still pretty tough, tougher in On Premise that it is in C stores. And I think C stores, there might be some green sheets there. Gas prices are obviously down significantly from where they were a year ago. So that's been a benefit and we're seeing as I said, a terrific performance from our entry level packaging cannibalizing much, much less than we would have anticipated from our 20 ounce. Our 20 ounce is showing signs of improvement, we think because we're driving more people into the outlets, looking for a 99 cent off trend but then are still buying their favorite package at 20 ounce. So we're not standing still in this environment and therefore I think, we're doing pretty well in that channel but it does remain, a fairly challenging channel.

Okay, great. And then, just briefly Bill, your SG&A leverage actually stayed flat this quarter. In your commentary that Europe saw improvements in operating expenses, I'm curious to me, what happened in North America? Can you just put some color around the higher pension and what you might have seen in terms of benefit of operating expenses?

I think if you look at all of the operating cost initiatives that we have under way, we are very pleased with the result that we received today and the outlook for potential cost savings continues to be equal or higher than our initial expectations. I think if you look at Q2 result to be blunt, with our operating performance being where it is, our volume being higher, the shift in the July fourth calendar puts some pressure on operating expenses. As well as last year, with our performance being down, there's some variability in our incentive compensation year-over-year just playing the factor there too.

Sure, okay. That's helpful. Thanks a lot.

We will hear next from Alex Patterson with RCM.

Question for you Bill. I'm just trying to get a handle on the COGS per case reported. Could you parse out the mix impact by region and then also, you talked about the hedges, the step up in mark-to-market and all that it seems to imply that maybe, you've locked into 2010 a fair amount. Could you just comment on that?

Yes, firstly talking about mix impact, if you talk about mix impact in Europe, it was negligible. If you talk about the mix impact in North America, there was significant impact from moving to finished goods environment, energy brands glacéau and in the like. So probably two-thirds commodities, one-third finished goods impact directionally. Will double check this detail, if it's any difference we will come back to you. We are -- vast majority of our 2009 commodities are hedged, excluding PET and we are starting to layer on hedging activity for 2010. Don't want to give any details there yet, but what hedges that we have put in place, are at favorable rates versus our average 2009 hedged activity. But you are right. That's one of the reasons why we would ultimately have some mark-to-market volatility is because we are layering on hedges for '10.

Okay, thanks.

We'll go now to Rob Foster with Unit Sales (ph).

Hi, thanks. Could you talk about impact of weather, in certain region to the U.S. I know there were some concerns about an usually amount, high amount of rain in the Northeast for example.

I think that Steve can comment on weather in the U.S. and Hubert can comment on weather so far in Europe.

Good morning Rob. We don't like to talk about weather because we like when our people talk about weather but in all seriousness, obviously in the North East. There was significant challenge around weather. It was a very wet June, I think the second wettest June on record. And then, other parts of the country have been cooler than normal and a bit wet. So, I think it's probably had a modest effect on business but as I said earlier, we're pleased with our volume performance and pleased with the outlook in spite of what could be considered some rather challenging weather patterns. And we're hoping all this bodes well for an Indian summer.

And Europe it is 10, where the ten C will be a bigger factor. Hubert on that?

Yes. I think it's fair to say that it did not play a very much at your loan so far, with the exception probably of the month of June, where, at the back-end of June, we had two good days (ph), especially in GD. That probably at about achieve 9% growth in June, So, June was probably growth in June. So June was probably two points above what we would have achieved without the weather.

Great, thank you.

And now will hear from Dell Reach with Theka (ph).

Good morning. I just have a question about your EPS guidance. If you take the mid point of your new annual range, it implies EPS of about $0.60 for the back half which would down 12% from last year. And when you compare that to the first half when you had 36% growth, isn't that just being awfully conservative?

Well, Bill has already elaborated on this a little bit. I think our view here is that there are four less days in December than there were last year. The 4th of July shifted from Q3 to Q2. There is some several cents of currency that's in there. So and on top of that, there is some bonus, some reinstatement of bonuses based on the result that we're planning to achieve which of course certainly North America did not happen last year. We had essentially no bonus payments because of our overall performance last year. So when you put that all together, it's broadly a flat second half, offset by those numbers which add up. I think we would say it's more like $0.08 to $0.10 instead of 12 but it's broadly in that arena. Bill you want to add anything.

I agree with that. That's correct.

That's very consistent with what Bill said earlier.

Should currency actually become a positive in the fourth quarter?

It could be a slight positive in the fourth quarter currently rates were to stay where they are yes. But that would be not offsetting what we think will still be a negative currency impact in Q3.

Okay.

And just finally there is clearly some modest degree of conservatism there given the economic outlook that frankly as we continue to look at it there are couple of things that look good. The housing in the U.S. just yesterday and that's kind of encouraging and a little bit of consumer confidence perhaps picking up. But unemployment we think is going to continue to get worse and broadly the credit markets haven't changed much, certainly for small and medium size businesses. So we kind of put that all together and say that you know we think it's prudent to be reasonably conservative in the second half year.

Okay. Thank you.

Next Mario Montoya with Longbow Research.

Good morning guys.

Good morning.

Real quickly if I just go back to volumes again, can you give us the number breakouts between immediate consumption and taking volumes. I was trying to get a sense of the slight tick down sequentially from the first quarter to second quarter especially since July 4th shifted into the second quarter versus the third?

Let me ask Steve to tackle that. I assume you're talking about this from a North American standpoint.

Yes.

Yeah. Mario, single serve would be down about 6% and multi serve would be down about 3% adding up to our down 3.5% for the quarter. If you want to get into any greater detail, I think Thor would be happy to follow up with you after the call.

Okay. Thank you.

Thank you.

Next question we hear from Damian Witkowski with Gabelli & Co.

Hi good morning. I just want to confirm that you did not had to any of your currency stock so you will get the benefit of the currency in the fourth quarter at it becomes its now especially the euro and British pounds. And then secondly, could you just go a little bit more into the energy category here in the U.S. and the UK. I know you said volumes were up 25% but obviously that's because you had a different, a new brand in you portfolio. So I am just curious, A, what you're seeing in terms of the category. is it still growing and then how happy you are with sponsors (ph) both here and in the UK.

Bill you want to comment on hedging and we'll ask Steve or Hubert to comment on energy.

Sure Damian on the currency, we do not hedge the translation effects of our European operations. However where we have cross currency purchases of raw materials, we do hedge the transaction exposure just to be clear but not translation effect.

Steve?

Yeah, In terms of the Monster and energy performance in North America, we're actually very pleased with it. Obviously the category has slowed from its five year CAGR but Monster is gaining share for us, Rockstar is gaining share for us and when you look at the whole mix of Monster and Rockstar out, we achieved almost 50 basis points of growth based on that net of growth transaction. So I'd say on the balance we're very pleased with our energy portfolio and its performance in spite of a rather challenging environment.

That goes for Europe as well?

Hubert.

Well, the category continue to perform as such, especially in U.K was a double-digit growth and we are now well-positioned in this category with our dual brand strategy with Monster and Relentless. We are filling the launching space with Monster. But so far continuing the response seems very encouraging both retail as well as independent and then Mid-Continent this category in France and Belgium and Holland these three are very under developed. So we are more on 20-20 some growth and again here with Monster brand we think we have a good response to go after this fast moving category.

Okay. Thank you Hubert. Operator, we plan to take one more question.

Okay. Our final question comes from Mark Swatzberg with Stifel Nicolaus.

Thanks operator. Good morning everyone. Steve I was hoping you would talk a little bit more about the Boost Zone plans here in North America. You got a unique vantage point having run Europe where those have been beneficial and now of course running North America. Can you talk a little bit about the level of benefit you might have expected from Boost Zone here in North America over the next few years, in Europe and then it's different about implementing them here and it's critical to achieving the target of benefits from up here?

Sure. Thanks Mark. Obviously we know that Boost Zones work in Europe. They work really well in France where you better kick them off and put them in Great Britain and the balance of the continent. So it's provenconcept that works for us and we've obviously brought it to North America. I'm very optimistic about the performance of them in North America and the part of your question, I think they are actually easier to implement in North America than they are in Europe because of our DSD capability. And John already mentioned our DSD capability which is a big advantage for us in 99 times out of a 100 or 90 times out of a 100. It's going to be the right approach. But in Boost Zones, we look to really get it every single outlet in the best possible way and activate every single outlet in the best possible way from a consumer stand point but also from the return standpoint for us. We've just gone past the half way market the year and we're well on track to have 50 Boost Zones in North America by the end of this year with ambitious plans for Boost Zones in 2010 and 2011. We have also just completed our score card initiatives. So we're not really at a stage where we can talk about what types of returns we're seeing from them but they are on plan, actually ahead of plan. And we're -- I'd say overall very optimistic about the Boost Zones being a very critical component of our plan to essentially return any RTD and Sparkling in particular to launch and grow. We think it's a big opportunity for us and in the On Premise channel and in these key demographic and key geographic areas to really drive our Sparking portfolio, activate the consumers and be a critical part of our long term strategy to get this category back into growth.

Okay thanks, Steve, thank you Mark.

I will ask a quick question to Bill on pension contribution. Just what that number is for the year, you had said 100 million at the end of the first quarter, looks like you're already year-to-date running ahead of that. What do you think the pension contribution number is this year?

That will be detailed in our 10-Q that we will be filing later on this week. So the answer to your question is the 100 million was an incremental 100 million over and above our accounting expense from a cash flow perspective. So we are talking if memory serves me need 225, 250 in total from a cash perspective.

And that's still your view for the year?

Correct. We do not anticipate making anything over and above what we have already communicated at the end of Q1.

Okay.

Perhaps I could wrap up and simply say, first of all thanks to all of you for joining us today. And we are genuinely pleased with our first half performance and particularly pleased that our second quarter was a real extension of our successful first quarter and perhaps even a stronger quarter. We believe that we are well positioned for the balance of the year. And in spite of all the macroeconomics that remained challenging, both in North America and Europe, believe we have a team who understands what they have to do. We have the right brand, plans and programs. We have the right go-to-market initiatives, employees and have the best relationship we've had with KO in long time. And you put all those things together, we believe we're well positioned for a solid year. So thank you again for your time and attention today. And we look forward to seeing you again in due course. Good bye.

Once again, ladies and gentlemen, that concludes our conference. Thank you all for your participation.