Operator:

At this time, I'd like to welcome everyone to the Coca-Cola Company's Second Quarter 2024 Earnings Results Conference Call. Today's call is being recorded.[Operator Instructions] I would now like to introduce Ms. Robin Halpern, Vice President and Head of Investor Relations. Ms. Halpern, you may now begin.

James Quincey:

Thanks Robin, and good morning everyone. After a good start of the year, we continued our momentum in the second quarter. In a world with a wide spectrum of market dynamics, our all-weather strategy is working. We're winning in the marketplace by leveraging our scale and continuing to foster a growth mindset. Given our strong year-to-date results, we are raising both our top-line and our bottom line guidance today. This morning, I'll start by discussing the current operating environment and reviewing our second quarter performance, then I'll explain how we're enhancing our capabilities to drive more effective and efficient operations, including leveraging digital and tech-enabled innovations to ultimately contribute to our earnings growth. Finally, John will discuss our financial results and the raised 2024 guidance. In the second quarter, we grew volume, generated strong organic revenue growth and expanded margins while continuing to invest in our business, we also gained value share. This culminated in 7% comparable earnings per share growth despite 10% currency headwinds and 2% headwinds from bottler refranchising. Overall, our industry remains attractive and is expanding. We believe we're well positioned to capture the vast opportunities available to us. Across the world, we're continuing to navigate many varying market dynamics locally to deliver our global objectives. In Asia Pacific, we had strong performance across most of our footprints. In ASEAN and South Pacific, the refranchising of the Philippines is off to a good start. In the Philippines, we grew volume by double digits and drove strong value share gains by increasing focus on affordable packages, including accessible price points and refillable offerings. Growth across ASEAN and South Pacific was driven by strong end-to-end execution across our sparkling portfolio. Our business in India recovered nicely from a slower start to the year, driven by Sprite and Fanta, as well as strong local brands such as Thumbs Up and Maaza. Strong end-to-end execution across our growth flywheel led to double-digit volume growth. In China, consumer confidence remains subdued. We continue to focus on our core business and invest behind profitable long term growth. Lastly, in Japan and South Korea, we generated volume growth during the quarter and won value share. We successfully relaunched Ayataka, a much loved local tea brand in Japan, and we're also benefiting from stronger execution in e-commerce channels. In EMEA, the external environment remains mixed. In Europe, we saw pressure in our away from home business due to some reduced foot traffic and adverse weather in Western Europe. To capture value, we're investing in several highly anticipated activations, including music festivals, the Euro 2024 Football Championship, and of course, the Paris Olympics. We're increasing our focus on brands with strong momentum across our total beverage portfolio, including Fuze Tea and Powerade, and on promising sparkling innovations such as Coke Lemon and Reformulated Sprite. In Eurasia and Middle east, geopolitical tensions and economic uncertainty continue to impact our business. We're working closely with our local partners to navigate these headwinds while investing for the longer term. In Africa, despite multiple currency devaluations, strong integrated execution led to robust performance across our markets. For example, in Nigeria, our system quickly responded to the intense inflationary environment by focusing on affordable packages, including accessible price points and refillable offerings, and increasing outlet coverage to win both volume and value share. Across Africa, we grew volume in mid-single digits and similarly won both volume and value share. In North America, we generated robust topline and bottom line growth and one value share. Our volume decline was driven by softness in away from home channels. To offset this, we're partnering with foodservice customers to market food and drink combo meals to drive traffic and beverage incidents. Excluding mainstream packaged water, at-home volumes held up well. Fairlife and Trademark Coke finished number one and number two as the at-home retail sales growth leaders for the industry during the quarter. Our juice business also had a strong quarter and recent innovations including Sprite Chill and Topo Chico Sabores, are off to solid starts. In Latin America, volume momentum continued, led by strength in Mexico and Brazil. Growth was driven across our entire total beverage portfolio. Coca Cola Zero Sugar had a standout quarter with over 20% volume growth, and we're continuing to take integrated execution to the next level by increasing investments behind cold drink equipment to win share of visible inventory and create additional consumer demand. Finally, in global ventures, despite pressures in key markets such as the United Kingdom and China, we generated organic revenue growth and expanded margins. Costa is driving loyalty through targeted promotions like treat drop and innocent gain value share in Europe. Putting it all together, despite an ever changing external environment, our business remains very resilient. The power of our portfolio, amplified by our system's unique capabilities is a clear advantage. While we're delivering on our near term commitments, we're also building capabilities and innovating across our flywheel to become a more agile, effective and efficient organization. Starting with marketing and innovations. Last year, we stood up Studio X, which is our digital and organizational ecosystem that integrates marketing capabilities and connects them to our global network structure. We're producing tailored content at scale and with speed and are able to measure impact in real time. We're also refining our innovation process to prioritize bigger and bolder bets, and we're removing barriers to deliver a more holistic approach, shorten the time to launch and improve success rates. We know that innovations that grow in the second year have a much greater odds for multiyear success and deliver far greater impact. So we focused on sustaining investment and have consistently improved second year performance success rates in each of the past four years. Continued innovation successes include Sprite and Fanta reformulations, Fuze Tea in Europe and Minute Maid Zero Sugar in North America, among many others. As a result of these combined initiatives, we have greatly improved our ability to rapidly produce and deliver marketing content, integrate activations with timely innovations and scale successes to drive the greatest impact. One example from the second quarter, Coca-Cola's partnership with Marvel, which featured nearly 40 different limited edition collectible graphics and QR codes on our packaging to connect consumers with unique augmented reality experiences. We collaborated closely with Marvel Studios and the Walt Disney Company and tapped into the best-in-class animation and activation to quickly scale to over 50 markets. As a result of this and other growth initiatives, Trademark Coca-Cola grew volume and won volume and value share during the quarter. Our marketing and innovation transformation journey contributed to Trademark Coke winning creative brand of the year for the first time ever at the Cannes Lions in June. We won 18 different awards at Cannes Lions. Beyond marketing and innovation, we're flexing our muscle in revenue growth management and integrated execution to sustain competitive advantage. Even in markets with very well developed capabilities, there's potential to be even better. For example, Mexico is one of the markets at the forefront of revenue growth management, and has the highest cold drink equipment density in the world. During the quarter, we drove affordability with refillables and premiumization with single-serve transactions. Our system also added over 80,000 coolers year-to-date. Through these and similar initiatives, we grew volume mid-single digits during the quarter, continuing the momentum from the past few quarters. Each day, consumers enjoy approximately 2.2 billion servings of our products translating into about 800 billion servings annually. This kind of scale gives us unique insights into the consumer, which helps us to better tailor offerings. Emerging technologies, including those enhanced by AI, have the potential to create value for retailers and consumers. For example, we're piloting an AI-based price pack channel optimization tool, across several markets that evaluates opportunities, to better tailor solutions to drive incremental volume and revenue. Early results show that the tool helps improve both our offerings, and speed to market. Our system is also piloting an AI-driven initiative to push personalized messages, to retailers with suggested items based on previous orders and market data. Initial pilots indicate that retailers who receive the messages, are over 30% more likely to purchase recommended SKUs, which results in incremental sales for our retailers and the system. We're just scratching the surface of what's possible, and we're taking steps to seize opportunities down the road. To sum it all, while we recognize there's still much work to be done, to capture the vast opportunities available; we're encouraged by our year-to-date results and efforts to improve, every aspect of how we do business. As we look forward to the second half of the year, the external backdrop remains uncertain, including some signs of pressure in various consumer segments across developed markets. However, thanks to the power of our portfolio, and the unwavering dedication of our system employees, we are confident we will deliver on our updated 2024 guidance and longer-term commitments. With that, I'll turn the call over to John.

Operator:

[Operator Instructions] Our first question comes from Dara Mohsenian from Morgan Stanley. Please go ahead. Your line is open.

James Quincey:

Yes, sure. No problem, Dara. Firstly, overall, it'd be fair to say that the consumer sentiment in aggregate is actually pretty strong, pretty resilient. Within that, there are some softer spots, particularly, I think, which has been relatively put out there already some softness in away-from-home channels, with a little lower traffic and some increase in value seeking for combo meals. So definitely, there's a piece of the lower income consumers, which are either going out slightly less. But when they do go somewhere looking for greater value through combo meals. And then, of course, in the at-home channels, there's a slightly greater focus by those consumers on getting kind of value deals or promo deals. Having said that, there are just as much consumers spending on more premium categories or more premium price points and experiences. So that's all aggregating out at a sort of resilience, for the average overall consumer. Within that, I think we've done very well. We've seen strong growth across the portfolio. We saw a strong growth in Coke trademark in Fairlife, in Topo Chico and juices itself and in aggregate, we won value share in the quarter. So broad-based growth, some hotspots in terms of demand up demand down. But overall resilience for the consumer. And as you look out, the first thing that I think is worth underlining in North America, in particular, is the nature of the price mix. Remember that our North American business, a typically compared to the other parts of the world, we consolidate a set of vertically integrated businesses and a set of franchise kind of concentrate businesses, such that the growth of a channel or a category can produce a mix effect independent of pricing in the marketplace. As you look at the 11 points of price mix in the second quarter in North America, it's important to understand that, only half of that is actually price. The other half is mix. So when the juice drinks and Fairlife and the juice business grows, Topo Chico grows and Dasani is weaker, you get a mechanical business mix effect that, makes the price mix look like it's gone up, but it hasn't really in the marketplace. So think of it as half of it is business mix, and half of it is real pricing in the marketplace, which gets you to a much more logical match, to the level of inflation that's going out - going on in the marketplace in general, such that I think in North America and actually overall in general, around the world, excluding the high - the intense inflation markets John mentioned in the comments. We see that inflation is largely coming into the landing zone, yes, central banks would like to squeeze out another point or so. But generally, we're getting there, and I think that's reflected in our price mix. We still have input costs that are going up, typically, the agricultural ones rather than the metal, or commodity-based ones. But in the end, our strategy remains yes, there'll be cost inflation, yes, we'll look to put it through. Yes, we'll work on productivity. But any pricing we're going to take, we're going to have to earn with the marketing and the innovation and the execution. But it is, as I said earlier, approaching the normalization zone.

Lauren Lieberman:

Great, thanks so much. I'd love to have a similar conversation about Western Europe because James, you mentioned a bit on some -- also slowness in away from home. But the summer sports kind of has already kicked off, June was certainly part of it. And so the weather has been challenging, but maybe a little surprising to see the softness in the unit case volume in EMEA. So I'd love some - just a similar run through as you just did in North America on some of the dynamics, particularly in Western Europe? Thanks.

Operator:

Our next question comes from Bryan Spillane from Bank of America. Please go ahead. Your line is open.

John Murphy:

Okay. Thanks, Bryan. So on the first question, yes, we had number of events during the quarter that affected that relationship between unit cases and concentrate. You mentioned a couple of them, the ingestion and the Red Sea and Singapore - in LatAm, we had some restocking in the wake of the floods in Brazil, and in our India operations. We had some stocking up to anticipate some future demand. So a range of factors, none of them with a threat - a common threat to them. Our guidance assumes a more normal second half of the year. But as you rightly highlighted, there is likely to be something ahead of us that, we have not anticipated. And if that were to happen, we'd certainly we certainly advise. But our goal is over the longer haul, is to continue to have cases and gallons in line. And with regards to the gross margin impact, there's a slight benefit on both the gross and operating margins related to the stocking, but it's in the tens of basis points and again, reflected in our guidance a year ago, with that leveling out that we expect.

Bonnie Herzog:

All right, thank you. Good morning, everyone. I did want to ask a little bit more about your away-from-home business, James, which you did touch on. I guess I was hoping to hear how much your business in this channel decelerated in Q2 versus Q1 and what your outlook is for the remainder of the year? And then assuming growth in the channel moderates further, how do we think about the impact this may have on your top line and margins? And maybe just touch on any initiatives you've implemented to accelerate growth in this channel moving forward. I think that would be helpful? Thank you.

Operator:

Our next question comes from Steve Powers from Deutsche Bank. Please go ahead. Your line is open.

John Murphy:

Sure, Steve, thanks. So on gross margin, just to maybe highlight the big drivers typically our underlying performance any structural changes we have in the quarter, most of which nowadays as relates to our refranchising activity and then had a currency impact. So year-to-date, we're reflecting almost 200 basis points of increase. And that's primarily driven by structural and underlying with some offset on currency. And for the second half of the year, typically, the margin profile in the second half of the year is slightly lower than the first half. But I would say the overall trends in the second half of the year will be similar, to what we've seen in the first half. And maybe just to step it down on one - down to the operating margin line, not dissimilar. We have had more benefit on the underlying margin in the first half of the year than on structural. And then the second half of the year, I expect it to be more even. And yet, as we've discussed in prior calls, we sort of reserve the right to stay flexible in the event that we make investment decisions that linked to what's happening in our many markets around the world. But overall direction of travel on both the gross and operating line is our margin profile to be strengthening and to be pretty much in line with some of the previous conversations we've had on this topic.

Filippo Falorni:

Hi, good morning everyone. I wanted to ask about the Latin America business. It continues to be a very strong driver of your total company growth with very strong unit case volume. Still very strong price mix. There was obviously some temporary impact with the flooding in Brazil. But just curious a, what is working well? I know your baller relationship have improved significantly over the last couple of years. And also just a general sense of how the consumer is behaving in your key markets, Brazil, Mexico and some of the other countries.

Operator:

Our next question comes from Chris Carey from Wells Fargo Securities. Please go ahead. Your line is open.

John Murphy:

Sure, Chris, thank you. Well, firstly is we're very pleased with the performance of Fairlife, and the end is in sight relative to the overall construct of the deal we have in place there. With regard to the broader free cash flow conversation, yes the sources we have are cash from operations. And in the short-term, as we continue to re-franchise some of our businesses from the proceeds that come in from that. During the second quarter, we also went into the debt market and we issued some long-term debt. And so, it's really a combination of those three that we are managing very closely, to deal with the end of this year and into 2025, on the outflows that we see. Balance sheet remains strong. We go into 2025 with a clear line of sight as to what needs to be taken care of. And yet, as we have discussed on many occasions, relative to our overall capital allocation strategy. We will continue to invest in the business as appropriate, to support the dividend file. We take care of the Fairlife acquisition and the tax payment that is, is on the horizon with relative to the IRS tax case. So all in all, it's going to be an interesting 18 months to work through. But we feel very confident that the work we've done today prepares us well to manage through it.

Andrea Teixeira:

Thank you, good morning. So James, on the price mix in North America, you mentioned about half of the 11.3 in my mix and the other pretty much pricing, but still quite driven by innovation. Can you talk about the cadence of what you expect moving ahead? Of course, you've done amazing well in the team there in terms of the marketing campaigns, and marketing and around packaging and all of that RGM playbook that you have. The booking ahead, is there any additional gains you expect, and how we should be thinking? I guess, broadly, even not only in North America, but also in Brazil and Mexico, how to think of additional gains in there and as well as in India? Thank you.

Operator:

Our next question comes from Kaumil Gajrawala from Jefferies. Please go ahead. Your line is open.

James Quincey:

Yes, so we as from a strategy perspective, have taken the approach over the last number of years, it cannot say even longer, that it's critically important, particularly when times get tougher to try and keep as many consumers in the franchise as possible, rather than trying to re-recruit them at some later stage. And they're in our focus not just on marketing innovation, but affordability within the price pack architecture. So clearly an objective of ours is not to see negative volumes, and to make sure we keep people in and use all the elements to do that. And so, as you say, we've got 2%. In the corridor, we've got - we've had a run right there. We've talked in the past, it remains true today that the central long-term growth algorithm, we're looking for a revenue of 4% to 6%, and we've set ourselves the ambition of staying in the 5% to 6% range, with a balance of volume and price mix. So that's essentially a way of, you know, if you've split that you're saying 2% to 3% in volume and 2% to 3% in price. We were kind of in that range in the quarter with the 2% volume. So I think in the long run, we'll continue to pursue that. Talked earlier this year that, in the shorter term, it's likely to be slightly more price and slightly less volume, which was kind of exactly what happened in the second quarter. So it would not surprise me, as we go through the rest of the year that that remains true, that we see slightly less volume than the kind of standard algorithm, and slightly more price - as pricing tends towards, inflation tends towards the landing zone. And I think that's likely to be true as we go through - the rest of the summer, hopefully the weather gets a bit better. But we're likely to see that slightly less volume, slightly more price. And probably a repetition of where that volume's coming from in terms of the rest of the year, the positives largely being the developing economies, Latin America, India, Africa, Southeast Asia, and to some extent Japan, and the kind of weighing on it a little, the kind of parts of North America and Europe channel and income specific and some of the disruptions from the Middle East. But net-net, we think we've got a strong strategy that's playing out and is winning. And we're confident that we can drive that to get the balanced algorithm of growth, through the rest of this year, for our guidance and into the future.

Rob Ottenstein:

Great, thank you very much. I'd like to go back to North America, but look at it more on a category basis [technical difficulty] that I can think of sparkling is doing better than energy as a sector. I'd love to get your thoughts on maybe what the drivers are there. Second, sports strengths, how your new strategy is working, combining Powerade and BODYARMOR under one management team. And then third, any other particular things that you're seeing on the category side that are worth noting? Thank you.

Operator:

Our next question comes from Peter Grom from UBS. Please go ahead. Your line is open.

James Quincey:

Sure. Well I think therefore. You need to kind of break it up a bit. I mean firstly look, we've had a great partnership with Monster, created tremendous value for Monster for us Coca-Cola and for the bottling partners. Clearly in the case of the U.S., there's been what happens in every category when people create a category, and there's one or two brands. People look for the white spaces and start to innovate, and start to bring new news to the category. I think that's what's happening in energy, particularly in the US. And so, I think working with Monster that will respond to the evolution of the way, the consumers looking at the category. I think it's also important to understand that the energy category, is one of the categories that responds to an overall consumer needs state, of being fueled for their lives. And so, from a company point of view, we see that as something where we bring multiple brands, to bear against that needs state. And each brand in each category needs to play its part in kind of delivering on that. Each one has to do their own work to do it. But I think there's more to be done across the board, including in the Monster energy portfolio. We're working with them on that. And then I think internationally, there's robust growth in the energy category and making good progress around the world in different ways and different forms. So I think, one has to kind of pull apart energy category and look at it kind of geographically, to see that overall it's still got some good growth, and there's different jobs to be done in different parts of the world.

Charlie Higgs:

Hi James, John. Hope you're both well. I've got a question on Asia Pacific. The performance in Q2, please. Where volumes are up 3% and price mixed is down 3%. Can you maybe just talk a bit more about the volumes up 3%, and specifically how China performed, and what you're seeing on the ground there in China in Q2. And then the price mix down 3%, is that purely just negative geographic mix from India and Philippines, also in Japan, or was there negative pricing within that? Thank you.

Operator:

Our next question comes from Kevin Grundy from BNP Paribas. Please go ahead. Your line is open.

John Murphy:

So regarding the timing, we're not giving out dates as to when we expect the refranchising process to finish, we're staying very thoughtful, disciplined in recruiting new partners in the areas that are still outstanding. And so, there's good work underway, but no imminent decisions and we'll advise as that work bear fruition. But I think the overall message is, we continue to be very clear internally on the path forward. And we'll expect over the couple of years to have the both of the refranchising, John, if not all of us. With regard to the impact on EPS dilution, it's a mechanical effect that comes from the broader strategic decisions that, we've - that we believe are right for the Coca-Cola Company, and over time for the Coca-Cola system. The refranchising work that started back in the mid-teens is demonstrating time and again that the overall system benefits, when there's a step change in overall performance. And with that step change, we benefit over the longer haul to - as you've seen this year, there is a mechanical impact on the EPS line. But longer term, we think that the broader value proposition of the Coca-Cola Company is staying very focused on what we do best, and having a balance sheet then that's designed to support what we do best, working in partnership with great partners around the world, is the recipe for us to ease and exceed our long-term growth model.

Robert Moskow:

Hi, thanks for the question Maybe I missed it, but did you make any commentary about your intentions on marketing investment for the year, whether anything has changed since the start of the year. I think you talked about maybe some surgical efforts in certain markets in certain categories. But can I assume that there's no signal here that, needs to be incremental investment to improve volume?

Operator:

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.

Operator:

At this time, I'd like to welcome everyone to the Coca-Cola Company's First Quarter 2024 Earnings Results Conference Call. Today's call is being recorded. If you have any objections, please disconnect at this time. [Operator Instructions]

John Murphy:

Thank you, James, and good morning, everyone. Our first quarter results marked a continuation of the underlying momentum in our business, driven by a strong and focused system. We delivered another quarter of volume growth, even as we cycled strong results. Additionally, we completed the refranchising of several bottlers during the quarter, leading to further comparable margin expansion.

Dara Mohsenian:

So I was just hoping you could give a bit of a deeper dive into North America, a, just wanted to get an update on what you're seeing from the consumer? Any channel shifts in terms of away-from-home versus at-home and the sequential improvement you discussed within Q1, is that something that's expected to continue going forward? And then just b, price/mix was very strong at 7% in North America, can you unpack that between mix and pricing and just how you think about the balance between pricing mix and volume going forward in the balance of the year in North America?

Operator:

Our next question comes from Lauren Lieberman from Barclays.

James Quincey:

Sure. So markets outside the U.S. will roughly break down into 2 types. There'll be those perhaps typified by Europe, Japan, Australia, some of the obvious ones, where the competition and the economic dynamics of the marketplace are predominantly local currency. And so in these markets, our approach is to compete locally in the local currency given the cost structures in those areas. And we generally marry that with a long-term currency hedging or selling forward program, such that we can have a clear anticipation during the course of the year as to what that's likely to turn into.

Operator:

Our next question comes from Steve Powers from Deutsche Bank.

James Quincey:

Sure. Clearly, we haven't progressed as fast as we would like with regard to BODYARMOR, notwithstanding the step-up in the discount rate, and that's reflected, as John talked earlier, in the charge. Notwithstanding that, we do see long-term value in the dual strategy, particularly in the U.S. between POWERADE and BODYARMOR. We're off to a good start with some of the plans the Zero Calorie version is ahead of expectations. The Flash I.V. has got some double-digit share. And the Sport Water version is one of the fastest-growing premium water brands.

Operator:

Our next question comes from Bonnie Herzog from Goldman Sachs.

James Quincey:

Sure. We'll let us go around Asia quickly. I mean China, we are cycling in the first quarter a very strong Chinese New Year first quarter from 2023. So I think we had a solid a solid quarter in China. We focus very well on having a good Chinese New with sparkling, which was good. We deprioritized some of the lower-value water in order to do so. And as we commented earlier, the Chinese confidence isn't as strongly rebounded as some of the other markets versus 2019. And so we see an overall environment where there'll be growth, perhaps not at the top historic levels, but there'll be growth.

Operator:

Our next question comes from Andrea Teixeira from JPMorgan.

James Quincey:

Sure. EMEA, also this quarter had a whole series of moving pieces. As you started on price/mix, clearly, there's a number of countries in there with very high inflation. Not just Nigeria, but also Turkey and somewhat mathematically unlikely, some of the smaller African countries given the level of inflation can also make a difference to the pricing lever in the EMEA segment. So the EMEA segment has a substantive piece of pricing that is the inflationary marketplaces, including many markets you wouldn't normally suspect.

Christopher Carey:

So I want to ask about brand Coca-Cola, Trademark Coca-Cola relative to the sparkling flavor businesses. I think unit case for sparkling flavors outperformed trademark Coca-Cola in 2021 and in 2022, but this normalized into the back half of 2023. That's continued into Q1 of this year. So can you just perhaps expand on whether there's anything distinct that's occurring here between brand or Trademark Coca-Cola and sparkling flavors, regional considerations, brand considerations? I just think it's noteworthy, given the relative outperformance, that has just turned the other way a little bit. So any context would be helpful.

Operator:

Our next question comes from Filippo Falorni from Citi.

James Quincey:

Yes. So the simple answer is yes. We believe the businesses can continue to grow in Latin America, both in volume and revenue terms. It's been a long-term success part of the business with a very strong system between ourselves and the bottlers focused on the marketing, the innovation, the execution on the RGM.

Operator:

Our next question comes from Peter Grom from UBS.

John Murphy:

So the liability is very much linked to the ultimate performance. And as we close out this quarter, we're reflecting our latest and best estimates as to what that will be. The momentum of the business has been very strong. And actually, I think it's going to continue. And if anything, there may be some more upside. But for now, we're reflecting our best estimates for what that liability ultimately would be. Just to keep in mind that the liability will be -- it's an early 2025 ending to it. And we'll update as we go through this year in the event that the projections evolve.

William Chappell:

Just a little bit more question on the innovation side. Certainly, it's been an innovative company over the past 4 or 5 years and more new products out there. But it's tough to kind of track some of these products that have been launched that are still on the shelf a year or 2 years later. So I guess the question is, are there things in place in terms of percentage of sales should come from new products in a certain region in a year or a number of new products that need to be launched per year? I understand you wanting to be more innovative, but just trying to -- what kind of guardrails or what kind of accountability there is around that kind of innovation.

Carlos Alberto Laboy:

James, market development is a culture, right, it's a philosophy. And it seems to me that so much of what you're doing and what you talked about today is intended to get shelf replenishers to become better market developers for faster growth. Can you speak to how this evolution is going in the system? Are there any regions or countries that stand out for momentum in this system transformation of moving towards richer market development and to less shelf replenishment order taking?

John Murphy:

And if I may just add, James, I think one of the big changes in the last 3 to 5 years is that the ambition that we share, respectively, with all of our bottling partners is much more at the high end of what it should be than scattered. So I think that's -- and then it's working backwards from there as to what does it take to deliver that ambition. And yes, some are further along than others, but it's the ambition is that starting point that I think is helping to drive the progress that we're seeing each quarter.

Robert Moskow:

Just a couple of clarifying questions. James, I think on the last earnings call, you were very clear that you view the business...

Robert Moskow:

My apologies. Can you hear me now?

Robert Moskow:

I think last quarter, you spoke very specifically about the business being a 2% unit volume grower. Given the timing impact, is that still how you would view this year? And then secondly, can you be more specific about those timing differences in Mexico and I think the Middle East between units and concentrate? What causes those discrepancies? And do they naturally reverse in the coming quarter?

Operator:

Our next question comes from Rob Ottenstein from Evercore ISI.

James Quincey:

Sure. I mean, clearly, in the case of the U.S., we've commented in previous calls, that our expectation would be modest, flat to modest growth in volume on a long-term basis in North America with good pricing. Clearly, that remains our overall ambition. Whether we get from the flat to something more positive in the rest of the year will obviously be a combination of what we execute against and the trajectory of the purchasing power of the economy in the balance of the year. But we're very focused on continuing to build the business, drive the revenue and continue to win in the marketplace. And we'll see where that nets out, too.

Callum Elliott:

Great. So I have a slightly longer-term question on gross margins. In 2015, your gross margin was 61%, I think. And you had published a slide at CAGNY in 2016, showing that you expected gross margins to get to 68%, post the refranchising that had been announced at the time. Today, we're still around 60% over the past 12 months. Recognizing you guys weren't in your current seats in 2016 when that slide was published, but my question is what's happened?

John Murphy:

Yes. Actually, I think it does explain what's happened. I don't have the breakdown in front of me. But at the gross margin level, when you take into account the impact of currency, of some of the bottlers acquisitions that came back into our portfolio, that we're now in the process of refranchising and some of the other acquisitions, I think they have had a mechanical impact. And we can come back with a little bit more color on that. And then I think when you look at the operating income and how it flows down into operating income line, the primary driver are these items. So yes, I don't have it in front of me. We can follow up in a bit more detail. But yes, that's the story.

Brett Cooper:

Just wanted to ask on your digital experience in B2B. And if you do any quantification as to when you win B2B or you get B2B into more particular retailers? What happens to your space, your share of the category performance and its relative to a base? I think it's not so much a question of the 8% increase in the quarter, but looking back over time.

Operator:

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.

Operator:

At this time, I'd like to welcome everyone to the Coca-Cola Company's Fourth Quarter 2023 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 listen-only mode until the formal question-and-answer portion of the call. 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 any questions. I would now like to introduce Ms. Robin Halpern, Vice President and Head of Investor Relations. Ms. Halpern, you may now begin.

James Quincey:

Thanks, Robin. And good morning, everyone. In 2023, we achieved our near-term goals, while also positioning our business for the long-term. Our all-weather strategy delivered 8% comparable earnings per share growth despite greater than expected 7% currency headwinds. Today, we are leveraging our scale globally and winning locally, which gives us confidence that we can deliver on our 2024 guidance. This morning, I'll talk about the global consumer landscape, then I'll highlight how our strategy and enhanced capabilities are making us a more agile and effective organization. And finally, John will discuss our financial results and our 2024 guidance. During the quarter, we benefited from strong performance across many of our markets. However, some were impacted by elevated inflation and others by geopolitical tensions and conflict. We delivered 12% organic revenue growth, which included 2 points of volume growth, continuing a positive volume trend for the year. Throughout, we continue to invest in our business to provide the right portfolio of brands and packages to retain and attract more drinkers. We drove industry growth and delivered value share gains in the quarter and for the full year. We achieved these results by effectively navigating a number of headwinds and capitalizing on tailwinds across our markets. During the quarter, we saw strong consumer demand across Australia, India, Latin America, Japan and South Korea. In North America, consumer spending in aggregate is holding up well. And in Europe, consumers remain cost conscious. In Africa and China, the macro environment remains uncertain. And in the Middle East, tensions have resulted in some shapes in consumer behavior that have had an impact on our business. Another important fact that I highlight is the inflationary pressures, which are moderating or stabilizing across most of our markets. To keep consumers in our franchise, we are leveraging our revenue growth management capabilities to tailor our offerings and price pack architecture to meet consumers' evolving needs. In North America and Europe, while inflation is moderating, the cumulative impact of inflation is pressuring certain consumer segments we're seeking value. Throughout 2023, we increased our affordability offerings and one volume and value share in both regions. In Latin America, despite double digit inflation during the fourth quarter, we grew volume 4% and increased household penetration and basket initiatives. There are a few pockets of the world that are experiencing hyperinflation. John will later speak to how this dynamic is impacting our business. However, I did want to mention that our local franchise operating model allows us to navigate through hyperinflationary environment and then gain an advantage over the long-term. Across our business, we continue to prioritize agility and focus on improving every aspect of how we operate. An important part of this is our marketing transformation. To recruit the next generation of drinkers, our marketing has shifted from a TV centric model to a digital first organization that balances local intimacy, scale and flexibility. Our digital mix has gone from less than 30% in 2019 to approximately 60% of our total media spend. In 2023, we stood up Studio X, the digital ecosystem that brings this altogether. We created physical hubs in each of our operating units to integrate disciplines, standardized data and technology and step change our capabilities. Creative, media, social and production capabilities and now operating at scale connected by our global network structure. In our previous model, it took several months to create a TV ad. Now, we're producing thousands of pieces of digital content that are contextually relevant and measuring these results in real-time. Studio X is driving tangible results. For example, Coke Studio which originated in Pakistan and taps into consumers' passion for music has been scale to our top 40 markets. The campaign uses packaging as digital portals to access real magic experiences, which have generated more than 1.2 billion YouTube views and a 100 million music streams this year, resulting in strong recruitment of Gen Z drinkers. We're engaging differently with consumers and is delivering results. In 2023, according to Cantor, Coca-Cola brand value increased $8 billion. Coke is now the 10th most valuable brand in the world, up seven spots from the prior year. In the US, Sprite was named by Morning Consult as the number one beverage brands for Gen Z drinkers. We were also named one of the top 10 innovative companies in augmented and virtual reality by Fast Company. Our innovation agenda is increasing our competitive advantage across our products, packaging and equipment. Taste is the starting point. Simply put, people want drinks to taste great. To drive superiority across our total beverage portfolio, we're continuing to build capabilities to tap into unique insights in taste and aroma sciences. We're applying digital tools, ingredient processing technology and AI to create bolder and more successful innovations. Coca-Cola Zero Sugar is an ongoing example of how superior taste drives demand, with volume that grew 5% in 2023, leading to continued volume and value share gains. We are applying learnings from this multiyear success and driving taste superiority elsewhere in our sparkling portfolio. In 2023, we launched Sprite and Fanta reformulations in 25 markets, delivering mid-single digit volume growth in those markets and driving overall sparkling flavors value share gains. Outside of our sparkling portfolio, we're dialing up flavor profiles, adding functional benefits and expanding into new categories. In Japan, we relaunched Georgia Coffee, which generated broader customer interest and led to value share gains. In the US, fairlife’s Core Power and nutrition plan of a high protein dairy without compromising taste. In 2023, fairlife grew volume 15%, its 9th consecutive year of double digit volume growth. We're also seeing continued promising results from FUZE Tea across Europe, Jack and Coke in the Philippines, Flashlight in Mexico, among many others. In 2023, innovation contributed to approximately 30% of gross profit growth and our success rates have nearly tripled compared to 2019 levels. Our revenue growth management execution capabilities continue to be distinct advantages. As demonstrated by our ability to deliver volume and transaction growth, despite ongoing inflationary pressures. We're working with our bottling partners to capture every opportunity available to create significant value for consumers and customers. By offering a total beverage portfolio in the right packages and at the right price points, we're driving category expansion and becoming more relevant to more consumers and customers. In North America, we're evolving packaging options across more distribution points, drive affordability and premiumization. On the affordability side, our 1.25 liter PET bottles are now available in 80% of supermarkets and our 16 ounce can distribution increased by 14 points in convenience stores during 2023. We're also focused on premiumization through the expansion of our mini can offerings. During the quarter, we launched 15 pack mini cans in grocery and club channels. In Europe, we're leveraging the same playbook, but adapting it to local needs. In Spain, our 1.25 liter PET package is offered at a compelling price point and it drove 16% volume growth and increased household penetration in 2023. In Italy, Britain and Ireland, we drove premium single serve mini cans, a smaller package offerings to generate positive mix and incremental retail sales. Our franchise system uniquely combines the benefits of scale and knowledge sharing with the know-how needed to execute for customers and win locally in many different operating environments. For example, approximately 70% of purchase decisions are influenced at point of sale, our systems stepped up in-store displays during the quarter which drove incremental retail sales and cross selling opportunities. Putting it all together, we created $15 billion in incremental retail sales for our customers in 2023, more than any other beverage company. This was our sixth year in a row as the leader in value creation. While we're pleased with our progress, we recognize there's still much work to be done to capture the vast opportunities available. Our system is galvanized to move further and faster. Before I hand over to John, I want to acknowledge that none of this could happen without the unwavering dedication of our employees. And so as we turn to 2024, we expect the year will bring new challenges and opportunities. And we'll remain ready to respond through continuing to improve execution of our strategy across our total beverage portfolio. I look forward to sharing more next Tuesday at CAGNY and I encourage everyone to listen in. With that, I will turn the call over to John.

Operator:

[Operator Instructions] In the interest of time, we ask that you please limit yourself to one question. If you have any additional questions, you may rejoin the queue. Our first question comes from Lauren Lieberman from Barclays. Please go ahead, your line is open.

James Quincey:

Yeah. Good morning. A couple of things. Firstly, the mid single digit growth in 2024 is after the impact of the refranchising that we pulled out. So in other words, pre-structural change that's really six to seven. Second, what I think 2024 represents is a -- ultimately a continuation of the underlying strength and momentum in the business that's being created. If you look at 2023 or you look all the way back to 2019, take five years if you like, what is captured within that is the kernel of the core business running at the top end of the growth algorithm. Yes, there has been inflation and distractions and up and downs, but in the end, running through that is a continuous amount of volume growth as we focus on our consumer franchise and keeping people in and growing the weekly plus consumers in our franchise, managing the cycle of inflation that is now distinct depending on where you are and well, but managing that cycle of inflation, such that we now have in the majority of the countries, 90% plus of the countries normalized levels of kind of pricing more or less coming out of 2023. And so, what you see in this guidance is really the core business in the 90 plus percent of the countries, really low -- taking that combination of headwinds and tailwinds that we've experienced, there'll be a different setting in 2024 that bound to be some new surprises. But we will manage through them with our all-weather strategy and deliver volume growth, growth in the consumer base with weekly plus, we'll earn our right to take an appropriate level of pricing and deliver at the top end of the growth algorithm. And then there's the overlay of the inflationary markets and the selling of the bottler, the bottling investment groups that we've done. And that hyperinflation upright is, as John said, a few points on the top. And obviously, some on the bottom and largely offset by the devaluation. So those two things go together, but captured within that is a strong core growing top and bottom, in-line with the growth algorithm.

Dara Mohsenian:

Hey. Good morning. So maybe just a quick follow-up there. As you think about that 6% to 7% organic sales growth guidance for 2024, can you just give us a bit more detail on volume versus pricing on the underlying business, maybe extra hyperinflationary markets just as we think about that balance between volume and pricing. And then, James just more importantly longer-term, perhaps you could just take a step back and review your confidence in delivering that long-term top line algorithm and the higher end of that algorithm, just as you look out over the next few years, taking a look back at the last few years, there's obviously been a lot of volatility, hard for us to judge from an external perspective given all the volatility with COVID, but how do you think about sort of the success of the strategic initiatives you put in place the last few years, and what level of confidence that gives you in the long-term looking out a few years? Thanks.

Operator:

Our next question comes from Bonnie Herzog from Goldman Sachs . Please go ahead, your line is open.

John Murphy:

Thanks, Bonnie. Let me start by just pickup from her. James has often step out of both the quarter and the year, if you look over the last four years our -- we've been able to sustain a pretty resilient gross margin line. And as we go into 2024, expect to be able to continue to do so. There's some expansion embedded in the long-term growth model and we're confident that we can continue to drive that. With respect to 2023, the key ingredients, so to speak were the impact of the various pricing actions. We've had around the world, somewhat offset by higher than the normal inflation with some of our commodity items, and some our non-commodity costs. But overall for 2023, that's the key story. In 2024, I think you’ll need to take into account the mechanical impact of the refranchising of those markets that we talked about in the release that will layer in throughout 2024. Keep in mind to the impact of foreign currency headwinds. I think, against that, then we will continue to drive the levers that we have. I've talked about this in the past, but maybe worth just highlighting. We start really with the -- with that suite of revenue growth management tools and the many actions that we can take with that. We have a very resilient supply chain, tremendous partners across the supply chain. We source mostly locally and we continue to drive through our scale a lot of productivity and in almost each line item of what comprises the supply chain. So going into 2024, I think it's worth just reiterating, well we expect to see margin expansion. Some of it driven by that mechanical effect of the bottler refranchising. And with some more normalized costs inflation relative to the last couple of years, plus continuing to deploy those levers. I talked about, we see the opportunity to continue to drive per our long-term growth model expansion.

Bryan Spillane:

Hey. Thanks, operator. Good morning, everyone. I'd like to just drill in a little bit more on North America. And James, I think on the last earnings call, you talked a little bit about channel shift, right like on-premise or foodservice maybe growing faster than some of the take home channels, there were some commentary, I think also about or observations, I should say about maybe low income consumers. So maybe just kind of state of things there. And John, just if you can also clarify, I think in the press release there was a mentioned in the description around price mix, some sort of adjustment, so wasn't sure if that's an accrual related to promotions or just if you could just give us a little bit more color on that as well. And also, it sounds like it's concentrate shipments might have lagged in the quarter, so that we make that up in the first quarter. There's a lot there, but if you guys can just fill in that would be helpful. Thanks.

James Quincey:

Yes. Consumer, let me go with two things. One, clearly the consumer landscape in North America, one has to not think of it in aggregate, because actually in aggregate, the U.S. consumer spending power has held up pretty strongly compared to some other developed markets. What has been important is to understand, there is a section of the population that has come under pressure from disposable income, the real spending power squeeze from the inflationary effects and there we are very much focused on affordability. And you could perhaps argue that some of them went out less, there was more at-home purchases. Some of the certain channels and there we really focus with affordability, both from pack size --individual pack size and with multi packs. On the other hand, there a segment of consumers that still have plenty of money, plenty of purchasing power and we've seen strong growth for some of the higher price point premium segments like fairlike core power. Simply, some of those ones, so there's clearly a multiple things going on in the landscape in terms of categories and price points and we've been working to address both ends of those. And as it relates to channels, I think we've seen the kind of re-normalization, there has been a historic slight shift in volume consumption from at-home to away over time. Clearly through COVID, there was a big down in the away from home and then a rebound in 2021 the away from home channels. In 2022 they stay out, but they continue to outpace at-homes. In 2023, they were slightly ahead of at-home. If you look at the various away from home channels, they were slightly ahead of at-home. I would say that landing more in what it was previous to COVID kind of the more normal situation. So that's kind of what I would say strong need to focus on the different consumer segments and the sort of re-normalization of the -- some of the channel dynamics.

Stephen Powers:

Great. Thank you. Good morning. Two questions if I could, I know I'm supposed to have one, but one to quick. Just on the -- so if you could clarify, maybe it's for John, you called out the 2% to 3% currency headwind for next year on the revenue, but a 4% to 5% headwind on EPS. Just if you could, how much of that incremental bottom line headwinds is going to show up in operating profit versus below the line, given monetary asset revaluation, et cetera. And then, I guess the broader question is just thinking about all the refranchising activity and the system progress that you've made in 2023, we talked about the financial impacts of that in 2024, but I guess I'd love your perspective, James, on the importance of the steps you made in 2023 in terms of just betterment of the system overall and priorities going forward from a system evolution perspective. Thank you.

John Murphy:

Sure.

John Murphy:

Great. And on currency, Steve. Let me just make a couple of comments in case there are other questions out there on currency overall. First of all, I think it's important to highlight the 2024 guidance that we've given. It would be close to flat if we were to exclude those few hyperinflationary markets. And it just reinforces the point that we're making on that sort of distortion that those few markets have. And then secondly, with regards to your specific question, I do not have that breakdown. Today, there is just too many -- there's just too many puts and takes, particularly in that below the operating income line as we go through the year. You got to do a monthly remeasurement on the balance sheet items. And that's just a calculation, that's -- I don't have the ability to predict with great detail. So I just keep in mind that the overall impact I think is the one to focus on. In normal years the multiplier is 1.5 times to 2 times, we would continue to assume that will be the case going forward. But these hyperinflationary markets have a tenancy to create that distortion that we've highlighted and we’ll continue to provide guidance as we go through the year to make sure that everybody stays abreast of the latest developments.

Rob Ottenstein:

Great. Thank you very much. So, James, I think you made a very strong case that really over the last five years, if you accept the noise you've delivered at roughly kind of 5.5%, topline growth, which puts you clearly in the top rankings of your other staples companies. And that's great. In terms of both 2024 and looking forward, assuming a continuation of that, what can you do to both derisk that in terms of the bottom line and enhance it in terms of the bottom line given various macro variables. And then given that you've now de-levered to 1.7%, you've shown interest in buying back stock. Should we think of share buybacks as perhaps a greater part of the overall algorithm and value creation for shareholders going forward. Thank you.

John Murphy:

Just one additional point. In addition to that, unwavering commitment we have to the dividend that we talked about in the script. One of the lessons I think over the last couple of years is to be prepared to be more dynamic relative to your kind of normal view of the individual components. So, as you know, our debt -- our debt goal is to be 2 times to 2.5 times, and we're up 1.7 times. We think that's right for what we need going into 2024, 2025. We've taken up our CapEx for 2024 because it's the right thing to do to continue to build the growth foundations that we need. And in those parts of the business that need capacity. Just two examples. And so, I think we will continue to demonstrate that as we go forward, the share repurchases in the back half of the year, again was not something that we had necessarily considered at the start of the year. But we first, there was an opportunity with the buffer proceeds coming in to do so. And we continue to take that approach as we enter this coming year.

Chris Carey:

Hi, good morning. I wanted to see if you could maybe frame the global away from home channel. I know you touched on it a little bit in response to Brian's question. But we've heard about, obviously there's a lot of pricing power in that channel, there's been a lot of pricing, you're talking about a normalization from elevated levels back to a more normal channel distribution between at-home and away from home. But can you maybe just give us a bit more granular perspective on what you're seeing by region and whether some of the strengths that I think was occurring in Q4 has continued into this year. Thanks.

Operator:

Our next question comes from Andrea Teixeira from JPMorgan. Please go ahead, your line is open.

James Quincey:

Sure. Okay. The comments on the 2% in the fourth quarter, that was related not to channel mix. But to the right -- the way that deductions happens, so this is not -- this is often just an accounting treatment between the quarters within the year. So it's not mix as you would think about it in terms of package mix or channel mix of category mix. This is related to kind of the big difference between gross and net revenue. And so, I -- it's a distraction in the short-term. So I would move past backlog. And if you like -- to me, ignore that bit, focus instead on the underlying impact in 2023 of the non-hyperinflationary pricing, which was the kind of 3.5% which is very -- which ran through 2023 and is inherent in what we are saying roughly speaking for 2024. So we're expecting, right and mix whether these channel category geography package, the sort of things we were saying, which in 2023 is what we're expecting in 2024. And again, those are all largely normalized in 2023, so by influence, they're all largely normalized in 2024 as well. So you kind of see a stability across channels packages, et cetera, et cetera. As it relates more specifically to the U.S., yes, we did some de-prioritization of some of the bulk water categories. And some of the advanced hydration was the normalization or re-stabilization of the sports drinks category. I mean, I don't think there's a -- an obvious or useful split between self-inflicted or proactive decisions versus things that were competitive, that's hard to tease apart. Clearly from a performance point of view, when we think about it in the U.S., yes, there's a fractional softening of the volume through the year, which I think goes back to the comment I made about the different consumer segments. But if you step back and think about what was the overall impact of our marketing innovation RGM and execution with the bottlers, the answer is, we want volume share in 2023, and we want value share in 2023. So yes, there's work to be done in the water category and advance hydration then to a much lesser extent in tea. But the overall picture is strong growth in sparkling particularly, Coke and Sprite, good on smart water, good on vitamin water, good on Topo Chico. Very good on fairlife. Good overall win on both dimensions. And that's the platform we'll be looking to drive in 2024.

Operator:

Our next question comes from Bill Chappell from Truist. Please go ahead, your line is open.

James Quincey:

Hey, Bill.

James Quincey:

Sure. Let me put it out. 2023 started very strongly in China, we had invested very heavily behind Chinese New Year. And we had a very -- actually we had a very strong first quarter last year in China. And then, which is kind of still the back end of the re-openings, and while we grew volumes for the restaurant for the total of the year 2023 and revenues, it did soften for the last three quarters of the year in China. And I think what we're going to see is a kind of a reverse of that in 2024. We've invested strongly again in Chinese New Year. This year, we won't know the result for another few weeks net-net. But we're kind of expecting it to be a little slower in the first quarter, especially given what we are cycling from last year. And then for the year to improve, but not too hot or not too cold, if I can use that analogy. So yes, there's a little weakness in the economic system. But we expect things to get -- we get [tends] (ph) directionally to get better through the year and we're going to keep investing behind not just keep key moments in the year like Chinese New Year but restoring more momentum to sparkling and really focusing on RGM and execution opportunities.

Kaumil Gajrawala:

Hey, everybody. Good morning. When we met in December, we talked a little bit about 2023, there is a bunch of testing and learning on innovation and 2024 will be about scaling some of them. Both of you mentioned fairlife core power, it's a big brand now. Can you maybe just talk about the scaling of that capacity expansion. And then maybe what other brands we should be considering in that same context? Thank you.

Operator:

Our next question comes from Peter Grom from UBS. Please go ahead, your line is open.

James Quincey:

Yes. Look, I mean, I think it was at a macro level foreseeable that the market would get tied-up through the course of 2023 as inflation run ahead of wage growth. And so, therefore, yes, it wasn't surprising that would tightness, particularly for certain -- for certain consumer segments. I think all things in due proportion. I mean, the growth in North America in the fourth quarter was basically the same as the growth in the full year, it's only very fractional differences. So, I think these are not big changes in trends. But yes, I think there was a little softening through the -- through 2023. And I think we'll see that kind of a bidding reverse as 2024 starts off as consumers and you can see it in the confidence indicators, the consumers, they're starting to feel like the money coming in is starting to contain and get ahead of the inflation. So I think we'll see that improve through the year, again, all in due proportion, they're not going to be big shifts in the volume growth rate in the U.S. business. In aggregate, we would expect to get more from price relative to volume for the U.S. business. So the balance that I talk about between price and volume applies on a global basis clearly that's been made up of geographic portfolio mix, so places like the U.S., we'd expect to see stable or slightly increasing volume with decent pricing, all the way over to place like India, where clearly we're getting much more volume than price and having to invest significantly in capacity. And those two -- take those two examples, so that's true of the global portfolio, blend it all together and that's where the balance comes from.

Charlie Higgs:

Yeah. Hi, James, John, hope you both are well. I got a question on sparkling, please, where I mean, 2% volume growth in the quarter and the year very strong. I think in the 20 quarters since 2019, it's actually averaged 3% in those 20 quarters. So definitely testing our ex-growth. I was just wondering what your perspective is on the category going forward, maybe with the consumer weakening. And if you can just touch on the launch of Coca-Cola space, so [indiscernible] talked about that yet. I mean, what gives you the confidence of launching this as a permanent launch rather than that a limited edition Coke Creations launch and here's the target consumers are going have to Gen Z, is it adds to held for Coke with meals strategy. Just any color on that be useful, please.

Operator:

Our last question today will come from Carlos Laboy from HSBC. Please go ahead, your line is open.

James Quincey:

On U.S., what?

James Quincey:

Sure. Carlos, yes. I think it's fair to say that the overall investment levels that you referred to in Lat-Am are pretty consistent across the world. Like one of the underlying tailwinds, I believe we have is the degree to which our system is sharing and thus the opportunity that's ahead and willing to increasingly invest ahead of the curve. So I think that's happening across the global system. One of the subsets of that, of course, is the degree to which digital, and its many forms is playing a pivotal role to sustaining and indeed building advantage wherever we operate. We have CAGNY next week. And I think you'll hear more of that threaded through the conversation we'll see up there. But safe to say, I think CapEx levels are at the highest as a percentage of system revenue that I can remember. And within that the appetite and willingness to invest ahead of the curve, particularly in digital is also at a very high level.

James Quincey:

Right. Thanks very much, everyone. Just to summarize, we're proud of what we've accomplished in 2023. We are winning in the marketplace, we're going to be maintaining agility and improving every aspect of how we do business across our total beverage portfolio. John and I look forward to discussing more with you all next week at CAGNY. Thank you for your interest, your investment in our company and joining us this morning. Thank you.

Operator:

At this time, I'd like to welcome everyone to The Coca-Cola Company's Third Quarter 2023 Earnings Results Conference Call. Today's call is being recorded. If you have any objections, please disconnect at this time. [Operator Instructions] 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 any questions. I would now like to introduce Ms. Robin Halpern, Vice President and Head of Investor Relations. Ms. Halpern, you may now begin.

James Quincey:

Thanks, Robin and good morning, everyone. In the third quarter, we delivered strong top line growth, comparable operating margin expansion and earnings per share growth. Our strategy is working. These results continue our track record of consistent delivery. And given our year-to-date performance, we are raising both our top line and bottom line guidance. This morning, I'll provide a brief update on the global consumer landscape. Then I'll focus much of my time on business performance across the segments and discuss how we've been investing to further strengthen our capabilities to capture longer-term growth opportunities. John will end by discussing financial details for the quarter, our revised guidance for full year 2023 and some early considerations for 2024. The global operating environment is always dynamic and this quarter was no exception. Some markets improved sequentially, while others dealt with a variety of factors ranging from transitory weather conditions, ongoing inflationary pressures, geopolitical tensions and conflicts. We delivered 11% organic revenue growth this quarter driven by positive volume, some pricing actions in the marketplace and carryover pricing coming into the base from last year. Volume grew 2% and sequentially improved each month in the quarter with September being our strongest month. Our year-to-date volume growth remains consistent with underlying performance compared to 2019. And overall, our industry remains vibrant and is expanding and we are executing to capture that growth. During the quarter, we gained volume and value share in both at-home and away-from-home channels. Consumer sentiment continues to vary around the world. In developed markets, consumer spending in agro goods [ph] has held up quite well, however, some consumers feel pressured. We've seen some shift to discount channels and switching to private label brands in a few markets and categories. The intensity of this activity was largely the same across Europe compared to the previous quarter but was less pronounced in the U.S., Australia and Japan. In the developing and emerging markets, the picture is more mixed. We're seeing broadly consumer strength across Latin America, India and in parts of Central and Southeast Asia. On the other hand, consumer confidence in spending has yet to fully recover in Africa and China. Our revenue growth management execution capabilities give us a distinct advantage and we are leveraging these capabilities to ensure we have the right product in the right package in the right channel and at the right price points to meet consumers where they are. Notwithstanding the dynamics in play around the world, we have many levers to pull and continue to deliver through varying market conditions. I'll share some more details from each region. Starting with Asia Pacific; we delivered organic revenue growth but operating income declined primarily as a result of investing ahead of the curve to participate in longer-term opportunities and incurring additional costs from strategic portfolio rationalization. In ASEAN and South Pacific, we grew top line and profit by linking our brands to drinking occasions coupled with strong execution. In Thailand, we launched Coke Kitchen which connected consumers to influencers who shared their favorite recipes with Coca-Cola. We also partnered with food service aggregators to drive combo meals. Campaign attracted nearly 1 million consumers and we significantly increased the attachment rate of our beverages with meals ordered through food service aggregators. In Japan, we're gaining volume and value share year-to-date. We continue to see strong momentum from our Coca-Cola, Georgia Coffee and I LOHAS campaigns and have stepped up execution in vending, e-commerce and community channels. However, in China, volume declined as the sparkling soft drink category is taking longer to recover. Our results were also impacted by some strategic conditions to deprioritize lower profit categories. Our focus is to restore momentum to the sparkling soft drink category and capitalize on revenue growth management and execution opportunities. In India, we delivered double-digit volume and top line growth which resulted in the highest value share gain over the past 3 years. We're winning in the marketplace by generating 2.6 billion transactions at affordable price point and driving availability across rural regions. Across Asia Pacific, as part of our World Without Waste strategy to help drive circular economy for packaging materials, our system launched 100% recycled PET packaging in India, Indonesia and Thailand. Moving on to EMEA; we delivered strong organic revenue and operating income growth. In Africa, macro conditions remain challenging and our business was further impacted by natural disasters in Morocco and Libya. Despite this environment, we drove transaction growth through accelerated refillable PET expansion, digitizing nearly 100,000 outlets and adding 80,000 coolers used to date. In Europe, consumers are still facing pressure and our business was unfavorably impacted by poor weather. Despite these dynamics, we gained value share through strong performances in sparkling soft drinks and tea. We did this by partnering with systems to drive value for key customers and our consumers. We continue to see promising early results for Jack Daniel's and Coca-Cola in Europe. We are learning and expanding in alcoholic drinks, including our recent announcement of our Absolut Vodka & Sprite. And last, in Eurasia and Middle East, we recruited consumers through innovative, occasion-based marketing events like Fanta Fest Turkey which focused on snacking occasions with concerts by prominent local artists. They also launched 100% recycled PET package this summer. In North America, we generated strong organic revenue growth and delivered margin expansion by executing across our total beverage portfolio. We continue to see away-from-home channel outperform at-home channels. Within sparkling soft drink, elasticities are holding up well and we continue to drive quality leadership with Coca-Cola, Sprite and Fanta. For example, our systems stepped up in-store activation on Sprite Lymonade Legacy and with increased displays at point of sale which drove higher household penetration and repeat purchases. Fanta drove nearly 2 points of vale share gain year-to-date through innovation and new graphics, including the latest Halloween iteration of the What the Fanta platform. Outside sparkling, BODYARMOR and Powerade trends are stabilizing. And fairlife, Core Power, smartwater and Gold Peak generated value share gains. And in the U.S., to protect water resources, we renewed a decade-long partnership with the Department of Agriculture to restore and improve water sheds in national forests and grasslands. Water is a critical priority for our system and the communities that we serve. In Latin America, we generated double-digit top line and profit growth by executing on all facets of our strategy which resulted in value share gains in 4 of our top 5 markets. In the fifth market, Mexico, we're seeing improving value share trends over the last few months. We're increasingly linking our brands to consumers' passion points to build deeper connections. In Brazil, through Coke Studio, we partnered with the Town Music Festival, where we hosted 60 hours of concert and engaged with artists and influencers which generated 1 billion impressions and reached nearly 50 million consumers. We continue to drive affordability through refillable packaging of larger PET packages. In developing and emerging markets, refillables are an important tool to eliminate waste and offer products at lower price points. Last, our systems stepped up availability, reflecting over 270,000 coolers year-to-date which increased our share of visible inventory in key areas. Global ventures generated strong overall growth. At Costa, we strengthened our revenue growth management equation while driving transaction growth. This was supported by strong innovation and marketing campaigns such as our global summer of ice, expansion of the refreshment category and the introduction of our personalized pre-drop loyalty activation in U.K. Additionally, innocent gained value share in both the U.K. and France. Finally, Bottling Investments Group grew organic revenue and operating income through expanding affordable immediate consumption entry packs and progressing for strengthening route to market and optimizing trade collections. At the same time, we're working towards decarbonizing our operations in India through using 200 electric vehicles with plans to add more before the end of 2023. Beyond the quarter, we continue to have confidence in the long term. We see momentum continuing across our industry and our system is galvanized more than ever to capture this opportunity. Leveraging data to drive better decision-making is key to improving execution. Our system has collectively invested in digital initiatives to drive on all facets of our strategy. Starting first with marketing and innovation. Our marketing transformation is increasingly making our brands more relevant to consumers. Today, Gen Zs spend 7 to 9 hours per day on screen. However, very little time is spent watching traditional TV. We've been shifting our media spend towards digital. In 2019, digital was less than 30% of our total media spend and year-to-date is over 60%, through digital campaigns which segment the population that's disproportionately reaching consumers where we earn higher return on investments. We've seen tremendous engagement through digital-first campaigns for Coke with meals, Sprite Heat Happens and Fuze Tea's Made of Fusion among others. We're taking bold steps to be at the forefront of both consumer and non-consumer facing generative AI. For example, we launched Create Real Magic which turns consumers into digital creators. We also brought GenAI into our creative process for the award-winning Coca-Cola Masterpiece film and letting the fans the chance to take a piece of this work through the sale of NFTs. Recently, we launched Coke Y3000 which is our eighth iteration in the Coke Creations platform. Coca-Cola Y3000, the world's first futuristic flavor, co-created with AI. The launch has demonstrated strong initial results. On the non-consumer facing side, we're implementing generative AI to improve access to insight, market data, research and trends. Moving on to revenue growth management and integrated execution. As a system, we're accelerating eB2B platforms that allow for better tailoring of product, price and packaging architecture, reducing out of stocks and optimizing placement of physical inventory. Year-to-date, we've connected 6.9 million customers to eB2B platforms. We continue to expand coverage and offer customers personalization at scale. Initial pilots suggest that customers who receive AI-written push notifications have been more likely to purchase recommended SKUs, resulting in incremental retail sales. And we're just scratching the surface of what's possible but we're investing in digital capabilities now to expand our potential down the road. To sum it all up, we're encouraged by our results year-to-date and this is reflected in our updated 2023 guidance. We have many levers to pull and have proven that we can deliver in many types of markets around the world. We continue to win on a local level, maintain flexibility on a global level and reinvest to build our system for the long term. With that, I'll turn the call over to John.

Operator:

[Operator Instructions] Our first question comes from Dara Mohsenian from Morgan Stanley.

James Quincey:

Let me just offer up a few thoughts, Dara. Firstly, just breaking out Q3 because I think that's instructive as you think about the down end of the year and into next year. Firstly, there are a couple of points in Q3 that's the carryover from the more inflationary environment from 2022. And obviously, that will drop out as we get into Q4 and obviously next year. And then you've got the regular pricing. And then you've got a couple of points of pricing that's coming from these very high inflation markets, Argentina, Turkey and a number of the African markets that, given the levels of inflation, is making a difference at the overall company level. And as John mentioned in the FX guidance, we're assuming some degree of negativity from those markets next year. But we are assuming some degree of positivity in that sense in price/mix next year. The one thing that's uncertain about -- the one thing that's certain about high inflation markets is it ends unpredictably. So it's very early to have a full pitch on what that's going to look like in 2024. And obviously, we'll update when we get to February. So net-net, you're going to have continued moderation heading towards the landing zone in the developed economies. You've got a couple of emerging markets which are subnormal inflation, aka China. And then, you've got a mixed bag of emerging markets and a particular importance is going to be what is the overall journey in these high-inflation marketplaces. So hopefully that provides some parameters with which to think about how it lands in Q4 and into next year.

Lauren Lieberman:

So one of the things that struck me as really interesting is in the release, when you specifically -- first of all, it was helpful that you called out the specific contribution from inflationary pricing. But one thing I thought was interesting is the regions where there was greater inflationary pricing were also the regions where there was at least versus my expectations, better-than-expected unit case volume. So I think historically, right, the logic and the elasticity would say more pricing, less volume. But here, you're getting that unit case volume to come through. So I just wonder if you could talk a little bit maybe about what you're doing differently that's enabling that kind of combination. And then also, if you're able to speak to transaction growth in those markets also if that's pacing -- how that's pacing relative to unit cases.

Operator:

Our next question comes from Bonnie Herzog from Goldman Sachs.

James Quincey:

Okay. Just kind of let me try and unpack that a little bit. So we have come in post-COVID over the last couple of years and said we expected a rebound. And we are going to lean in and invest for growth as long as growth is there rather than trying to pull back in anticipation of something. And that modus operandi, I'm not sure I would characterize extra marketing as a drag on results, more as a motor to driving the top line and the bottom line that we're seeing. So we feel that the leaning in is working, obviously, typified by the fact we've raised both the top line and the bottom line guidance. I think as a model to the extent that we can continue to push that through the end of this year and into next year, we would certainly be happy to do so. Having said that, to the extent that 2024 brings some unexpected surprises, we will pivot, whether it's a country, a region or globally, we will pivot with speed as we did in the second quarter of 2020 when COVID hit and we ramped down marketing spend in that environment. So we feel we've developed a much greater degree of flexibility to move, should moving be needed at whatever part of the world. But as a starting point, we're going to lean in for growth. And I think the last thing I would say is if you think about the balance of all these items, if you take -- if you kind of zoom out a little bit and take a broader perspective of the operating income margin because obviously, marketing is just a component of all the different pieces, if you take a look at operating income margin over the, I don't know, last 5 years or so, you'll see that it's been increasing at about 0.5 point a year operating margin which is broadly in line with the implied leverage in the long-term growth model. And so that has been an objective of ours. It's not going to happen every quarter because quarters are very lumpy but it is part of the way we see our strategy.

Robert Ottenstein:

Great. James, in the past, you've talked that -- Coca-Cola Company has talked about moving the consumer from more commodity packs to the more that, I think you call them incident packs or the higher value-added packs, I'd love to get a sense and maybe we just focus on the U.S. of where you are in that journey, how much room there is to improve mix and is this something that you can do in a weaker economic environment where the consumer is also looking for more affordability and value options.

Operator:

Our next question comes from Andrea Teixeira from JPMorgan.

John Murphy:

Thanks, Andrea. So on the first point, if you think about 2023 from where we were 12 months ago and what we're guiding to for the rest of this year, it's in an environment that has had the same kinds of ForEx headwinds and much of the volatility that I would expect to continue into the next 12 months or so. And we've demonstrated as we've both highlighted both in the script and in a number of forums, the levers that we have developed over the last few years to effectively manage through those -- a period with such volatility and uncertainty; and I expect 2024 to be a similar type of year. So I would point you to many of these levers are improved marketing and innovation, the revenue growth management abilities that I think year-on-year are getting stronger and the overall execution of our system in the marketplace. So the industry continues to be strong and we expect that to be a feature of our underlying equation for 2024 also. Regarding the second point you raised, it is an area that we are very focused on. There's still a lot of views out there as to what impact, if any, it will have. I would offer -- if you step above us and lock us -- the thrust of our total beverage strategy over the last few years, that we are well positioned to provide choice and to provide options for people's respective motivations and needs. And so we'll continue to monitor the space but we're confident that the total beverage strategy -- 68% of our products have low or no calories today. And we continue to invest in innovation and choice to deal with whatever comes out [ph].

Chris Carey:

I wanted to ask you a question about Coca-Cola Zero. Growth has decelerated a bit through the year against pretty exceptional unit case growth last year. So I was just wondering if you could reframe where we are with the franchise, the opportunities you see for it and if we're perhaps reaching any thresholds just with the expansion of the offering.

Operator:

Our next question comes from Bill Chappell from Truist Securities.

James Quincey:

Yes. Sure, Bill. Obviously, I hate the idea of just waiting for something to happen macro economically. Certainly, it helps when there's a tailwind from the general environment but we're not going to wait for that. We're very focused on investing to try and capitalize on the opportunities and restore momentum, particularly on the sparkling business and there's a lot of RGM and execution opportunities for us to go and tackle in China. Also, we need to get cranked up and have a really strong Chinese New Year which will be in the early part of 2024. And we took a set of decisions in Q3 which created a bit of an impact on the APAC segment margin to really get focused and kind of invest ahead and make some prioritization decisions so that we can really drive the Chinese business forward, hoping that there'll be a plus from the tailwinds of the macroeconomics but we can't wait for that. We need to focus on controlling what we can control and investing to drive the business.

Charlie Higgs:

I've got a question on BIG and the Philippines. And James, maybe can you just talk about the Philippines high level, how the country has performed? And I guess, from a transaction, why now and why CCEP? And then, John, can you just give us some thoughts on what the transaction could mean for FY '24 outlook if it does go ahead, maybe the sales margin, EPS? And then maybe just comment when you said a portion of proceeds from non-operating activities may go towards buybacks, is that -- should we read that as BIG disposals?

John Murphy:

Yes. So on the transaction stuff, Charlie, we'll guide in February, assuming that the deal closes. It's -- we're making great progress on that at the moment. And without giving specifics, as you know from history and it will have a revenue headwind and a margin tailwind. And specifics, we'll give more details in February. And with regard to your last -- the last part of the long question, I would say the following. One is we have, I think, developed a strong position and created flexibility, given the momentum we have in the business, the stronger balance sheet we have today versus a few years back and the fact that we do have proceeds coming in from non-operating sources, i.e., the bottler refranchising primarily. We continue to be very focused on reinvesting in the business and returning capital. And as we look at some of these proceeds coming in, we will evaluate their best use, including share repurchases beyond the current objective we have to cover dilution. So more to come on that in February.

Bryan Spillane:

I had one just clarification and then a question. The clarification is, did you give us how much hyperinflationary pricing affected just the total price/mix at the total company level?

Bryan Spillane:

All right. And then my question is just about North America. I think in the press release, unit case volumes were flat and you called out that you had gained share. And then, James, I think in your prepared remarks, you talked about away-from-home growing faster than at-home. So can you just sort of give us a little bit more perspective on kind of what's happening in North America in terms of both in the relative channel performance, anything you may be seeing in terms of value-seeking behavior with consumers? Just trying to get a better understanding of kind of how your business performed and just kind of what's happening with the category as we got through the quarter.

Operator:

Our next question comes from Peter Grom from UBS.

James Quincey:

Okay. So I think -- look, the European consumer is under slightly more pressure than the U.S. consumer from a disposable income point of view. That's the starting point. So I think that's why you see a little more trading down or tightness on basket size in Europe versus the U.S. And I think that's generally overall true. And then the question of which categories are most pressured by that is really about brand strength and prioritization of occasions by the consumer. So if you've got to save money, you don't trade down averagely across everything, you make a choice in certain categories and you preserve your choices on other categories. So very much our objective is to make sure they value our brands so that they make the choices in the shopping occasion. If there is going to be a reduction in total spend, that obviously happens in some other categories when they trade down to the private label in those ones. And we preserve our brand strengths because we deliver value for them in the product, in the marketing and innovation. And so that's the overall dynamic as we see it. And that's the difference between the U.S. and Europe.

Filippo Falorni:

A question on the Asia Pacific business. James, you mentioned that the India business was very solid but China was weak. First, maybe you can give a comment on how big of a drag China was in the quarter and what are your expectations going forward into next year? And then from a price/mix standpoint, price/mix of one in the segment was one of the lowest across your other segments. I know there's probably some geographic mix impact. But can you talk about the pricing environment as well in Asia Pacific?

Operator:

Our next question comes from Carlos Laboy from HSBC.

James Quincey:

What was the last bit of the question, Carlos?

James Quincey:

Sure. I mean the U.S. bottler is much like the rest of the international bottlers are undergoing a set of digital investments. And actually, it's both. The answer is not either, it's both. We have been making investments in technology for a long period of time to drive efficiencies through the supply chain, through the manufacturing, through the logistics whether it be old-school technology investments, AI and now generative AIs are kind of a different feature. So there's a lot going on and there's a lot of connectivity among the bottlers on the enterprise software side because they're all connected through -- they're basically all use or most of them use a shared platform to get things done that's referred to internally as CONA. So there's a lot of investment on making sure the supply chain is as efficient as it can be and a lot of support from ecosystem partners to get it done. And then in terms of the rest of the -- I mean, they're investing in the marketplace that digitize the relationship with largely the non-modern trade. Obviously, when you're talking to the big modern retail customers, that interaction is already largely digitized. And the focus there is on trying to intensify the connection, really from a supply chain, inventory visibility and forecasting effectiveness point of view but the connectivity already exists. And then from the non-chain customers, it's really about can you get them on to -- in simple terms, a B2B platform so that it's 24/7 opportunities to order, knowing that if you can digitize the relationship, then it tends to be deeper and more productive. And then once that exists, layering on an AI component which a number of the bottlers internationally have been working on in coordination, an AI-supported kind of B2B relationship over a platform that can then provide them suggested purchase orders. And that is also helping to drive the business. So the U.S. bottlers in that sense are very much on a similar journey to the international bottlers.

Brett Cooper:

Not necessarily looking at the third quarter or year-to-date results but looking over many years, Coke's growth in sparkling and non-sparkling hasn't been meaningfully different, whereas there would seem to be a higher growth opportunity in non-sparkling given just the differential in market share that you hold and the implementation of category cluster management. So can you speak to any impediment to higher growth in non-sparkling or what I'm likely missing? And then, I guess the part B is just within that umbrella, can you talk about your ability to develop newer categories to the company like hot coffee or alcohol?

Operator:

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.

Operator:

At this time, I'd like to welcome everyone to the Coca-Cola Company's Second Quarter 2023 Earnings Results Conference Call. Today's call is being recorded. If you have any objections, please disconnect at this time. All participants will be in a listen-only mode until the formal question-and-answer portion of the call. 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 any questions. I would now like to introduce Ms. Robin Halpern, Vice President and Head of Investor Relations. Ms. Halpern, you may now begin.

James Quincey:

Thanks, Robin, and good morning, everyone. After a strong start to the year, we continued our momentum in the second quarter. Our combination of strong love brands and an aligned pervasive distribution system is allowing us to win in many different operating environments. Given our strong first half results and the resilience of our business, we are raising both our top line and bottom line guidance today. To give you the full picture of our results and our raised guidance, I'll start by discussing second quarter performance and provide perspective on the current business and consumer environment. Then I'll highlight our performance across categories, including how we are driving quality leadership throughout our portfolio. Finally, I'll touch on why we're confident in our ability to deliver our long-term objectives and then John will end by discussing our results for the quarter and our revised guidance for 2023. In the second quarter, competing macro forces were at play across our markets. On the positive side, many supply chain pressures eased, concerns surrounding the stability of the banking sector diminished, and energy prices continued to pull back from record highs. However, global inflation was still elevated and geopolitical tensions continued to exist in some markets. Despite this confluence of factors, we delivered 11% organic revenue growth in this quarter. Volume was flat and after a slower start, it sequentially improved, with June being our strongest month in the quarter. In the first half of 2023, we delivered volume growth that was consistent with our underlying performance since 2019. More broadly, our industry is strong and we believe we have significant headroom to grow both volume and value and we continue to gain share. During the quarter, we gained value share in both At-Home and Away-From-Home channels. As we look towards the second half, the global inflationary environment is impacting consumers and our business differently across geographies. In developed markets like North America and Western Europe, inflation is beginning to moderate and labor markets remain strong. Our elasticities continued to be relatively low. However, we have seen some willingness to switch to private label brands in certain categories. Across the sector, consumers are increasingly cost conscious. They're looking for value and stocking up on items on sale. In these markets, our pricing is largely in place and is expected to moderate as we cycle pricing initiatives from the prior year. It's more important than ever to be consumer centric and to partner with customers to provide affordable and premium propositions which deliver value through basket and incidents growth. In many developing and emerging markets like Latin America, the Middle East and Africa, consumers are more accustomed to persistent inflation. However, the number of markets with intense inflation has expanded. Five of our top 40 markets are currently experiencing over 20% annual inflation. In these markets, it's equally important to leverage revenue growth management capabilities to balance affordability with premiumization to be able to take price with local market inflation, which helps offset the currency pressures. There are, as always, a few markets affected by specific local factors. In China, economic recovery slowed in the second quarter and inflation has declined. Consumer confidence is below pre-pandemic levels and we continue to monitor our leading consumer indicators and take action to win in the market. In India, business was unfavourably impacted by unseasonable rain and cooler temperatures in the quarter. However, the growth outlook remains intact. In a world with a wide spectrum of market dynamics, from inflation to currency devaluation to shifting consumer needs, our business is proving to be very resilient. We have many levers to pull to manage successfully through different operating environments, and we remain consumer centric and focused on growth. A Recipe for Success is unchanged. We continue to deliver on our strategy through a combination of world class marketing and innovation, excellence in revenue growth management and strong execution. We are raising the bar and increasing quality leadership across our portfolio. Starting with Coca-Cola. We are growing our base of Gen-Z drinkers, gaining share and leveraging our scale to drive efficiencies across our system. During the quarter, we gained volume and value share by linking Coca-Cola to consumption occasions and engaging consumers through local experiences. A great example is A Recipe for Magic, which was activated more than 50 markets and celebrates consuming Coca-Cola with meals. The campaign was supported by experiences using local chefs, leveraging approximately 750 influencers globally and was brought to life through social media and recipe focused billboards. The Coke and Meals campaign also allows Coca-Cola to strengthen its local relevance. For instance, in the Away-From-Home channel in Italy, Coca-Cola has grown incidence with Pizza, the number one consumed meal with approximately 3 billion pizzas each year from 10% to 20% over the past four years. While the Coca-Cola brand is ubiquitous, we tailor our price pack architecture to consumption occasions and are continuing to drive both affordability and premiumization. During the second quarter, we grew basket incidence and volume per trip by double-digits while increasing price per liter. Moving on to sparkling flavors. We are seeing strong engagement from consumers across our stapler brands, which includes Sprite, Fanta, Fresca and Thums Up. At the same time, we have significant headroom to drive further quality leadership across developed and developing markets. With Sprite, we are driving brand awareness by connecting consumers to passion points and personalized experience at a more granular and locally relevant levels through our global Heat Happens platform. In North America, Sprite celebrated Hip-Hop's 50th anniversary with the launch of Sprite Lymonade Legacy and sponsorship of concert tours, exclusive experiences and collaborations with prominent artists. We partnered with local pop stars and a Grammy producer in China using our global Sprite Limelight music program for Gen-Z drinkers across 1500 college locations. In South Korea, the Sprite Waterbomb Festival similarly generated strong results. In India, the Joke-in-a-Bottle promotion allowed consumers to scan packages and receive customized and localized jokes through WhatsApp to beat the heat. In June, Sprite was awarded Most Resilient Brand by Kantar for adding the greatest number of new households in 2022 of any FMCG brand. Turning to water, sports, coffee and tea. We are segmenting the broader opportunities and using our refreshed resource allocation capabilities to prioritize markets and subcategories that offer the highest return on our investment. We are building our edge through consumer centricity by accelerating the speed to market of our innovation, measuring results in real-time and scaling successes. We continue to build excitement for Fuze Tea through the rollout of Green Tea in Mexico. Some are limited edition in Turkey and expansion of Zero Sugar offerings across Europe. Early results show promising velocities and Fuze Tea grew volume double-digits during the quarter. Vitaminwater is another example. During the quarter, we relaunched Vitaminwater Zero in North America with a new sweetener system of Monk Fruit and Stevia, which generated value share gains. We are capitalizing on consumer needs for rapid hydration, a fast growing sub-segment within sports drinks with the launch of BODYARMOR Flash I.V. in the US and FlashLyte in Mexico. While still early, both saw strong consumer interest during the quarter and have demonstrated promising initial results. Juice value added dairy and plant-based beverages have delivered nine consecutive quarters of double-digit top line growth and gained both volume and value share during the quarter. We continue to innovate and drive premiumization under the Simply trademark, Simply Mixology, which provides consumers with great-tasting mixers and ready-to-drink mocktails. kicked off an experiential campaign that celebrated the start of the summer and its national rollout. Also, Fairlife had another exceptional quarter as both Core Power and Fairlife nutrition plan continued their strong momentum. In May, we announced a $650 million investment to build a state-of-the-art production facility to help drive the next wave of growth. Finally, we are encouraged by what we are seeing across alcohol ready-to-drink beverages. We continue to take a measured approach through exploring and applying our learnings. While it's still early, Jack and Coke has shown promising results. In the Philippines, the combination of Jack and Coke and Lemon-dou delivered strong share gains. The Schweppes Mojito rollout in India is also off to a good start. And these examples illustrate how our marketing transformation is coming to life. The strength of our total beverage portfolio gives us further confidence that we can continue to deliver by providing consumers beverage choices for every occasion. Our purpose is to refresh the world and make a difference. And we remain committed to building a more sustainable future for our company and the planet as we strive to grow our business. We continue to pursue progress toward our vision of a circular economy for packaging through innovation and partnerships. For example, in the US, we recently partnered with Republic Services to ensure we have an adequate supply of recycled plastic for our packaging. At the same time, we are embracing refillables. We recently kicked off a program with customers in four US cities to test refillable fountain cups with plans to expand elsewhere. We've successfully navigated the first half of the year, which supports our decision to raise guidance for the full year. And instead of trying to predict the many directions things could take, we remain focused on delivering our key objectives that we outlined in February. In other words, number one, pursuing excellence globally and winning locally through relentless consumer centricity to drive top-line momentum. Two, investing for the long-term health of our business and raising the bar across all elements of our strategic flywheel. And three, generating US dollar EPS growth. Our system has never been stronger and our global network model is allowing us to quickly adapt to changing environments. We believe we are well positioned to deliver our updated guidance and objectives, thanks to our incredible system employees around the world. With that, I'll turn the call over to you, John.

Operator:

[Operator Instructions] Our first question comes from Bryan Spillane of Bank of America. Please go ahead. Your line is open.

James Quincey:

Yeah. Good morning, Bryan. Yeah, let me try and unpack that a little bit. I think the headline part of the answer is there's a little more pricing in Q2 and in the downhill than we had expected at the beginning of the year, principally around that basket of countries where inflation is high above 20% and a little more persistent. That's the short answer. The longer version of the answer is, look, we're executing the strategy we've talked about consistently over time and again in CAGNY, the real focus on upping the bar on marketing, upping the bar on RGM, the commercial strategies and the execution of the marketplace. All with the intent about delivering a good strong top line led growth algorithm. And obviously that we've talked historically, that is normal, normal times that 5% to 6% would be split between volume and price on a roughly equal basis. And so what you're seeing in the back half of the year, which I think is important to note, is we're expecting volume to be consistent in the second half with the way it was in the first half, which in the end is running on a trend, if you like, a CAGR versus 2019, similar to what we did last year. So we see, you know, sustained positive volume growth coming out of '22 and we're looking for volume growth in the second half in a very similar way to the first half, whether you're comparing to prior year or to 2019. So we want a business that is growing consumer base for all the right appropriate strategic reasons. Then what's going to happen to revenue in the second half is we're going to see the impact of three buckets of price mix. The first bucket is the carryover of pricing from prior year. Obviously there was more cost inflation last year, but logically that is a set of numbers that is going to tend to zero by the end of December. And so that is going to step down as we go through Q3 and Q4. So bucket one carryover that's going to step down. Bucket two is price increases we've made so far this year that are leaving aside the large inflation countries look much more like a normal year in terms of what we've taken this year, both in terms of timing, number of price increases and relative level of price increases. So we're --

James Quincey:

When did I stop? Operator do you know when the line cut on my answer?

James Quincey:

Hang on, one sec, operator.

James Quincey:

Operator, if you let me just finish the other question.

James Quincey:

I was going to back up. Apologies to everyone for the technical trickiness. I'm just going to back up. And if I'm repeating something I said apologies and if there's a gap in the logic, apologies again. I think we talked about volume second half similar to first half, whether you're talking prior year or 2019 pricing three buckets. The big -- the bigger piece of the pricing of the three factors, which is the carryover obviously stepping down through the year towards zero by the end of the fourth quarter. The new pricing that's come in '23 being very consistent with the kind of our normal level of pricing that we would see. And it's kind of in place already for the year and that obviously then continues at the same rate through the rest of the second half. And the third piece, which is about a quarter of what's happening on PMO at the moment, this bucket of higher inflationary countries. And as I said earlier, there was a little more inflation from those countries in the second quarter than we had previously expected. Obviously that then comes back around in a little more ForEx headwind. We are assuming that some of those inflation rates will moderate in the balance of the year in the second half. And likewise moderate in the ForEx, although it's very uncertain. So we'll have to see what happens. But that's basically the composition of how to think about the effect of our strategy delivering goods, good top line growth in the second half. Next question, operator.

Lauren Lieberman:

Can you hear me okay? Because like my line's got crackly now. That's okay.

Lauren Lieberman:

Cool. Good morning. Okay. I wanted to ask a little bit actually about Costa and coffee overall in light of the resource allocation model and identification of key profit pools and so on, not mentioned in the prepared remarks, but definitely called out in the press release this morning with particular strength in the UK. So I guess broad question would be how coffee overall is kind of fitting in on this thought process and resource allocation models if they are getting their particular differences by geography because we've heard different emphasis on the category by different bottlers. And then specific to the numbers called out in the release and Costa UK, should we think about that as recovery with mobility, COVID or tweaks or adjustments to the strategy you've made that are beginning to come through in performance? Thanks.

Operator:

Our next question comes from Dara Mohsenian from Morgan Stanley. Please go ahead. Your line is open.

James Quincey:

Good morning.

James Quincey:

I think, Dara, you might get the prize for the most questions in one question. Look, the -- clearly, in the second quarter, as we had anticipated in the previous call, April has started softly. But then things kind of normalized towards the end of the quarter, and June was a good solid month of growth. But I think the easier way to think about it is take the whole of the first half because you're always going to have some good months and some bad months. April happened to concentrate some price increases in developed countries and bad rains in India. Look, that will always happen on any given month. I think what is a question of what gives us confidence in the back half of the year by just saying January to June with its combination of good, middling and bad months, the growth rate in the first half, what we're expecting is a similar sort of growth rate in the second half, whether you compare to 2022 or to 2019. And so we think the momentum is there. We think in the developed markets, we've got through the pricing that needed to be taken in '23. We don't foresee substantive new pricing in the downhill. But we think this is going to be a well set up run through in the second half. And as I called out on that other answer with Bryan that the uncertainty factor is really around a concentrated in a few of these more inflationary marketplaces. Guidance going up, I guess there's obviously some flow through. We had a good first quarter, obviously, versus consensus. About a second quarter -- we clearly feel confident in our outlook for the full year, which is why we're taking it up. So there's some flow through. Obviously, there's some timing factors in the relative performance in Q2. And as we've talked on previous calls, given the nature of our business and where we sit in the supply chain relative to final sales, I think it's always good to take a multi-quarter average to the way of thinking about volume or pricing or even the flow-through to EPS. And I think that's kind of something that we always think about. Otherwise, you can get too distracted by the ups or downs on any given quarter. So we're going up. In the guidance, we feel confident about the second half. There'll always be some puts and takes, but we think we have a great strategy and a great plan to execute for the rest of the year.

Bonnie Herzog:

All right. Thank you. Good morning. I guess I had a question on your Asia Pacific operating margins, which were pressured again this quarter. And then, James, you touched on a couple of markets that are still facing pressures, but just hoping you could share a little bit more color on some of these headwinds in the region. And then any key initiatives you might have implemented to mitigate some of these pressures? And as a result, how should we think about your op margins trending through the remainder of the year in the region? Thanks.

Operator:

Our next question comes from Steve Powers from Deutsche Bank. Please go ahead. Your line is open.

John Murphy:

Steve, let me take the second piece first. It's fairly straightforward. In the quarter, we benefited from higher equity income and from interest that we earned on our overseas cash, which was in both cases ahead of what we had assumed when we guided at the start of the year. And for the second half of the year, I don't expect either of those two to be as strong. So I do think we'll have a little bit of deleverage in the second half of the year but modest, not a significant variable for your consideration in the second half of the year.

Operator:

Our next question comes from Rob Ottenstein from Evercore. Please go ahead. Your line is open.

James Quincey:

Sure. Let me start just by headlining actually, we've just come off. Last week, we had a global bottler meeting in Atlanta. I think it's in 30-plus years since we had that meeting in Atlanta, but we had it in Atlanta last week with the majority of the biggest bottlers in the Coke system. And I think it was a very clear meeting on our collective will and ability and interest in investing in this business and our overall level of alignment on what's important and what should we drive individually and what needs to be driven collectively. So actually, you guys all go around and talk to the bottlers as well, and I think you will get it reflected back from them that there is a very high degree, not just an alignment on what needs to be done, but enthusiasm on the opportunities ahead of us to drive the business, our collective business forward. On some of the specifics, clearly, you've got in that basket, there are things that happen around the world that are local and a better set of dynamics that are important and relevant and not necessarily projectable around the world. And the case of CCH and the distribution, now the ownership of Finlandia, I think, is one of those. The B2B platforms, which are progressed very nicely in Latin America are a feature of the business in multiple other countries. We've been testing and exploring and developing individually and collectively B2B platforms with the principal objective of enhancing the system and most importantly, the bottlers' relationships with the retailers. To the extent that we can complement, and here we're largely talking the fragmented channel because the relationship with the modern trade is already set on electronic platforms anyway. We're talking about the fragmented trade, and the majority of the almost 30 million customers we visit as a system is to enhance that relationship, to make it no longer hostage to the visit of the Coke sales rep but to make it a 24/7 opportunity to enhance relationship, to order product, to ask for a service call, to get a new cooler, to put some umbrellas up or to add to an order that's already about to be delivered. And that is certainly when we have evaluated how those customers where the B2B platforms are available how they're doing versus where it's not yet rolled out. There's clearly an improvement, not just in the relationship however you want to measure it, but also in the sales. So there's a lot going on in the system. And I think the last thought there is you should take it also as examples of the willingness of the system to experiment and try and be on the front edge of what drives value in the marketplace.

Christopher Carey:

Hi. Good morning.

Christopher Carey:

You made a comment on some private label switching happening in certain markets. Can you just expand on where you're seeing this specifically geographically and perhaps by category and the playbook that you'll be deploying in these markets, the sorts of developments that you'd be looking for to respond to these actions ahead? And I asked that a bit in the context of, clearly, some of your ingredients are still quite inflationary and whether you see any potential risk to being able to price against that inflation in some of these markets going forward. Obviously, you have a playbook with a lot of different levers. And I'm just curious to hear your thoughts on where these developments seem to be happening and how do you think about responding to these a bit more specifically. Thanks.

Operator:

Our next question comes from Filippo Falorni from Citi. Please go ahead. Your line is open.

James Quincey:

Yes. Thanks, Filippo. Look, the Red Tree entity that we stood up in the second quarter is more of a technicality than some new big step. It isn't a change of strategy, and it's not a vehicle to distribute in the US. It allows us a better platform to engage with the partners that we're working with in the US in terms of coordinating and influencing the marketing and allows us a better separation of the alcohol versus the non-alcohol band. So it's more an optimization of the model and how we want to execute things rather than a different thing. And then in terms of progress, look, it's still a small part of the business. And as I talked about, I think it was CAGNY, that's great, and there are lots of runs on the board. Jack and Coke has got some really promising nice results, including in the US. Simply Spiked Peach is performing very nicely in the US. If you want to look for a really bright spot, you can hedge the Philippines and Jack and Coke and Lemon-Dou, which is an alcoholic lemon drink, got well over 30% share of the RTD category. All of this is very encouraging as we continue to take a measured approach to this and to kind of learn and apply our learnings. All of this needs to generate belief that it can be material for the Coke company, not just a nice business, and that we're still in the process of driving towards. But certainly, so far, we're pleased with what's taken place and we are encouraged about the next steps that we have to take.

Andrea Teixeira:

Thank you for squeezing me in. And James, on your volumes commentary, and I appreciate that on your four-year CAGR, I think if our math is correct, it's 1.7% unit case for total company, which is obviously remarkable. That said, I think, EMEA was a bit softer in the quarter. I understand your commentary about Russia. And what is actually happening in EMEA ex-Russia? And how we should be thinking going forward? And related to that, since you commented that the US was very strong out of home, and Europe is a big percentage of Europe is out of home, on the comments about June, how we should be thinking not only about Europe, but the performance of on-premise against off-premise globally? Thank you.

Operator:

Our final question today will come from Peter Grom from UBS. Please go ahead. Your line is open.

James Quincey:

We see the US pricing and promotional environment as pretty rational. We have a set of strategies in place to try and balance our premiumization, regular and affordability strategies in the US, which includes a little more promotion than the first quarter. But basically, promo levels are very similar to prior years and not as a step up. And we think that we have the right balance of premiumization and affordability plays to be able to continue to gain as we did in the second quarter volume and value share in the US. So we think the environment is rational. We think our strategy works for us because we gain volume and value share. And we've got the right mix of -- roughly the right mix of promo and price. And obviously, we're going to continue to push the affordability and the premiumization play. And then the channel mix question, do we think we'll see in developing markets -- I think the principal feature is a renormalization post-COVID. I don't think it's kind of recessionary or inflationary or that. I think it's just been -- we've kind of seen a renormalization of the channel mix. We had talked over prior years about how big an impact on price mix and margin structure, the shift in channels were with what seems ages ago, the lockdowns. That has now largely played out, which is another way of saying, we don't expect channel mix to be a major feature of the discussion in quarters and years to come.

James Quincey:

Yes. Thank you, operator. So just to quickly summarize. Second quarter results, I think, demonstrate the momentum we have in the marketplace. We are navigating a broad set of dynamics in the local markets while driving scale and maintaining flexibility at a global level. We're confident in our ability to deliver on our '23 guidance and our longer-term objectives. Thanks for your interest, your investment in our company and for joining us this morning.

Operator:

At this time, I'd like to welcome everyone to The Coca-Cola Company's First Quarter 2023 Earnings Results Conference Call. Today's call is being recorded. If you have any objections, please disconnect at this time. [Operator Instructions] 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 any questions.

Dara Mohsenian:

So first, just a detailed question. You guys obviously started out with a pretty robust initial outlook for work sales of 7% to 8% for the full year in 2023. Obviously, a strong start in Q1. You kept that full year guidance. So just can you give us a sense, did Q1 come in better than you expected? Was this more expected, why not move on the full year? And within that, can you also comment on away-from-home trends [indiscernible] as we recover from COVID and what you guys are expecting in the balance of the year, including in China, which is probably in a different place in the rest of the world.

Operator:

Our next question comes from Lauren Lieberman from Barclays.

James Quincey:

Sure. Do you want to do it, John?

Bonnie Herzog:

I had a question on your business in Europe. Organic sales in the quarter were incredibly strong. You're up 23% on a tough comp. So just curious if you could help us unpack this a bit more. Maybe touch on the resilience of the consumer. How big of a factor the mild winter was? And then were there any countries within Europe that were particularly strong, for instance?

Operator:

Our next question comes from Bryan Spillane from Bank of America.

James Quincey:

I would also say like we've talked about it historically on pricing volume. I would encourage people not to draw correlations through 1 quarter. And you can use full quarters or annuals. Given acquisition relative to the bottlers and the final consumer, I think it's important to kind of average out some of these effects through all the various variables that John mentioned and take a multi-quarter view of what's going on and take that all into account.

Stephen Robert Powers:

Just maybe first, just a quick clarification. John, I think as you started, you had talked about an expectation of bottom line or below-the-line deleverage on higher interest costs and the like. This quarter, we saw that work in your favor just because of the higher other equity income and just wanted to get an update as to whether you still expect to deleverage on the year or if the first quarter changes that outlook.

James Quincey:

Do you want to start?

Andrea Teixeira:

James, I appreciate your comment on the puts and takes, especially with the away from home and the easy comps for the QSR in the U.S. in the first quarter. We have been seeing some retailers talk about the weather and also seeing companies talk about weaker recent trends, in particular in the U.S. in March.

James Quincey:

It's -- I mean, we're 2 weeks into the second quarter. So I think that -- I don't think there's anything particularly productive in it. I mean, they weren't out-of-the-park results in the first couple of weeks, but there was some worse weather in India and the U.S. and the shift of Eastern side.

Operator:

Our next question comes from Rob Ottenstein from Evercore.

James Quincey:

Sure. Yes, you put your finger on a kind of a nexus of a whole set of innovations. Let me just focus them in on the -- just using Coca-Cola brand, just to start with for a second. I mean, we did the Coke Creations, which was kind of limited edition kind of beyond it's vanilla or it's cherry into kind of stardust and marshmallow. And I think it was much more engaging for consumers.

Nik Modi:

James, I was hoping you can talk about the nonsparkling part of the business, less so from a consumer and product strategy side, but more from a go-to-market with this whole reorganization going on in North America, in particular, is there a better infrastructure do you think for Coke to sell the entire portfolio versus kind of historically how it's been much more kind of predominantly focused on sparkling? Any thoughts on that would be helpful.

Operator:

Our next question comes from Peter Grom from UBS.

James Quincey:

Yes, sure. Obviously, we've got 2 brands. We've got BODYARMOR and POWERADE. We talked on previous calls where we had not had the greatest integration into the Coke system last year on BODYARMOR. And obviously, there's some new players and new category dynamics.

William Chappell:

Just a follow up on the still and kind of elasticity. I mean, it seems like sparkling, you have plenty of pricing opportunity from here, but maybe also on juice, water kind of base level, do you see promotions coming back in? Do you see like -- you feel like you're running into a ceiling at some point this year in terms of pricing because especially as you're getting more of a middle and lower-end consumer that's buying some of those products? Any thoughts there would be great.

Operator:

Our next question comes from Kevin Grundy from Jefferies.

John Murphy:

Thanks, Kevin. First question on the hyperinflationary, but just a little under 2 points in Q1. I don't have the mirror for the crystal ball for the rest of the year, but you can build that into your assumptions for the rest of the year.

Operator:

Our next question comes from Chris Carey from Wells Fargo Securities.

Operator:

Our next question comes from Carlos Laboy from HSBC.

James Quincey:

Yes. Carlos, thanks. Definitely agree with you on the essential idea that if you have a good anchor in affordability options, it allows the portfolio to stretch along the price spectrum with other packaging options and thereby, both satisfying more consumers and drive a more -- a better -- a higher competitive advantage and a more profitable business overall.

Charlie Higgs:

Just a final one on innovation, please. And I think you've relaunched Sprite Zero in the quarter and also POWERADE. Is there any initial feedback you could give on those brands? That'd be very useful. And then also just any thoughts on Coke Zero, which, again, it grew volumes 8% of a comp of 14%. I guess just how much further do you think that brand specifically has to go?

James Quincey:

So just to summarize, the year's off to a great start. We continue to win in the marketplace. While it's still early in the year and the macro environment remains uncertain, we're confident in our plans and our ability to leverage our capabilities to adapt to consumer needs and drive top line-led growth. And we have visibility to deliver on our 2023 guidance.

Operator:

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.

Operator:

At this time, I'd like to welcome everyone to The Coca-Cola Company's Fourth Quarter and Full Year 2022 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 listen-only mode until the formal question-and-answer portion of the call. 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 any questions. I would now like to introduce Mr. Tim Leveridge, Vice President of IR and FP&A. Mr. Leveridge, you may now begin.

James Quincey:

Thanks, Tim, and good morning, everyone. 2022 was a strong year for us. We executed well and grew amidst a challenging macro environment. We did this in part by focusing on expanding the sphere of what we can control. We delivered on our top line and bottom line guidance, and we continue to create value by investing in our loved brands, even as we faced a very dynamic backdrop. Today, I'll reflect on our fourth quarter and the year's performance and set the stage for 2023. I'll also share how we're operating differently today, which makes us confident in our ability to deliver our 2023 guidance, and well equipped for a future that continues to be volatile and uncertain. John will then discuss our results and our 2023 outlook in more detail. During the fourth quarter, the environment remained dynamic as inflation, geopolitical tensions, pandemic-related mobility restrictions and currency volatility persisted. Despite this range of factors, consumer demand held up relatively well, and our industry remains strong. In the fourth quarter, we remain focused on our growth strategy and continued to create value for our consumers and customers. We maintained agility to navigate this challenging environment and delivered 15% organic revenue growth in the quarter, with strong growth across operating segments. This was driven by pricing actions across markets and revenue growth management initiatives to retain and add consumers. While we saw robust volume growth across many markets, this was more than offset by the suspension of our business in Russia and the impact on consumption, driven by varying levels of pandemic-related mobility restrictions and the surge in COVID cases in China. Overall, throughout 2022, we have maintained consistent volume growth relative to 2019. We've gained both volume and value share for the consolidated business for both the quarter and the year. So far, in 2023, the volume growth trends versus 2019 are in line with last year, and we are laser-focused on executing on our growth plans. Our streamlined portfolio of global and local brands and stepped-up consumer-facing investments continue to fuel the competitive edge of the Coca-Cola system to deliver value in any environment. Our network organizational structure enables this strategy. We've connected our operating units, our functions and our platform services organization for strong end-to-end coordination, which helps us identify key opportunities for meaningful long-term growth. And on top of this, we remain well aligned with our bottling partners, which further builds on our strength as a network system. As we look to 2023, many uncertainties remain in the macro economy, whether from economic policies, consumer demand, inflation, supply chain, war and geopolitics. Instead of trying to forecast and predict the many directions things could move, we are focused on delivering on our key objectives

Operator:

[Operator Instructions] Our first question comes from Lauren Lieberman from Barclays. Please go ahead. Your line is open.

James Quincey:

Yeah, sure. Good morning, Lauren. Firstly, as John said, we feel confident about our outlook to drive the year from the top line. Let me connect that perhaps starting to 2022. As we commented, we saw steady volume growth through the year, including the fourth quarter. I know we reported a headline number of minus one. But if you accommodate the suspension of Russia and the COVID restrictions in China and take a three-year CAGR of volume growth, you see a pretty constant growth momentum through the year. And we would also comment that, that growth momentum has continued into the beginning of 2023. So we see strong underlying volume momentum or ongoing volume momentum that we have been able to achieve by our focus on the marketing innovation, the RGM and the execution to accommodate the need for affordability and premiumization in the face of inflation. And as John commented, we do see both inflation moderating as we go through 2023 and of course, our own pricing PMO beginning to moderate as we go through '23 in part because, the input costs inflation is moderating, but also because we begin to cycle some of the price increases from 2022. And what that's likely to net out as obviously, we've given a seven to eight for the full year. And what we're likely to see is the beginning of the Q1, we're likely to see revenue growth more close to what -- the sort of levels we were achieving coming out of last year. And that then logically, the organic growth rate moderates as we get towards the end of the year, looking to close out on a more normalized level of revenue growth. And then when you average that out, you get to the seven to eight. So, I think we're going to see good momentum through the year, moderating revenue growth rate as a function of moderating inflation ultimately. And what will remain is a good, strong underlying momentum of our business that has been powering the last five years, and we are confident we'll continue to power the years ahead at the sort of level of top line relative to the long-term growth model that we have previously talked about.

James Quincey:

Yes. So look, the long-term -- firstly, we had good growth last year, and we started the year with growth in unit case growth, obviously with PMO. As we look forward, what's normal on our revenue growth rate, we have called out, we expect to get a balance of the growth between unit cases and price/ mix on an ongoing basis. Exactly how that turns out in the second half will depend on the environment or the dynamics and whether inflation does moderate, how much pressure the consumer does come under. Our central view is we will continue to see unit case growth in the second half, combined with price/mix moderating, as I talked about, as the organic -- overall organic trend. But our focus remains executing against our plan. And obviously, that involves not just a focus on the marketing and the innovation. But within the RGM, we have, as one of our objectives, to maintain consumers within our franchise by leveraging our pricing and packaging strategies to support affordability around the world to keep the lower -- perhaps lower-income consumers in the franchise, which, of course, is to some extent an underpinning on volume. We prefer that as a strategy than to have more price and less volume. So again, our central view is to see continued level of unit case growth in the second half with obviously a moderating price mix to get to the overall revenue. But we're going to manage the business. In the end, we don't know exactly what's going to happen. There are lots of scenarios as to how this might play out, but we're confident we can drive the momentum of the business.

Dara Mohsenian:

Hey, good morning, guys. So just a follow-up on that, James, can you give us a little bit of detail regionally on expectations for 2023? I know you're not going to quantify it, but just how you're thinking about the business conceptually relative to the results you delivered in Q4 here and take us around the world regionally? And then I guess just, secondly, if I can slip a clarification in, you're obviously starting off the year with top line guidance higher than you typically do, higher than long-term algorithm, higher than you started 2022 at despite delivering great results in 2022. It's a less visible world in theory externally. So I guess it sounded more like a good start so far this year. You have a lot of visibility given that, and that's what's driving some of that confidence, but I'd love to hear from your vantage point what sort of gives you the confidence there? Thanks.

Operator:

Our next question comes from Bryan Spillane from Bank of America. Please go ahead. Your line is open.

John Murphy:

Thanks, Bryan. Let me start the second question. The key drivers for '23, we have on top of underlying -- strong underlying performance, we'll have two significant buckets. One is we are stepping up our capital investments to support the growth agenda in a number of our operations around the world. And so that's a $400 million increase in '23. And then we have approximately $700 million related to an uptick in the transition tax and some M&A-related initiatives. So for 2024, we'll continue to invest in the business as the business needs, especially when it comes to providing capital for our growth plans. The transition tax goes up a couple of hundred million in 2024. That will be the second last year of the transition tax date that ends in 2025. So you can do the math on the variance that's gone in from 2023 to 2024. We expect the underlying performance to continue. We'll invest as we need to in the business to support the growth agenda. And we do have, I'd say, a couple of hundred million extra in 2024 million under transition tax. And then with regard to interest, yeah, as we've highlighted, we -- with our current debt portfolio, we will see an uptick in 2023 in interest charges and interest -- sorry, interest expense. And I'm not going to go into the specific numbers, but you can expect a couple of points of deleverage primarily driven by interest expense as we navigate through this year.

Steve Powers:

Yes. Hey, good morning. Thank you. James, maybe going back to the top line. For a while, you've been making simultaneous efforts to drive both affordability, on the one hand, and then premiumization on the other hand, and I think doing a good job along the way, balancing those, in some ways, competing efforts to net out in a way that ends up in both positive volume and positive price/mix territory. I guess the question is, as you as you look at 2023, do you see more opportunity in your efforts to optimize revenue growth on the value side and the affordability side, or is it on the premiumization side? And to the extent that there's a leaning, how does that impact where you prioritize incremental investments?

Operator:

Our next question comes from Nik Modi from RBC Capital Markets. Please go ahead. Your line is open.

James Quincey:

It can be both, Nik. And obviously, it depends whether we're talking about supermarkets, convenience stores or small mom-and-pops. The more we're talking about smaller stores or convenience or the mom-and-pops, the more it is replacement. Obviously, we make a big focus even in those smaller formats to gain incremental space, whether it'd be in the coal vaults or on the floor with our own coolers and our own racks. That absolutely does increase the beverage category phasings. But there's nothing wrong in any given store with looking at the SKU layout and saying, look, I'm going to take some of these SKUs and make them -- replace them with more affordable SKUs. And I'm going to take some of them and put more premium options in such that the total mix works not just for us, but also for the customer and, ultimately, for the consumer. It's got to work for the consumer. Otherwise, it's not going to rotate faster than the setup that's already in there because in the end, the customer is going to support these strategies because it works for them, because it works for the consumer, and everyone is better off with the implementation. So, yes, a mix of incremental versus cannibalized phasings, ultimately, by focusing on the consumer, you get a better answer for them, that creates a better answer for the customer, that creates a better answer for the coke system.

Bonnie Herzog:

Thank you. Good morning, everyone. I was hoping you could provide a little more color on your plans for reinvestments this year and then maybe frame for us whether it will be stepped up versus last year. Also, how are you thinking about your marketing spend this year? Do you also have plans for that to accelerate? I guess, I'm ultimately trying to understand, how much flexibility you have to balance the momentum. You're certainly seeing in your business with reinvesting, while at the same time, letting some of the strength flow to the bottom line. Thanks.

Operator:

Our next question comes from Kaumil Gajrawala from Credit Suisse. Please go ahead. Your line is open.

James Quincey:

Sure. I mean, first, one has to kind of break down the, global dynamic because each major region or each country is a different place. But let me start with the central idea that we pursue, which is we need to earn the right pay price. It's not our strategy to think of our business as commoditized where prices just flow up and down in a kind of mechanical way. We need to own our pricing by delivering for the consumers value that they appreciate through the marketing, through the innovation, through the RGM, the pricing and packaging work, through the execution such that they see value in our brands that can sustain the pricing that the input costs are driving us towards. And that ultimately then has to work for the customers. And because it has to work for the consumers, it then flows down the customers. So we've earned the right to price with the consumers. Then we can go to our customer partners and say, 'Look, we think that we can lead the beverage category to grow faster than your business.' Yes, we believe we're going to be more competitive because we understand the consumers and we're going to gain share, but we can lead the beverage category, deliver more growth for you and be a disproportionate share of your rate revenue growth relative to other categories,' which is what, for example, was demonstrated last year in Europe, where I think we led -- we added more revenue growth than any other system for retailers in Europe last year. And that is the platform on which we then fold in the conversations around pricing and packaging for any given year. So yes, of course, there's pressure in the marketplace. But in the end, we have an approach we believe, is consumer-centric and that drives growth for the customers because they also want to keep the consumers too.

Chris Carey:

Hi. Good morning. So clearly, the past several years have had big variability in your channel and package mix within the overall price/mix equation with mobility constraints and sharp recoveries thereafter. Just taking John's commentary on a price-driven year for next year, James talking about still – volume will still be a factor, I guess, what I'm wondering is just underlying what's in that price/mix, whether you think channel and package mix have normalized, right? Said another way, there's – we're not really talking about recoveries in those line items and what's going forward will be kind of more offensive or growing from a normalized base. And so do you think you're back to that normalized base on – from a channel and package mix from which to grow? And then in 2023, do you have any thoughts on what the contribution is from price relative to channel or package mix? Thanks.

Operator:

Our next question comes from Carlos Laboy from HSBC. Please go ahead. Your line is open.

James Quincey:

Yeah. Let me take that in parts. The features that we have in the long-term relationship model in Latin America, we're rolling those out in a number of other places. And clearly, the more we can intensify whatever the framework gets called, the degree of alignment towards investing to capture the opportunities in the marketplace, the better off we're going to be, us and our bottling partners, in any given geography. So absolutely, we continue to see opportunities to work even closer together to capture opportunities in the marketplace. The nature of those investments, the nature of the opportunity are not exactly the same as Latin America. Clearly, the trade structure differs around the world. Latin America has a number of particular features that not necessarily replicated in the US or Europe or Japan, for example. But the overall concept of a tighter longer term investment focus on the opportunities is really going to drive -- continue to drive performance into the future years. And I think, in Latin America, we've got a great business there collectively as a system because we focused on investing into the marketplace and into the traditional trade for a very long time, along with all the other customers in Latin America. But there are still plenty of opportunities to go both from the top line and from the point of view of improving returns. So I think you'll find or everyone will find that the Latin American bottlers, as bottlers around the world are -- that we see a lot -- collectively, we see a lot of opportunities ahead of us to drive the top line and to continue to improve returns on the bottling assets.

Andrea Teixeira:

Thank you, operator, and good morning. James, as we think about the 7% to 8% organic sales growth guidance, what is the price/mix carryover into 2023? You said it, obviously, will moderate, but what is -- are you embedding any additional pricing that is not in the trade yet? And how are you planning for China volumes in 2023? What is the benefit from there, or any mix dynamics we should be aware of? Thank you.

Operator:

Our next question comes from Rob Ottenstein from Evercore. Please go ahead. Your line is open.

James Quincey:

Yes. Great. Thanks, Rob. And certainly, we will unpack a little more of this at the CAGNY presentation and the CAGNY conversation. So I'm sure I won't do full justice to the question in this session. In terms of the initiatives in the marketplace, we have an aspiration of being a total beverage company everywhere. That's not going to happen overnight. And so we need to make progress in a disciplined way in different category, country combinations, as we've talked about, to establish leadership positions, preferably quality leadership positions, in the next set of country category combinations on our journey to the total aspiration. And within that, there are ones that are off to the races and flying away. And there are ones where we still need to demonstrate to ourselves we can execute against the vision. If I take the two you called out, Costa, BODYARMOR, to start with, the essential thesis behind coffee remains the same. It's a huge market. It's growing. There's lots of money in it. If we can find a path, there's a tremendous growth opportunity for the Coke system there. We've got a vision. The reality is timing was very unfortunate getting it just before the pandemic. In strategic terms, despite all the experimentation, despite all the learning, despite all the initial steps, in big strategic terms, we haven't advanced because, essentially, COVID put it on hold for three years. We now need to get the execution ramped up for cost against the vision and in the coming years demonstrate that, that holds water. BODYARMOR, great job. We obviously incorporated that into the company last year. And I think we -- whilst we always expect some level of disruption as we move a business that has been grown quickly and prepared for sale by the founders into the Coke system, there's often some disruption in the short-term. But frankly, I think there was more in 2022 than we would -- than we expected or would have liked. But we have a good plan going forward in 2023 that will kind of reset BODYARMOR on a good path and in a complementary way to Powerade. Other initiatives, which we're looking very interested in the degree of traction in some of the alcohol experiments, particularly looking to see Jack and Coke do well. Early data in Mexico launched at the end of last year was encouraging ahead of expectations. The US launch will be very interesting at the end of March. And all of that will be backed up by the continued work on the culture and organization, whilst it will never -- nothing ever settles. It never ends. But I think, really, it's about continuing to stand up and execute against the internal initiatives we've already launched. The organization is coming together. We made a few tweaks in North America coming into the year, but the organization is getting up and running and starting to harm. The marketing model change is starting to show good results and promise. So, I think, it's a question of seeing through the things we've launched to really up our game in the coming years.

Charlie Higgs:

Hi, James, John. I hope you’re both well. My final question is just on India, where it looks like it's had just a record year. Could you maybe just expand a little bit more on India? Is it still being driven by the affordable price point strategy? Are you adding distribution that means, maybe this volume growth is actually sustainable over the long term? And then, James, maybe you could just give us some color on your long-term view on India. Thanks.

Operator:

Ladies and gentlemen, this concludes our question-and-answer session. I would now like to turn the call over to James Quincey for any closing remarks.

Operator:

Gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.

Operator:

At this time, I'd like to welcome everyone to The Coca-Cola Company's Third Quarter 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 listen-only mode until the formal question-and-answer portion of the call. 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 any questions. I would now like to introduce Mr. Tim Leveridge, Vice President of IR and FP&A. Mr. Leveridge, you may now begin.

James Quincey :

Thanks, Tim, and good morning, everyone. After a strong first half of the year, we continued our momentum in the third quarter with effective execution across our global system despite a macro backdrop that remains challenging. In the face of these pressures, consumers stayed resilient, and we continue to invest behind our loved brands to drive value in the marketplace and growth in our business. Given our strong results year-to-date, and increased visibility into the rest of the year, we are raising our top line and bottom line guidance, while continuing to invest strategically. So this morning, I'll provide a business update and discuss how we are expanding the circumference of what we can control. Then I'll pass to John, and he will discuss financial details for the quarter, our revised guidance for the full year 2022 and some early considerations for 2023. During the third quarter, macroeconomic crosscurrents continued to impact the operating environment. The conflict in Ukraine is ongoing, which creates challenges in that country and beyond. And we saw renewed pandemic-related mobility restrictions in China. Inflationary forces are driving costs, pricing and interest rates higher, resulting in currency volatility in many parts of the world. Against this backdrop, our industry remains healthy and is growing both in value and volume, which continues to include some benefit from cycling COVID-related impacts from the prior year. In the third quarter, we delivered strong organic revenue growth across all operating segments. This was driven by pricing actions and robust volume growth. We had share gains overall and across most categories, as well as within both at-home and away-from-home channels. We accomplished this by investing in our business and providing the right portfolio of brands and packages to retain and add consumers. Notably, we drove revenue growth ahead of transactions growth, which is also ahead of volume growth in the quarter, reflecting the strength of our revenue growth management capabilities. Consumer elasticities in core categories have continued to hold up well. We are leveraging our consumer-centric marketing model and increasingly using digital engagement to link consumption occasions with passion points. Our system has never been stronger, and our global network model is allowing us to leverage the vast experiences of the systems' leaders from various parts of the world. We are increasingly sharing learnings and generating faster responses to a changing environment through the right mix of local relevance and scale. Now recapping the third quarter performance across the world, starting with Asia Pacific. In India, we continued to strengthen in the first half of the year as we gained share in sparkling soft drinks. Trademark Coke delivered strong growth through effective execution and occasion-based marketing. Year-to-date, we drove approximately 2.5 billion transactions at affordable price points through the expansion of returnable glass bottles and single-serve PET packages. Sprite has grown to become a $1 billion brand in the market, driven by the success of locally adapted occasion-based global marketing campaigns like Heat Happens and Screentime. In Japan, we continue to strengthen our business amidst an inflationary environment in the country for the first time in many years, we took price increases in large PET packages. Through intelligent innovation on small packs, we've gained value share, transactions and household penetration year-to-date. Additionally, we continued our strong share gains in vending in the quarter, and we expanded our leadership position in e-commerce. In China, we grew volume in the quarter and achieved strong growth in sparkling soft drinks during the summer selling season, amidst varying levels of pandemic-related mobility restrictions. We focused on digital to unlock new opportunities. We deployed Fans Festival, a drink-scan-win pilot at scale, which drove widespread brand exposure and connected consumer traffic to more than 30,000 outlets. We remain focused on executing RGM strategies to drive outlet expansion and increase key SKU availability. In ASEAN and South Pacific, we saw strong volume and transaction growth across most markets, driven by new product launches and continued recovery in away-from-home channels. We saw significant top line improvement in sparkling flavors for most markets, driven by our Sprite Lemon+ and Schweppes Soda Zero Sugar innovations. In EMEA, European consumers continue to experience inflationary costs. We leveraged our RGM strategies to drive away-from-home single-serve mix and retain consumers, and delivered value share gains across most categories. And our system has delivered top tier incremental retail value for customers year-to-date, the second year in a row. We accelerated digital engagement with more than 4 million connected consumers year-to-date. In Africa, despite the macro environment remaining challenging, we gained volume and value share. We focus relentlessly on excellence in execution and reduced retail out-of-stocks. We've built sustainable customer engagement in more than 80,000 points of sale year-to-date through a customer loyalty partnership program. In Eurasia and the Middle East, we remain resilient amidst an unprecedented inflationary environment in many markets and some supply-related disruptions. A cross-market launch of fee for activation and the Fanta Fest campaign were key enablers of growth. With strong focus on execution, we placed over 50,000 coolers and have gained availability in 33,000 new outlets year-to-date. In North America, we drove volume and value share gains through strong core sparkling performance, complemented by robust innovation and music-led experiential marketing despite intermittent supply chain challenges. Smartwater growth was strong during the quarter and innovations like Coca-Cola Creations and Minute Maid Aguas Frescas continue to expand and exceed expectations. The Coca-Cola Value Bundle, a collection of core sparkling offerings, providing more choices to cost-conscious consumers, is helping to retain and recruit more consumers while creating value for our customers. In Latin America, we leveraged connected experiences and strong execution to drive top line growth and sequentially improve on our share losses. We strengthened our connections with [Use Through Music], leveraging the Coca-Cola Marshmallow flavor to stream Rock in Rio across the continent. Through RGM initiatives, we focused on single-serve package growth to drive transaction growth. Alignment with our bonding partners remain strong, and our joint market initiatives are ensuring our focus on accelerating growth. In Global Ventures, we witnessed robust volume growth. However, overall cost of performance was impacted by a dynamic operating environment in the UK, along with investments in the marketplace as we expand internationally. China ready-to-drink value share grew with the strong performance of innovations like [Costa Char Tea] and [Oak Coffee]. Ready-to-drink in Japan is also delivering strong performance supported by sampling in-store execution and the launch of Caramel Latte. Finally, our Bottling Investments Group delivered strong volume and top line performance driven by a focus on affordable entry-pack expansion across all markets. Additionally, we're driving availability and efficiencies in cost to serve. As we look forward beyond this year, we continue to see great opportunity for our industry. We are allocating resources in a disciplined way to gain share. Success from our marketing model is based on two critical components

Operator:

[Operator Instructions] Our first question comes from Bryan Spillane from Bank of America.

John Murphy:

Thanks, Bryan. Yes, those comments were very much related to next year. We do see a path to generating U.S. dollar EPS growth next year. Clearly, there's a lot of variables in the equation. And if anything, there's even more variability with some of those variables. We've talked a lot about our strategy is to lead a sustainable equation from the top line. We continue to have confidence in the momentum that our business has and to continue that momentum. The cost outlook does remain more elevated than we are used to. But we've got a higher revenue, higher cost algorithm that we're looking to manage going into next year. I think the work we've done over the last couple of years to build flexibility to be able to adapt quicker than perhaps we have done historically to changes in the markets around us, is something that we take on board and will continue to drive. And with that, we've given the guidance or the considerations for next year. And we're very focused on finishing the year strong, starting fast and being able to deliver on those three objectives.

Dara Mohsenian :

So obviously, another set of strong top line results in the quarter. You also mentioned the underlying top line momentum in the release when thinking about 2023. So just wanted to get a bit of an update, given the external environment, there's obviously a lot of concerns around weaker consumer spending and some of the pressure points out there. Do you guys see anything towards the end of the quarter or so far in October that would give you any cause for concern? And as you think about these much higher than typical levels of pricing, are you seeing any sort of changes in consumer volume demand elasticity, that pricing, as you look around the world here, that would be helpful?

Operator:

Our next question comes from Lauren Lieberman from Barclays.

James Quincey :

Yes, absolutely. I mean value packs or ensuring affordability for the consumer is one of the core pieces of RGM. It's about extending the price ladder and, in recessionary times, about making sure the entry price point, whether it would be on the larger packs or on the smaller packs becomes as low down in the price spectrum, the actual out-of-pocket as possible. As I talked about in the last answer, one of the recession behavior tends to be to try and reduce the dollar outlay of the basket, and therefore, the price point becomes even more important than the price per liter. And so around the world, that's absolutely what we're pursuing, whether it's in the U.S., having smaller bottles or smaller multipacks of less cans per multipack; or the example I used, in Japan, where we took the 500 ml and split it into 350 and 700. Of course, around the world in a number of countries, we leverage our capabilities with returnable bottles, given the economics of returnables particularly in the developing markets, that is a way of generating a lower price point because, of course, in effect, you don't pay for the packaging because it comes back again. And so those returnable bottles that we refill are a way of bringing the price points down and keeping the consumer in the category. And so that's -- it's a well-developed skill around the world. The bottlers share a lot of learnings between themselves on how to think about the technology of RGM, and that allows us to leverage it to its maximum, particularly in times like these.

Steve Powers:

I guess just to drill a little bit further into the path to dollar-based EPS growth next year. Clearly, as we stand here today, there are a number of headwinds to overcome, and you've outlined and quantified some of them between FX and interest expense, underlying inflation, higher year-over-year tax rate next year. I guess what I'm left trying to unravel is how dependent is the path to dollar-based EPS growth next year on this continued top line momentum that you've been -- that you've emphasized today versus are there other levers that you can look to, whether that's paring back a bit on marketing investments and the innovation agenda investments or just doubling down on productivity? I guess the question I'm asking is, underneath from an underlying perspective, is it -- are we to be -- are we -- how dependent are we on that top of momentum continuing versus there being other levers that the company can look to?

Operator:

Next question comes from Nik Modi from RBC Capital Markets.

James Quincey:

Sure. I mean let's start with Japan. Clearly, in Japan, we're very focused on the marketing and innovation. It tends to be a market that's very driven by engagement with the consumer. Also, importantly in Japan, after perhaps multiple decades of not taking price, we have taken price on large packs in Japan in the third quarter. Actually, in the fourth quarter, we've been taking pricing on immediate consumption packaging in Japan. So I think we're going to see an opportunity to lean a little more on the RGM lever in Japan as we continue to engage with the consumer there. In Western Europe, clearly, the basic strategy of investing in marketing, investing in innovation, leveraging RGM and driving in-store execution and value for retailers has been working in Western Europe. As we go into the winter and going into next year, that's still going to be the push we make. The bottlers have got great momentum in execution. Of course, Europe is where there's more of the developed world inflation. Think commodities plus the devaluation of the euro, so that's feeding through. And so we're likely to have to lean heavier on RGM in Europe in the next 12 months, backed up by the marketing, innovation and execution. And then Latin America, a lot of work over the last number of years with the long-term relationship model. Bottlers there have good momentum. Clearly, it's one of our strongest regions. We lost a little share in the beginning of the year. They're very focused on getting that back, obviously, starting from a high bar. And I think perhaps, overall, it would be worth commenting that, obviously, in COVID, we took a number of what were difficult decisions at the time, slimming down the portfolio, changing the marketing model, changing the organizational model for the company. We've got that done and stood up. And I think now we're reaping the benefits of us being able to drive growth with a more agile organization ourselves, combined with really strong and aligned bottling partners. We've driven growth this year, and we're well set up next year. I mean just to cap it all, we had a global system top to top with a number of the bottlers a few weeks ago, and I think everyone is ready and energized for what's ahead.

Kaumil Gajrawala :

Can you talk a bit about fixed versus floating debt and how that might impact both your cash balance and your interest expense in the coming year?

Operator:

Our next question comes from Bonnie Herzog from Goldman Sachs.

John Murphy :

A lot of questions, Bonnie. Let me start with the commodity point and our outlook for the year ahead. As I said at the -- I think in answer to the first question, there are a lot of variables in that equation. And indeed, the variability with some of them is maybe even broader. When I think about the cost environment, not just the commodity environment, I think about both our commodities, the commodity pressures that we have within our business and the non-commodity pressures that we have. And so as we look at '23 on the commodity front, we are rolling off some very favorable hedges that we were fortunate to have this year. And it's still -- in our mind, it's still unclear as to how commodities will trend over the next six to 12 months. So we'll have more visibility on that when we get to the call in February. With regard to the non-commodity items, just within that, you've got a bucket of different topics -- freight, logistics, the transportation in our finished goods models and the overall wage environment. And we have to take into account that the wage environment is not the same everywhere, and indirect impacts on supply chain pressures. As we think about the supply chain, it's important to not just have efficiency as a metric, we also need to make sure that we have continuity, we have, for the short and longer term, and we're able to manage many of the pressures that I think we've talked about on previous calls, manage those effectively. So there's a lot going on inside of the cost of goods line. And hence, I think it's better for us to just provide you with how we're seeing it overall, and we'll come back in February with more specifics. And to your second question on ongoing price increases, I think it links back to some of James' comments earlier. The name of the game is to optimize our revenue equation over the next 12 to 18 months. That's going to be a combination of smart pricing, understanding the mix, both from a channel and package perspective, and being able to utilize the many levers that we have inside of the RGM toolkits that our bottlers have. So again, I think at this stage, it's still early to say what the exact numbers will be for each of those topics. But I think the broader point is that the top line momentum that we've enjoyed here today, that we see continuing to hold through the rest of the year, is something that we expect to be able to generate into 2023.

Christopher Carey:

So just following up on that. I think it's pretty well established price/mix versus volume algorithm will probably be more skewed to price/mix next year again. This could be for James or John, but is it fair to assume that the rate of pricing is likely to be a bigger percentage of the price/mix equation going forward as we lap the recovery and the away-from-home channel and some other channel mix dynamics? And then just connected, James, it's been harder to see the underlying rate of pricing this year relative to the price mix. Can you just remind us your philosophy for the rate of pricing to track inflation, and whether you believe your business is close to satisfying that objective today and perhaps how much room you have?

Operator:

The next question comes from Andrea Teixeira from JPMorgan Chase.

John Murphy :

So, Andrea, thanks. I'll take that. As we said on the earlier, I think it's too early to get into those specifics for next year. I think the way to think about the year ahead is I think it's going to be another year out of our typical algorithm. We continue to build greater visibility around how -- what to expect in the -- particularly in the first half of the year when we'll be looking for that fast start. What each line item of the income statement looks like is -- it's just too early. We'll come back in February with that detail. I think the key takeaway is that as we sit here, we do see a path to generating U.S. dollar EPS growth in 2023. As I said earlier, there's many variables to bring that path to fruition. And we know that top-line driven smart investments and effective management of our cost structure, those thee will deliver. And below the operating income line, as I said, there's a lot that still needs to play out in the next few months to give you a clearer picture on what to expect. And we'll come back in February with that detail.

Carlos Laboy :

Yes. Some of the benefits of the new Latin American LCRM are obvious, like faster revenue growth, higher ROIC for the bottlers for the system, really clarity of profit splits. But can you expand on some of the less obvious but important benefits that are important to you, James?

Operator:

Our next question comes from Rob Ottenstein from Evercore ISI.

James Quincey :

Sure. I'm not sure which ones you're putting in the bucket of weaker, but let me do a little walk around some of the emerging markets. We had good results we feel in China for the quarter. I mean we had good growth overall for China, notwithstanding some of the mobility restrictions that came in the whole raft of cities. So China remains a good long-term opportunity. We have a good business there, good bottling partners, and there was some resilience to the business in the quarter. . Just keeping with the Asian theme, India had a knockout quarter. Clearly, they're having a very strong run this year. Lots of growth in India, really powering forward. Very pleased with that. Looking, of course, to extend that into the future. Probably won't be a straight line, but certainly looking to continue to invest strongly in India. The rest of ASEAN, there were some pluses and minuses, but generally positive. If I switch to Africa. Africa, you've heard me talk in the past that it's always a rollercoaster. There was a little bit of rollercoaster in the quarter. But overall, we had good growth in those markets we were focused on. There was growth that was ultimately pretty broad-based, whether that was South Africa or elsewhere. It would be worth noting that this quarter, remember, we made a switch in our franchise partner in a number of territories across Africa. So we brought to a close our relationship with BGI, the Castel Group, in a whole raft of African markets. And some of them we had partners ready to go, and some of them we're still working on it. So there is a transition loss of volume in those ex-BGI territories where we ceased that partnership. And so that weighs on the Africa number. And then as you keep going around the world, obviously, Latin America had a good quarter. And then I think the last one I'm really missing is a bit of Eurasia. And there, we had a pretty decent quarter. We had growth in Turkey, which is an important market to us, and a number of other of the Central Asian markets and the Middle Eastern markets. Obviously, those ones that are -- tend to have resources or oil exporting countries tend to have done better than the heavily oil-importing countries, so the Middle East is better than Egypt. Of course, remember that the EMEA numbers have the dropout of the Russia business.

Charlie Higgs:

So we're a year now into the reformulation of Coco-Cola Zero Sugar. And to cap it off, we've seen 11% volume growth and double-digit growth in developed markets. So James, just wondering your opinion on Coke Zero, how it's gone since the relaunch? And then also just looking into 2023, does your approach to innovation change at all that we think we're going to enter a weakening consumer environment?

Operator:

Our next question comes from Peter Grom from UBS.

John Murphy:

Thanks for the question. And just to maybe to reiterate, the difference, I think, between the long-term growth algorithm and what may be coming at us over the next year or so, I think it's going to be somewhat out of algorithm, given the various factors that we have discussed on the call and indeed have discussed throughout the year. So at this point in time, I think it is too soon to give you line-by-line guidance. But we continue to see a path to generate U.S. dollar EPS growth in 2023, and that will be -- will need to be driven from the top line. The cost pressures are there. We're very aware of them. We talked about the currency outlook. And so, we still think when you put all the pieces together that we have that path. But we'll have a lot more coming at us over the next three to four months. And in February, can give you a more granular breakdown of how we expect to get there.

Bill Chappell :

Just I guess a question on some of the competitive response or individual markets. I mean everything you've talked about today has certainly been positive. And I guess, any of the the setbacks have been kind of attributed to macro issues. Are there any areas where you're worried about where there's been a competitive response, where you need to step up, be it on a product or an individual country? Or is it really just there's just so much momentum and anything else is just macro related?

Operator:

Ladies and gentlemen, this concludes our question-and-answer session. I would now like to turn the call back over to James Quincey for any closing remarks.

Operator:

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.

Operator:

At this time, I'd like to welcome everyone to the Coca-Cola Company's Second Quarter Earnings Results Conference Call. Today's call is being recorded. If you have any objections, please disconnect at this time. [Operator Instructions] 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 any questions. I would now like to introduce Mr. Tim Leveridge, Vice President of IR and FP&A. Mr. Leveridge, you may now begin.

James Quincey:

Thanks, Tim, and good morning, everyone. In the second quarter, we delivered strong performance by continuing to execute on our growth strategy. Our industry remained robust, and we gained both volume and value share in the quarter. Our first half 2022 results and the resiliency of our business give us confidence to raise our top line guidance. This is offsetting the meaningful increases in costs and currency headwinds to hold our bottom line U.S. dollar outlook of 5% to 6% growth, even as we accelerate investments in our business to drive future growth. These results are enabled by our organization's purpose-led culture, strong alignment with our bottling partners and the dedication and flexibility of our people while driving our growth agenda. This morning, I'll discuss the current operating environment and how we're delivering results and building for the future in that environment and the progress on our sustainability agenda. Then John will discuss the financial details of the quarter and how we are building resilience to manage through external factors worldwide. During the second quarter, the operating environment continued to be asynchronous with many moving parts. Some regions continued to experience broad-based macro strength while others are experiencing strong inflationary pressures. Some countries are still recovering from the pandemic, while China experienced pandemic-related lockdowns. And the conflict in Ukraine is ongoing, and we'd like to send our thoughts and deepest sympathies to all of those who continue to be affected. With this as a backdrop, we have managed well with our bottlers and delivered robust revenue growth across all our geographic segments that encompass strong pricing actions and strong volume performance helped by away-from-home recovery. Consumer elasticities have largely held a better-than-expected year-to-date, though we are watching closely for signs of changing consumer behavior as the year goes on and as the average cost of the consumer basket continues to go up. We expect the consumer environment to be more challenging, and we are preparing accordingly, stepping up our investments, sharpening our resource allocation capabilities and tapping into data to better reach our consumers. We also recognize that the dollar strength is impacting our translated earnings, and we remain committed to delivering U.S. dollar growth. As a system, we are focusing on expanding the circumference of what we can control, understanding and providing what consumers want, ultimately giving them more reasons to choose our great brands and driving value for our consumers, our customers and the industry. Now recapping our Q2 performance across the world, starting with Asia Pacific. In India, we delivered our best-ever quarter volumetrically and added 1 billion incremental transactions in the quarter, led by affordable single-serve packs. We gained share in sparkling soft drinks and juices, and our system is continuing to invest in the marketplace availability and execution to capture growth. Japan made progress in recovery, and we gained share and consumers year-to-date versus 2019. Additionally, we gained 7 points of share of visible inventory, driven by coffee and Tea in the ambience base. We continue to have a strong innovation pipeline with the launch of Ayataka Hojicha Latte, non-alcohol Lemon-Dou, [indiscernible] and Georgia Latte Nista. Performance in China was under pressure, driven by COVID lockdowns. Volume was down for all months in the quarter, but the team persevered through a challenging environment, and recovery began in June as most restrictions started to lift. We focused on the core, prioritized top SKUs and reallocated resources to digital engagement, e-commerce and O2O as consumer demand shifted to at-home consumption. In ASEAN and South Pacific, macro fundamentals remained strong despite ongoing supply chain headwinds. We added new consumers, and transactions grew ahead of volume. We invested in consumer-facing marketing and improvement in execution and increased distribution across key entry packs and multipacks. Turning to EMEA. Europe saw strong volume performance, leading to value share gains across total NARTD and online. Strong marketing campaigns, including Coca-Cola Zero Sugar Zero Words, What The Fanta 3.0 and Sprite Screen Time Messaging are tying our beverages to more consumption occasions with better results. In Africa, we delivered strong performance and translated into NARTD volume and value share gains. We continue to focus on skills, affordability and in-market execution. Digital initiatives remained strong and grows merchandise value of our eB2B marketplace businesses were up approximately 50% sequentially. We accelerated cooler placement, reduced retail out of stocks and continued building RGM capability across markets. In Eurasia and Middle East, amidst an unprecedented inflationary environment, the industry is growing, and the recovery of the on-premise channel is driving our growth. Through the FIFA World Cup Trophy Tour, we leveraged the iconic Coca-Cola trademark to generate significant media traction across the markets. Turning to North America. We gained both volume and value share through the strength of our brands despite navigating a challenging supply chain, including higher labor and freight costs. We continue to drive mix improvement in sparkling soft drinks and more than doubled mini can availability on this play. New product innovations, including Coke Starlight, Fanta Dragon Fruit Zero Sugar and Minute Maid Aguas Frescas are showing promising early results. We're continuing to work closely with our bottling partners to accelerate overall commercial execution. Turning to Latin America. We leverage compelling occasion-based marketing campaigns and execution in the marketplace, and our share losses improved sequentially. Coca-Cola trademark focus on building meals and brakes rituals under the Real Magic platform with returnable packages as the main enabler, while in juice and dairy, we're focused on everyday mills occasions. Our flavored alcohol beverage business is growing strongly. We're gaining share in the direct-to-consumer business and now reaching approximately 6.3 million consumers via digital channels. In Global Ventures, the cost of retail business was under pressure as footfall in the U.K. stayed below 2019 levels. However, the Costa Express platform remained robust, and the launch of the new Frappe range in the U.K. drove growth. Finally, our Bottling Investments Group delivered strong top line performance, driven by a focus on recruitment through affordable entry packs, including a relaunch of returnable glass bottles in India. Additionally, we saw continued sparkling soft drink share gains versus 2019 in the Philippines and Vietnam. While the macro environment is still asynchronous around the world, we're operating in an industry with a relatively predictable pattern of growth and attractive growth potential over the long term. So we're investing in our business and are anticipating the many futures as they come at us. We have managed a broad-based recovery coming out of the pandemic. Our 5-year average organic revenue growth rate is at the top end of our long-term growth target of 4% to 6%, which is a proof point of our transformed and strengthened organization. As we look to the second half of the year, we will continue to focus on raising the bar on the elements of our flywheels for top line growth and, as I said earlier, expand the circumference of what we can control, namely through building our strong portfolio of loved brands, excellence in revenue growth management and the power of our system execution. We're making targeted investments to unlock our growth agenda. We've built capabilities in brand building, innovation, RGM and execution, leveraging the power of scale while still being locally relevant to consumers. These investments enable us to win not only in today's environment but continue to build our business for the long term. Our new marketing model is focused on adding and retaining consumers. And we're doing this through an ecosystem of experiences that link consumption occasions with consumer passion points. The launch of the Global Magic Weekends campaign with Trademark Coke, in partnership with more than 20 food service aggregators, is showing great results. This campaign engages consumers at key moments from gaming to music to meal times. We are seeing 3.5x redemption levels for Coca-Cola combo meals versus pre-campaign levels and a 50% lift in outlets with Coca-Cola Zero Sugar availability. We also launched end-to-end digital-first brand campaigns for smartwater and vitaminwater, the snackable video content on social platforms for smartwater with global icon Zendaya and the launch of vitaminwater Lil Nas X partnership on TikTok is a different engagement approach to marketing that is already delivering strong results across channels. With new faces and new platforms for some of our billion-dollar brands, we are creating excitement and recruiting a new generation of drinkers. We continue to strengthen our RGM capabilities, which allows us to drive value for our consumers and our customers. RGM allows us to better navigate a dynamic consumer and retail environment, using effective tools such as price and promotional intelligence to leverage the power of our brands, proactive mix management and premiumization and addressing affordability to drive recruitment and keep value-conscious consumers. We work to bring these elements to life at a local level with our bottling partners. For example, in India, we focus on segmented pricing, increasing prices on multiserves and premium packs while holding transaction-driving price points in single-serve and the affordable portfolio. Additionally, we reached our highest-ever outlet availability and drove a 4-point increase in single-serve availability and a 6-point increase in affordable pack availability. In Europe, our system implemented several affordability and premiumization initiatives. We drove strong transaction and volume growth through initiatives like incentivizing multipacks to drive value on a price-per-ounce basis for consumers and driving single-serve packages like cans and returnable glass bottles in HORECA channels. By keeping transaction-driving price points in play, we expanded our consumer base with sparkling soft drinks in the region year-to-date. We're building consumer-centric loved brands and products, and our improving excellence in execution extends the building a more sustainable future for our business and the planet. During the quarter, we released our fourth World Without Waste Report, which provides an update on our ambitious sustainable packaging initiatives. It showcases how we are using our global reach and expertise to drive solutions at scale. Our operating units are further integrating sustainable practices into the business to drive growth. For example, in the United States, we are executing a set of initiatives to help solve the plastic waste problem. We recently joined industry groups, including the Consumer Goods Forum and the American Beverage Association, to support our model Extended Producer Responsibility Bill in Colorado. This is in addition to the support we provided for well-designed minimum-recycled content legislation in 3 states. These are now being enacted into law. Currently, 20-ounce bottles for Coca-Cola Trademark and The Summit in California, Texas, New York and throughout the Northeast are in 100% recycled PET. In 2021, we launched a bottled label clearly communicating that the bottles, excluding the caps and labels, are made from 100% recycled content, which is driving strong performance in the marketplace. Later this month, we will expand our use of 100% recycled PET throughout the U.S. and Canada. Every part of our business understands how their actions impact the company's wider sustainability goals, and we continue to make progress. To sum up, we are continuing to navigate a confluence of macroeconomic factors, and our networked organization is embracing the resilience to weather many environments. Guided by our purpose and with the right strategy through our portfolio and the right execution capabilities, we are confident about delivering top line growth for now and the long term. Before I turn the call over to John, I want to congratulate him for assuming the role of President beginning October 1, in addition to his current responsibility as a CFO. And of course, I also want to thank Brian Smith for his service and innumerable contributions to the system during his 25-year tenure with the company and wish him all the best for the future. So John, over to you.

Operator:

[Operator Instructions] Our first question comes from Bryan Spillane from Bank of America.

James Quincey:

Yes, sure, Brian. Let me start off kind of by zooming out and then come back to the consumer and the uncertainty in the downhill. And that is -- in the end, it's going to be 2 ways underlining the kind of the relatively atypical point we are, given the end of COVID and the kind of post-COVID era. And where I'm going with that is to start by zooming out and saying, look, if you were to take a 3-year or a 5-year compound annual growth rate and look at the first half and what's implied in the second half guidance, you wouldn't see as much choppiness as you're seeing when you compare to prior year, and that's all related to COVID. In fact, if you take the 3-year or 5-year compound annual growth rate and look backwards and through the amazing roll coaster of volume and down and then up and price down then up, what you actually see is something simpler and more encouraging, which is that the volume has grown at 2 and a bit and the price has grown at 3 and a bit, whichever of those 2-time periods you've taken, so you net out at about 6. And so what you see over that long time period is the thesis we've been advancing, which is we've got an industry that grows at 4-ish percent. We are the leader that gain share with our portfolio, whether our RGM with our execution, and therefore, we can get to the top end of our long-term growth model. And if you zoom out, that's the kind of picture that you can see. And I would encourage people to not get too lost in the weeds to start with in trying to figure out the second half or even maybe the future and start with kind of starting from a macro position and saying like what does that look like when you kind of look through on a longer-term basis. And I think that will help people think about the downhill. The second thing I would say about those, we don't know how it's going to turn out. There's clearly a set of things going on and the net impact is difficult to predict in terms of the rest of the year. One, we've clearly, in some parts of the world, got a squeeze on purchasing power, and higher inflation is running ahead of wages. That's true in many places, U.S., Europe. It's not universally true. The inflation in China and Southeast Asia is only running at 3%. But there's clearly a big part of the world where there's a purchasing power squeeze. But at the same time, you've got relatively stable deposit balances. And you've got a big, very atypical reprioritization of spend occurring by consumers. And that's an important feature of how to see what the consumer is doing, because whilst there are a number of channels and categories where things look a little tougher in the short term. So if you're looking in grocery in the developed markets, if you're looking at some of the convenience channels in developed markets, you're seeing some pressure on consumers with less income, some early signs of trading down, depending on which category you're in, not necessarily in beverages yet. That's not to be -- that's to be expected. But then if you're in the away-from-home channels, the theme parks, the leisure parks, that sort of thing, travel, it's about as good as it's ever been. And so this post-COVID reprioritization of spend by consumers is layered over what feels like a squeeze on purchasing power. Whether it's a recession with peak employment is yet to be seen, but there's a kind of a standard process going on a squeezing purchase path, layered over with this weird or atypical consumer reprioritization post-COVID. How that's all going to net out in the second half and going into next year? There are a lot of opinions. I don't think anyone is going to know until we actually get there. But let me zoom back out again. The long picture is a stable sustained and accelerated momentum for the Coke system over a good number of years that we feel good about going into the downhill.

Dara Mohsenian:

So just 2 follow-ups on that. A, can you just give us a sense of how much of the full year top line raise was due to price/mix versus volume specifically and just break it out between those 2 factors? And then B, just any update on if towards the end of the quarter in July, if you saw any of that potential squeeze in consumer purchasing power play out? Obviously, in aggregate, very strong top line numbers, but are there any regions maybe where you're seeing either demand drop off or signs of consumer trade down? It'd be helpful to get a bit of a compare and contrast regionally and if there are any initial sites.

Operator:

Our next question comes from Lauren Lieberman from Barclays.

James Quincey:

Yes. I mean, as you say, there's not a one size fits all. We've rather atypically got relatively high inflation in the U.S. and Europe with the kind of 8% to 10%, and there are emerging markets that are down at 3%. So it's not a normal time. We obviously have a lot of experience. I won't go over our RGM strategy and how we use that to manage through maintaining affordability. What you see -- and let me make a couple of points here. One, it's important to consider in the headline price/mix that we're reporting that a big component of price/mix in the first half is mix. Unusually, relative to the past and pre-COVID, mix is an important factor, both from a country point of view and from a channel point of view. And both are favoring reported price/mix at the moment. So underlying rate increases, if you like, are not as high as the price/mix number. And they are in the ballpark of slightly behind inflation. And the reason that -- and that's relatively typical as well. So that's not surprising to us because what we essentially try to do as -- firstly, as I commented before, is we don't want to get behind passing cost increases through. We don't want to arrive a recession with a big buildup of cost increases that has not gone through, but nor do we get ahead and anticipate inflation by pricing ahead of it. And so that the rates increases are kind of in the ballpark of inflation would be the normal expected kind of trajectory. And so what we're seeing is, yes, we've been passing through the commodity increases. Again, we don't price -- we don't pass through to the peak. We're not chasing the spot market. We are hedged on commodities. And so as the prices come up, clearly, we know when the hedges are going to roll off, and we need to pass through those. But the commodities are not the majority of the cost base. We've got a lot of service and other inputs, and we are seeing broader-based inflation than just commodities up and down. And so as those come through, we pass them through. And so we've passed a good bit through so far this year. We anticipate more cost increases will come through on a broad-based set of inputs. And we will continue locally in each country because it's very different. We will continue to pass those through. And what that's likely to look like in terms of rate is we'll kind of be at inflation or slightly behind headline inflation as it goes up with the layover of price/mix.

Steve Powers:

Yes, I think this question is probably for John. And congrats, John, on the new role. But I guess I was hoping you could give us just maybe a bit more insight into your line of sight into productivity and cost savings over the balance of the year and whether the philosophy from here is still more to reinvest those savings to drive profit growth through accelerated revenue and expense leverage. Or whether, given the higher inflationary pressure that you called out and the prospects of deteriorating demand on the horizon, the philosophy is now biasing at all more towards harvesting those cost savings and dropping them more straight through to profit? Just some context there. And then if you could also comment at all as to how your investment priorities may be shifting in this environment, that would be helpful as well.

Operator:

Our next question comes from Kaumal Gajrawala from Credit Suisse.

James Quincey:

Yes. I mean very much -- let me start by reading them. Our goals are to, on a continuous basis, strengthen the strategic position of the Coke Company and to deliver ultimately, when all said and done, increases in dollar EPS back to the shareholders. And so that is the North Star, and we've broken that out into all the strategies necessary to make that a reality. And that's what we're going to continue to pursue. Clearly, at the moment, we're focused on increasing our ability, both the resilience to face up to what could be yet further unexpected twists and turns in the coming months or even years, and adaptability. One of the features of the COVID crisis was the amount of learning that took place to be able to respond to the lockdowns. So the first lockdown was very painful. The second one, less so and onwards and onwards. And actually, in the second quarter, there was a considerable lockdown in China. China was negative in volume each month through the second quarter. And yet, we were able to both accommodate that and manage through it in China and mitigate it at a total company point of view. So bear in mind, Q2 had both the disappearance of the Russian business and a quite negative China business due to the lockdown. So this idea of focusing -- continuing to focus on the strategy that has been guiding us for the last number of years with a double-down on both resilience and adaptability, we feel, is going to give us the wherewithal to manage through the twists and turns that are yet ahead of us.

Bonnie Herzog:

I guess I have a question on your guidance. Could you give us a sense of the scenarios you considered in your new updated guidance in terms of a potential recession and whether you've considered a severe scenario? And then how should we think about your business relative to peers given you over-indexed to the on-premise channel? James, you touched on this, but just curious to hear if you see a greater potential risk on your business as consumers potentially pull back on dining out and entertainment. And if so, is this considered in your guidance? And then maybe just touch on the strategy you can implement to mitigate this.

Operator:

Our next question comes from Andrea Teixeira from JPMorgan.

John Murphy:

Thanks, Andreas. So on the last point, I think as James highlighted, we're not seeing any significant changes on that front, so very much focused on continuing to drive the momentum. With regard to the whole topic of how we work with our bottling partners, as I think many of you on the call understand and appreciate, we have an economic model that is under-led by instance pricing. That pricing allows both of us to focus on growth in the marketplace and allows greater certainty as to what to expect from our activities in the marketplace. And as we work through periods of high growth, low growth, volatility, stability, the model doesn't change that much. It's what allows us to -- I think, to stay focused on delivering what we need to in whatever the context is. So not a -- there's not a lot to report out on changes. I think the model itself is actually what allows us to -- one of the reasons that allows us to continue to deliver on the opportunities that the industry has that we've talked about and allows us to continue to be optimistic about sustaining momentum.

Rob Ottenstein:

I just first wanted to follow up on the question on the bottling system. Can you just maybe, number one, talk a little bit about Swire and kind of the thought pattern there? where you stand on the refranchising in general. And then just more specifically on the pricing, you talked about leaning into growth. How does that play into the pressures that are on the bottlers themselves? I mean, obviously, with the incident pricing, you both share, but presumably, the bottlers are getting hurt a little bit more in a number of countries from inflation. So how does the discussion work between you and the bottlers in terms of how much pricing is appropriate?

Operator:

Our next question comes from Chris Carey from Wells Fargo Securities.

James Quincey:

Yes. Just to clear, we didn't provide any guidance for BODYARMOR itself. And clearly, we've been -- it's a great brand. It's high growth with strong innovation. It's done a great job of reinvigorating the advanced hydration and bringing people into the sports drink category. We are lapping some disruption in the category from last year, and that's obviously had some kind of effect on the comparisons. And I think we're in good shape. We're in the process of kind of fully connecting it to the Coke system and continuing to drive it forward and continuing to do what the brand needs to do and keep it true to itself. And as and when we've got international opportunities, we will address those over time.

Kevin Grundy:

Congrats on strong results. James, a question for you. You kind of touched on some of this, but maybe not directly. It's on your U.S. business and potential implications from some of the margin pressures we're seeing very publicly from large retail customers. So understanding those issues are more around general merchandise than grocery, but nevertheless, notable margin compression, which I'm sure cannot, should not go unnoticed by any large suppliers or anyone in the industry for that matter. Just comment on potential implications from your business in categories where you participate, whether this is potentially less ability to take price if it's called for, greater likelihood of demands on trade dollars. So the question is very specific. I do not ask you to be redundant because I think it was Lauren's question, you talked a little bit about pricing. But the question is very specifically on any fallout you may see from the margin pressure we're seeing at large retail customers in the U.S.

Operator:

Our next question comes from Brett Cooper from Consumer Edge Research.

James Quincey:

I mean we're getting right down into the -- some of the packaging stuff. Look, the price/mix, I think, is very important to try and disaggregate channel and category pricing changes. You alluded to something on the 20-ounce. I presume that was in a specific channel. And we very much are focused on driving not just, as I said, consumer value, but also we were going to take rate, but we do focus on, as we've talked about many times, retaining affordability whilst also looking for premiumization. And whether 1 pack is going up in price, then clearly, that's probably more of the premiumization strategy where the other packs will be looking to stay anchored in affordability, whether they be individual pack sizes or multipacks. And we use different pack sizes and different combinations of multipacks to move across the spectrum of what price point is going to work for which consumers. And therefore, the key in that dynamic is to increase the diversity of the packaging mix. It's almost impossible to segment and resegment the marketplace with only 1 or 2 package slices. So the important factor becomes the diversity in the number of packaging size or material options and the diversity of the multipack options. That's the dynamic that allows you to play across the spectrum of price points and elasticities. And so one going up. There's probably another one staying anchored that allows us to do the strategy. But I think the most important is the overall dynamic of using the diversification of the packages, the growth in the mini cans, the introduction of some smaller-sized PET bottles to be able to capture the whole kind of demand curve spectrum.

Bill Chappell:

Just kind of a follow-up on the pack sizes. I mean, one of the things you had said was you've benefited from country mix and, I guess, product mix, but not necessarily pack mix. And I would think that as the higher prices are being flowed through, maybe you have some acceleration to smaller pack sizes, which are higher margin? So I guess is that -- are you seeing any of that? And if not, if you're not seeing any trade down, is there any reason down the road in the back half if commodity prices come down, you would roll back any of these price increases? Or do you feel like, hey, there's no real elasticity. We're just going to hold the line here.

Operator:

Ladies and gentlemen, this concludes our question-and-answer session. I would now like to turn the call back over to James Quincey for any closing remarks.

Operator:

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.

Operator:

At this time, I'd like to welcome everyone to The Coca-Cola Company's First Quarter Earnings Results Conference Call. Today's call is being recorded. If you have any objections, please disconnect at this time. All participants will be in a listen-only mode until the formal question-and-answer portion of the call. 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 any questions. I would now like to introduce Mr. Tim Leveridge, Vice President of IR and FP&A. Mr. Leveridge, you may now begin.

James Quincey:

Thanks, Tim, and good morning, everyone. First and foremost, on behalf of our company and our entire system, I'd like to share our deepest sympathies to all those who have been affected by what's happening in Ukraine. The safety of our people and their families continues to be our top priority. And as we highlighted in our release this morning, we are taking actions to provide that support. Now this morning, I'll discuss how we drove strong results in the quarter and that we are reiterating our guidance even in the face of incremental challenges. Then John will discuss the financial details of the quarter and how our work has prepared us for whatever may be around the corner. We all know that much has happened in the world since we last talked with you in February, leading, for sure, to an operating environment that is fast changing and increasingly complex. However, we remain confident about the future and are well equipped to manage external factors worldwide through our strengthened leadership position with the right portfolio, the right strategy and the right execution in the marketplace. After a promising start to the year, the operating environment soon changed with very significant geopolitical conflict, a resurgence of COVID in various places, record-high inflation and continued challenges on the supply chain front. Nonetheless, we've consistently sustained our momentum from last year, moving with agility as conditions changed to generate strong top and bottom line growth in the quarter. We delivered 8% unit case volume growth, primarily driven by strong recovery in away-from-home channels and continued growth in our home channels. Volume growth was strong across all operating segments, driven by marketing investments and aided by an increase in consumer mobility as the impact of the pandemic abated in most regions. Our enhanced capabilities helped us gain value share overall in both at-home and away-from-home channels globally and across most of our geographic operating segments, a clear indicator of the power of our new approach. Amidst the dynamic macro conditions and an inflationary cost backdrop, we focused on delivering growth. The key competitive edge of The Coca-Cola system continues to be the ability to deliver value for our consumers and our customers in any environment. Our accelerated agenda in marketing and innovation is tying our beverages to daily consumption occasions, adding and creating value for our brands. Additionally, we continue to work with our bottling partners to expand package offerings and strengthen distribution to capture growth opportunities, using all the available revenue growth management levers, including price, to win in the marketplace. These scaled global initiatives are coming to life at a local level all around the world. So let's start with Asia Pacific. In India, we drove excellence in integrated execution as consumer mobility improved across channels by stepping up product availability, adding approximately 240,000 outlets and over 50,000 coolers. We also continue to build relevance through innovation by launching Maaza Aam Panna to leverage our equity in Mango and Fanta Apple to expand our footprint in the fast-growing fruit-flavored sparkling subcategory. Japan is emerging from its extended state of emergency, and we've increased our consumer base and driven market share gains in key categories. The Coke ON app reached 35 million app downloads, continuing the direct engagement with consumers to create and capture value. We also continued our focus on ESG initiatives with 100% recycled PET bottles now available in Japan for 5 key brands, including Coke and Georgia Coffee. In China, a strong start in January, led by an excellent Chinese New Year brand activation with Coke, was followed by strict COVID lockdowns, and this resulted in reduced consumer mobility. Momentum reversed in February and March and led to a decline in unit case volume during the quarter. We're moving fast to focus on core SKUs and ensure product availability. We're adapting how we engage with consumers depending upon local market conditions, and we're working in close collaboration with our bottling partners to focus on execution basics like increasing multipack availability and maximizing share of visible inventory in channels and regions that are open. In ASEAN and South Pacific, we gained share in key countries and across most categories, while consumer mobility was mixed and supply chain headwinds remained. Growth was led by Trademark Coke and sparkling flavors, driven by strong end-to-end execution of the [Zero Words] (ph), Sprite Heat Happens and the Fanta Colorful People brand campaigns. In EMEA, notwithstanding the conflict in Ukraine and an uptick in inflation, we delivered a strong performance in Europe in the quarter. The continued rollout of new and improved Coca-Cola Zero Sugar across key markets helped drive 5 percentage points of sparkling single-serve mix growth, which is ahead of pre-pandemic levels. Topo Chico Hard Seltzer is closing the gap with the #1 hard seltzer brand in Europe, and the eB2B business with myccep.com accounted for low double-digit contribution to total revenue. We are keeping a close watch on the spillover reflex of the conflict in Ukraine on the health of the consumer, and we remain ready to pivot and adapt. In Africa, macroeconomic recovery is underway, although conditions remain challenging due to inflationary pressure. In South Africa, we accelerated refillable PET expansion and the execution of in-store sampling to retain consumers. We are connecting with our existing customers in the digital space and have surpassed 65,000 outlets on the Wabi eB2B platform, significantly ahead of plan. Despite macro volatility and intense inflation in the region, Eurasia and Middle East drove top line growth through a strong suite of marketing programs across categories, led by sparkling and ready-to-drink tea. In Turkey, Coca-Cola Zero Sugar became the #2 immediate consumption player in value share behind brand Coke. In Pakistan, Coke Studio, a platform that unites diverse cultures through the power of music, drove social engagement that reached an all-time high in terms of impressions and viewings. In North America, we are seeing more inflation and continue to navigate supply chain dynamics. We're closely monitoring further pressure in some inputs such as high fructose corn syrup, PET and metals, along with wages and transportation as they impact us as well as our bottling partners. Despite these challenges, we continue to gain share in both at-home and away-from-home channels and across most categories. The strong rollout of Real Magic platform and the successful launch of Coke Starlight resulted in Coke Trademark being the fastest-growing trademark in measured retail, driving household penetration up a full point. Powerade [posed its power] (ph) launch during NCAA March Madness, generating more than 1 billion impressions. We also continue to learn from the returnable glass-bottled pilot that has been implemented in the Southwest. In Latin America, we delivered strong performance despite challenging macro conditions, and the investments we made to sustain momentum are paying off. We remain focused on integrated execution and drove revenue growth faster than transaction growth, both of which grew faster than unit case volume growth. Our work to strengthen the traditional trade is paying off as the channel showed the best underlying performance across all channels. The Prospera loyalty program added nearly 50,000 retailers in the quarter while continuing to advance our customer-focused digital expansion. Notably, we have digitized nearly 2 million customers in the region, and we are leveraging the strong system alignment with our bottling partners and are continuing to execute for growth. Within Global Ventures, despite an inflationary backdrop in the UK, Costa continued to recover driven by retail and strong like-for-like sales with Costa Express. In China, while retail sales were impacted by store closures due to the pandemic, Costa ready-to-drink coffee sustained its #2 position and continue to innovate with Costa chart. Finally, our Bottling Investments Group delivered strong Q1 performance, driven by the expansion of affordable immediate consumption entry packs in key markets, and this resulted in share gains in sparkling. We also continue to make progress towards optimizing trade promotions and cost to serve in our key markets and raise the bar on operational excellence. Clearly, the operating environment has proven to be more challenging, but we're pleased with the results we delivered in the first quarter. We continue to believe the recovery in 2022 will be asynchronous. We anticipate many new chapters and challenges, including, but not limited to, ongoing geopolitical conflict; uncertain consumer sentiment amidst the increasingly inflationary environment, accelerated cost pressures and ongoing supply challenges; and of course, continued evolution of pandemic. That said, the changes we have made during the pandemic have left us better positioned than ever to capture growth, increasing our confidence in the future. The multiple levers of revenue growth management have never been more important, and our investments in building this capability over the past few years are giving us a clear advantage. Further actions on pricing will depend on the consumer and inflationary environment as the year progresses, but we will continue to rely on a mix of price, package differentiation and ever-sharper promotional strategies. Through integrated RGM and execution capabilities, we adapt to local market conditions and give consumers what they want, where they want it and at the right price. By extending package offerings to keep transaction driving price points in play, we retain consumers through affordability while also driving premiumization with innovation and targeted pricing. For example, in Latin America, we are continuing the expansion of refillables to sparkling flavors and juices, and this remains a compelling consumer proposition to address the need for affordability. In North America, we're maximizing value by initiatives like the one expanding the availability of mini cans for consumption across occasions such as breaks and meals and by offering 6 packs, 10 packs and 30 packs, driving an approximate 45% increase in retail dollars in measured channels and their near-20% increase in total distribution points. Our networked organization structure extends to our system. Our bottling partners complement our progress against our capabilities by continuing to invest in the marketplace, and they help put our purpose into action. We have strong partners with highly capable and experienced leadership, and we continue to build and foster our business and each in our relationship that drive system health and long-term growth opportunities. With our purpose to refresh the world to make a difference, we continue to focus our ESG work on issues where we can have a measurable positive impact on communities as well as create opportunities for our business to grow. We release our fourth combined business and ESG report tomorrow, an integrated approach to reporting that is a strong demonstration of how sustainability is linked to our business, builds resilience and demonstrates transparency. We have a long history of assuring select sustainability metrics while also providing key public disclosures against the TCFD recommendations as well as other reporting frameworks such as SASB, GRI and the UN Global Compact. In the report, we highlight how we and our bottling partners are driving business growth through our interconnected ESG goals and how we continue to seek an exponentially greater impact by fostering collective action, partnering across industry, government and society to address shared challenges. In conclusion, while there is no doubt the world is more uncertain and the operating environment remains highly dynamic, our strategy remains the same

Operator:

[Operator Instructions]. Our first question comes from Lauren Lieberman from Barclays.

James Quincey:

Yes. There was -- I think we'll call that several questions.

James Quincey:

Okay. We'll be -- in the spirit of generosity, we'll try and -- because they're very related. Look, we have a great partnership with our bottlers in Latin America from the 2 very big ones. Coke FEMSA, Arca Continental, through Andina and some of the more country-based bottlers. And we have developed collectively the system, many capabilities on many fronts, whether it be marketing automation, but particularly, the levers of revenue growth management and execution in volatile times. It escapes no one's attention that Latin America was a place that has had a rollercoaster of economic growth and inflation and difficulties. And we have a very deep partnership with these bottlers to work through these times. And that, I think, you see reflected in this quarter as we had a lot of good growth. The share did come in negative overall. I think there's a couple of things going on there. As you say, we did a lot better in sparkling, a lot of good execution in sparkling. And there was some pressure as much in juice or some of the juice drink categories, but also category mix. We are very much focused on, as we've talked about previously that when you are in a cost environment, that those cost increases, whether it be commodities or wages or logistics or marketing costs, need to go through over time. We have to earn the right for the brands to take if they need to go through. Sometimes when you're in a very high share market like Latin America and you lead on pricing, not all competitors necessarily follow immediately, and that can have temporary impacts on share. But we, with the bottlers, will be very focused on not only continuing to carry on growing, but to regain and expand our share position.

Dara Mohsenian:

So I just want to focus on top line visibility here. You obviously kept the full year top line guidance despite the Russia impact. So underlying sales are moving up ex Russia, and Q1 was another strong quarter. But clearly, there's risk consumer spending might weaken with the unprecedented inflation we're seeing. So first, maybe just looking backwards, can you give us an update on if you're seeing any signs of consumer stress in terms of impact on your business or pushback to higher pricing around the world, either late in Q1 or in April? And then also on a go-forward basis, can you juxtapose the positive impact of normalization of COVID behavior on your business as away-from-home recovers maybe versus any potential macro pressure you could see or consumer spending weakness? And how that impacts your visibility in terms of full year top line view?

Operator:

Our next question comes from Steve Powers from Deutsche Bank.

John Murphy:

Thanks, Steve, it's John. Let me first just lay the picture of total capital allocation. The first priority is to invest in the business. And as we -- as James just said, when you think about the environment that we're -- we have been dealing in and we will be dealing with the rest of the year, the name of the game right now is to do exactly that is to continue to invest in our brands so that we have the wherewithal to manage through whatever comes at us. I think at a local level, the mix of investments is something that we continue to be very flexible with. And we are leveraging the work that we have been doing over the last couple of years to be even more effective in how we're spending our marketing dollars, whether it's on building our brands or whether it's on supporting our RGM efforts in the marketplace. The other areas of our capital allocation framework, supporting the dividend, looking at opportunistic M&A and share repurchase, we covered in the script with the dividend and share repurchase, we continue to be very open as to what opportunities may be out there. But in the here and now, the top priority is investing appropriately in the business. And as I say, the mix of that investment is something that varies and will continue to vary depending on what we need to do locally.

Bonnie Herzog:

I had just a big picture question about how you're working with your bottlers who are experiencing pretty sharp cost pressures to essentially help them navigate through this tough environment, if you guys could talk about that. And also looking at the equity income in the quarter, it remained relatively strong, but is the expectation going forward that there will be a greater impact in the next couple of quarters, given some of these pressures?

Operator:

Our next question comes from Bryan Spillane from Bank of America.

James Quincey:

Yes. Thanks, Bryan. Yes, I mean, firstly, we'd refer everyone who wants a greater depth to the proxy that's out there on our website, and we've tried to lay out some of the mechanics and our thinking behind the 2. We have made some changes, as you point out, Bryan, to the way the long-term incentives or more specifically, the performance share units, which are kind of a 3-year program. We've got a 10% element in that that's linked to our ESG goals. And so we are laying out some very specific targets that will drive a portion of those payouts. And because some of those ESG objectives take some time to execute against, we felt they were better embedded into the 3-year stock award programs. And then secondly, as you point out, with the Board and with the Compensation Committee, we felt to increase greater alignment with shareowners. We would readjust the balance of performance share units versus options for myself and push that up to 50%. I mean you can take that as a confidence in the future, but that's one very small stone on the large pile of stones of things we do to demonstrate that we believe this is a great company with a great future.

Filippo Falorni:

This is Filippo Falorni on for Nick. My question is on pricing. Clearly, price realization has been very strong in the carbonated soft drink category and particularly North America with a very rational environment in the industry and pretty low elasticity so far. So can you comment how you balance the need to take pricing while ensuring affordability using price/pack architecture, your revenue growth management, given this inflationary environment, the impact on consumer wallets in North America and in other parts of the world? And then secondly, if you think you will see more promotional activity in the industry in the balance of the year.

Operator:

Our next question comes from Kaumil Gajrawala from Credit Suisse.

John Murphy:

Quick answer. No updates -- no developments during the quarter. We'll keep you posted as they happen.

Carlos Laboy:

I was hoping you could give us an update on some of the stepped-up efforts on -- for renewable -- for refillable packages in Latin America and how that's going, please?

Operator:

Our next question comes from Andrea Teixeira from JPMorgan.

James Quincey:

Well, clearly, I mean, I've talked about our approach to pricing several times. And that is going to lead to more -- I mean there are going to be more price increases depending on where you are in. I mean there are countries with inflation well into double digits. And you do see multiple price increases during the year, as a matter, of course, when you're in those sorts of circumstances, with cost pressures to push through as you seek to sustain margins over time. Let me just address the elasticity question. It has been apparent, and other people have commented on less elasticity in recent times as price increases have gone through. I do not expect elasticities to be inelastic going forward. There's a reason you got the name elasticity. And so I fully expect, as I commented earlier on, inflation generally ends with some pressure somewhere. I expect elasticity to increase at some point in the future. Will that be next quarter? Or will that be next year? I can't give you the answer to that because it's very dependent on some macros, and it's probably going to vary by country. But we are very attuned to it, which is why I talked about how we are leaning into investing behind our brands so that we earn the right for the price increases, so that we can minimize the elasticity and that we keep a sharp eye on affordability, which again tends to minimize elasticity if we use RGM well. But as I say, if the choice comes down to, we think the elasticity is going up or we're going to have to not pass through some cost, we're going to err towards taking the price increase rather than not taking the price increase. As I said earlier, not seeing the cost go through and arriving at a recession being behind the curve is less desirable than embarking and having to take the hit from a greater elasticity in the short term. And so that's our kind of modus operandi, and we will certainly seek to earn the right to take the price increases. We certainly aren't looking to take price increases just because we can. We want to earn them as a brand, and we want to make sure we recover the cost over time.

Rob Ottenstein :

James, in the opening comments, you mentioned that you had digitally connected, I believe, with 2 million customers in Latin America. Can you elaborate on what that allows you to do? What that means, the upside there? What you're seeing in the market from that and how you expect to or how you plan to roll that out globally?

Operator:

Your next question comes from Laurent Grandet from Guggenheim.

James Quincey:

Yes. Laurent, looking at the non-retail business of Costa, the Express machines, the kind of vending digital barista machine had a very strong quarter with transactions growing strongly, and we're starting -- and we're seeing -- now that reopenings have occurred, we're starting to see the focus on placement of new machines across Europe and the Middle East; and also in China, although that's got a little harder in the last couple of months. But the Express machine is still doing very well. Obviously, they need the opening of the world to happen. And then on the Proud to Serve front, which is kind of providing the beans and machines to independent outlets, starting to ramp that up more in the Europe. Europe environment, again, early days. We did launch some tests in at-home. That's too early to kind of call. And then Costa ready-to-drink has done pretty well in China. It's sustained its #2 position. It's continuing to grow, and we've launched it also in some of the European markets. So starting to see those innovations roll out, and we'll see how they do in the coming quarters.

Kevin Grundy:

James, I wanted to pivot to your business in China, given the uptick in COVID cases there and related lockdown measures. Perhaps you could just comment on one, what you're seeing from a demand perspective; two, perhaps the exit rate for March and what you're seeing in April; and then three, maybe just more broadly, the company's ability to better execute in your view, despite lower levels of consumer mobility now over 2 years into the pandemic?

Operator:

Our next question comes from Chris Carey from Wells Fargo Securities..

James Quincey:

Sure. I mean, firstly on -- firstly, let me step back both. The away-from-home channels, whilst we have recovered to our 2019 levels, the away-from-home channels have not yet fully recovered. And in part, the -- and we -- I think I've talked about this on previous call, we've lost outlets in the course of the pandemic. That's true of the away-from-home, and that's also true of the fragmented grocery trades. And so there has been an impact on the number of outlets. It's not fully back. Of course, there is a distinction by sub-channel with away-from-home, particularly QSR has done well, particularly those with digital and drive-through have done well. So the away-from-home channel, even in a country, can't be considered as a thing. You need to break it down into the different subcategories and really look at it by that. But again, globally, it's not quite back at the 2019. There are big distinctions depending on what sort of sub-channel we're looking at. In terms of the current global status, yes, China very much impacted by COVID lockdowns, but there are other parts of Asia Pacific, Southeast Asia where there were pressures on the away-from-home channel. I mean, let me include Japan, which only just lifted the state of emergency, and we should start to see that improve. So as you think about the rest of the year, there are places where there is recovery yet to come. And of course, if there are recessionary impacts, either because of recession or loss of purchasing power in the face of inflation in certain parts of the world, then that will be an offsetting factor as we go into it.

Brett Cooper :

Can you address your thoughts on adding non-owned products to your or your systems offerings to win in digitization of your customer relationships? And then maybe in alcohol specifically to help scale the system in what is a new area for the company on an aligned basis across markets?

Operator:

Our next question comes from Bill Chappell from Truist Securities.

James Quincey:

That's a simple one. No. I'm not sure there's anywhere in the world that Coke Zero is bigger than Coke. There are certainly some countries in the world where the combination of Diet Coke and Coke Zero sell approximately the same as Coke Classic. In the end, Coke is a great franchise. We make available the classic version, the Coke Zero Sugar version, and we invite consumers to drink the one that best suits them. We are not trying to predetermine the mix structure. We are trying to offer the alternatives to get to invite the consumers into the franchise. But no, specifically, I don't expect Coke Zero to overtake Coke Classic in North America in the short term.

James Quincey:

Thank you, operator. Well, just to summarize, obviously, we're very pleased with our first quarter results. And while there are clearly more clouds on the horizon, our strategy is intact, and we are well equipped to execute and invest for sustained growth. Thank you for your interest, your investment in our company and for joining us this morning.

Operator:

At this time, I’d like to welcome everyone to The Coca-Cola Company’s Fourth Quarter Earnings Results Conference Call. Today’s call is being recorded. If you have any objections, please disconnect at this time. All participants will be in a listen-only mode until the formal question-and-answer portion of the call. 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 any questions. I would now like to introduce Mr. Tim Leveridge, Vice President of IR and FP&A. Mr. Leveridge, you may now begin.

James Quincey:

Thanks, Tim, and good morning, everyone. Today, I’d like to reflect on the past year and how we’ve emerged stronger from the pandemic, including positive performance in the fourth quarter. I’ll also highlight the broader macro environment and how we’re executing in the marketplace. Finally, I’ll touch briefly on the accelerators for growth that give us confidence we can achieve the 2022 guidance we’ve provided today, with more on them to come at CAGNY next, this month. John will then discuss financial results for the quarter and our outlook in more detail. Before I get to it, I’d like to acknowledge that our ability to emerge stronger would not have been possible without the efforts of our dedicated employees and system partners around the world, and I’d like to thank them for their hard work, their contribution not only to our results, but to our curious, empowered, inclusive and agile culture. In 2021, the operating environment remained dynamic as the pandemic continued to evolve, and factors like inflation and supply chain disruptions brought additional challenges. But over the year, our organization and system continued to manage through these circumstances with focus and flexibility. We are pleased with the results, which were above 2019 across key metrics, and we remain focused on building a stronger total beverage company. Now, looking more closely at our fourth quarter results. We saw another quarter of sequential improvement versus 2019, and we ended the year with volume ahead of 2019. Notably, it was the first quarter in which away-from-home volume was also ahead of 2019, while at-home channels remained strong. So, recapping the quarter four performance around the world, starting with Asia Pacific. China delivered strong performance in the quarter by capturing a growing trend among consumers of zero-calorie offerings, we doubled our Zero Sugar sparkling portfolio in terms of volume compared to the fourth quarter of 2019. We leveraged RGM strategies and targeting investments to gain share in e-commerce, thus driving growth for the overall business. In India, initiatives to build omnichannel presence and marketing campaigns around key occasions by leveraging festivals and passion points through occasion-led marketing and integrated execution drove a sequential increase in market share and nearly 30% growth in transactions for the quarter. Additionally, our local Thums Up brand became $1 billion brand in India, driven by focused marketing and execution plans. In Japan, while our system was faced with a very challenging year, we gained value share and consumers driven by successful innovation and commercial strategies. In ASEAN and South Pacific, there were strict restrictions and limited reopenings in many markets for a large part of the year. In Q4, acceleration of vaccine efforts and strong results from the Fanta Colorful People and Sprite Make it Clear campaigns helped drive our recovery. In EMEA, volume in Europe in the quarter surpassed 2019 despite mobility restrictions, particularly in Western Europe. Despite the recovery remaining asynchronous in the region, increased investments behind our brands in the marketplace resulted in our system driving the highest incremental retail value among FMCG players in the region. In Africa, volume continued to be ahead of 2019 in the fourth quarter, driven by our key markets with strong double-digit growth in Nigeria and Egypt. Additionally, increased investments behind our affordability and multi-serve packages drove value share for the full year above 2019 in the region. In Eurasia and Middle East, the top line continued to expand faster than the macro environment, driven by strong revenue growth management, execution and digital capabilities. Turkey, one of our key markets, grew 7 points of value share for the year in digital as total digital commerce expanded by close to 90%. In North America, despite COVID cases leading to business closings and some mobility restrictions, value share growth was strong in the quarter, driven by pricing, revenue growth management and strong execution in the market. The new Coca-Cola Zero Sugar continued to deliver strong results, outpacing category growth, while Sprite and smartwater grew drinker base and buy rates. Innovations also delivered strong performances, led by Coke with Coffee and Simply Almond. Latin America delivered another quarter of strong performance with mid-single-digit volume growth versus 2019. This resilience of the system has been driven by years of experience navigating volatile environments through strong and effective execution. Within Global Ventures, Costa continued to recover through the year but was impacted in Q4 due to COVID-related restrictions. Costa Express continued its strong performance in the UK, delivering results ahead of expectations. In China, the Costa ready-to-drink expansion continued its availability now in more than 300,000 outlets, continuing to drive a share position ahead of our key competitor. Finally, our Bottling Investments Group continued to focus on productivity and transformation initiatives, delivering strong operating margin expansion for full year 2021. Due to improved mobility throughout the year, our industry is growing in both, volume and value. Gaining share was a key objective in our emerging stronger agenda. And this year, we gained value share in both, at-home and away-from-home channels. Our NARTD market share is above 2019 levels at a global level and in both at-home and away-from-home channels. We will continue to identify and address opportunities to further improve our value share, driven by data-backed insights. As we close the chapter on 2021, we emerged stronger by delivering both top line and EPS ahead of 2019, and we gained share in a growing industry. The actions we took during the pandemic have resulted in an agile and focused organization that is poised to capture the sizable opportunities that exist, and we continue to look to the future to build on our momentum and drive growth. As we turn to 2022, while it is impossible for us to know whether this variant will be the last, what is clear is that our consumers, our customers and our business are learning and adapting with great resilience. For example, while we have seen some impacts from the Omicron variant through the first few weeks of the year, we are not seeing the same level of disruption as previous waves, and our system is better equipped. Further recovery in 2022 will be determined by macro factors, including overall consumer sentiment as well as supply chain challenges; labor shortages; and of course, the inflationary pressures in interest rates. We are confident we are well equipped to navigate this environment and deliver on the guidance we provided today. Now, I’ll touch on some of the capabilities we’ve built to unlock the next stage of growth and will elaborate more at our virtual CAGNY presentation later this month. We’re excited about where we are today and the substantial initiatives we have in place for 2022. The consumer continues to be at the center of our strategy. And through our total beverage company agenda, we are adapting to the macro and micro trends, which are shaping consumer habits. We advanced our total beverage company agenda last year by streamlining our portfolio, focusing on the core and investing behind a portfolio of brands that allows us to meet the evolving needs of consumers. We completed much of this work on brand eliminations while being deliberate with brand transitions. This optimized portfolio will ensure we follow the consumer and win in emerging and fast-growing categories, and is complemented by the recent strategic acquisition of BODYARMOR as well as relationships like the new agreement with Constellation Brands, which will launch Fresca Mixed, and the extended relationship with Molson Coors, which will launch Simply Spiked Lemonade in the U.S. Our network marketing model, with global category teams and local operating units, is allowing us to focus on end-to-end consumer experiences that are data-driven and always on. Our announcement of WPP as our global marketing network partner is a foundational component of our new marketing model. This new agency approach gives us access to the best created lines, regardless of source, and is underpinned by leading-edge data and technology capabilities. The Real Magic campaign is the first campaign, which was cocreated internally, leveraging this new end-to-end approach, and the campaign is showing strong results with the consumers. We have good visibility into the benefits of the new marketing model. The approach will allow us to deliver best-in-class consumer-centric marketing experiences across our categories and around the world. We also built more discipline into our innovation process in 2021 with a key focus on scalable bets that can build momentum year-over-year. It’s still early, but the approach is working. Revenue per launch and gross profit per launch were up 30% and 25%, respectively, versus prior year. And we took intelligent local experiments and move more rapidly to scale them across geographies. Sustainable packaging like refillables and labelless bottles, along with brands like Coke with Coffee, fairlife, AHA, Costa ready-to-drink and Lemon-Dou are all examples of local winners that have been extended to more markets. For 2022, our innovation process is increasingly supported by data, and our pipeline is robust with built-in agility and consists of big bets along with many shots on goal. The system has stepped up its RGM and execution capabilities, which is helping us navigate an inflationary environment, driving value growth in a segmented way. Due to the strength of our bottling partners and the stronger net alignment of the system, we are prepared to address opportunities as well as challenges may lie ahead. Our networked organizational structure is designed to better connect functions and operating units to help our system scale ideas faster. As we’ve emerged stronger, we kept moving forward on integrating sustainability work into our business as it is a key driver of future growth. During the quarter, we were recognized for our commitment to transparency, an action to address environmental risks by earning an A score in CDP’s assessment for water, an improvement over last year. We improved or maintained our score in CDP’s assessments on other important areas like climate and forests. Additionally, to complement our World Without Waste goals, we announced a new global goal to reach 25% reusable packaging by 2030. Increasing refillable and reusable packaging options responds to consumer affordability and our sustainability aspirations, and it helps create a circular economy, and refillable packages have extremely high levels of collection and our low-carbon footprint beverage containers. Before I turn over to John, I want to say a big thank you and recognize our associates from both the Company and our bottling partners, who work with great dedication and unwavering commitment throughout another challenging year. We expect the recovery will remain asynchronous, but we are encouraged by our growing industry, our own parallel system strength, and a strategic transformation that enables us to be agile and to adapt. Our actions drove strong results in 2021. And we have confidence in our ability to deliver another year of strong performance in 2022 and over the long term. Now, John will provide more details on our results and our 2020 guidance.

Operator:

[Operator Instructions] Our first question comes from Dara Mohsenian from Morgan Stanley. Please go ahead. Your line is open.

James Quincey:

Sure. Good morning, Dara. Firstly, we’re coming out of 2021 with good strong momentum. We’ve seen an improvement on the growth rate relative to 2019, both in the at-home channels and the away-from-home channels. So, we’re coming into the year with good momentum, notwithstanding some ups and downs due to Omicron in certain parts of the world in December and January. And I’m going to answer the second part first. The above algorithm growth in 2022 is more primarily due to the factors of COVID and inflation, but I’ll come back to that. And so, as you look out into the long-term, it is much more likely we will move back into the long-term algorithm. Just to refresh, we’re in a robust industry that has been growing historically. It’s coming back to growth. And if that’s an industry that’s growing at 4% or 5%, and we have a long-term track record of gaining share in the industry, you can see why we focus attention on being in the top half of the revenue growth rate in the algorithm we put out that allows us to then drive the business into the future. So, we still think that is a sound long-term perspective in terms of both the industry growth rate and our ability, not just to be the leader but to be the winner in terms of share and to drive in the top half of the algorithm. Coming back to the near-term and 2022, in particular, a couple of things that support an above algorithm number. Firstly, there are a number of countries that are not yet back at their 2019 levels of revenue or indeed, even volume. And whilst we are not expecting everything to be rosy in 2022, we do expect to see ongoing improvements around the world in terms of reopening, in terms of reactivation. And so, we think there are additional tailwinds in 2022 from a reopening perspective that will support the volume side. And then, in terms of pricing, clearly, it’s a slightly more inflationary environment than normal. And we, as we have talked on previous calls with our bottling partners, very much look to price in the marketplace. We do have a view that we have to have brands that earn the right to take pricing. And secondly, we very much are not looking to just pass through in price but to do it intelligently because, whilst it’s easy to respond to inflation by putting up the prices, there is clearly, as there is broad-based inflation, going to be a squeeze on real incomes in a number of countries. And so, we -- with very long experience in the system of managing inflationary moments when you get a squeeze on real incomes, we very much want to, yes, the company opportunities on premiumization, leverage our strong marketing, leverage our strong innovation. But we do not want to lose consumers out of the industry, so we also will have a foot in affordability. And this is a scenario where we have a lot of experience. The system has a lot of experience, and we intend to push it forward. The net of all that is likely to mean that we see a balance between volume and price/mix within the overall revenue guidance that we’ve given you.

Lauren Lieberman:

Great. Thanks. Good morning. The first thing is not a question. It’s just I’m going to mention the free cash conversion and leave it at that and say, my goodness, how much things have changed. My question though was that I wanted to talk a little bit about North America supply chain. My understanding is there’s -- that’s still been pretty challenged. And I just was looking for any kind of update you could offer on fourth quarter and outlook into next year. Because clearly, the market share performance, everything is great, but that’s still with the supply chain constraints. And I was wondering how that’s shaping up. Thanks.

Operator:

Your next question comes from Nik Modi from RBC Capital Markets.

James Quincey:

Well, clearly, we’ve been gaining market share. And my favorite metric is market share versus 2019, both in the away-from-home and at-home channels we’ve gained overall. We’ve gained in the away-from-home and we’ve gained in the at-home. And we are -- in terms of consumer business, we are assuming a greater degree of reopening. We can certainly begin to see that in Europe as the Omicron variant has moved through. The U.S., just this week, mask mandates are coming down. So, there is going to be an improvement in mobility across the world. It’s not going to be back to 2019 fully in 2022. And I think that’s going to be true, both in terms of domestic mobility and international mobility, I don’t know if you meant per country or people moving around the world. But anyway, the answer is basically the same, which is we are assuming an improvement in mobility, but we’re not assuming a return yet to the full 2019 levels.

Bryan Spillane:

John, I had a question just about the guidance. And if we look at the currency neutral spread between earnings growth and organic sales growth, can you just give us a little bit more color in terms of where the leverage in the income statement will be? Because the tax rates moving up, interest expense, net interest expense, I guess, will be higher because of the BODYARMOR deal. So, it didn’t seem like there’s a lot of leverage below the operating income line. So, I was just trying to get a better understanding of just where the leverage is in the net -- on the P&L.

Operator:

Your next question comes from Kaumil Gajrawala from Credit Suisse.

James Quincey:

Let me separate the businesses into the vast majority of the business, which goes through the bottling system, and then some businesses that go in parallel. When we’re talking about pricing needs of the concentrate business a bit that goes through the bottler, in the almost all cases, we have a system whereby we operate what’s called incidence pricing. So, we have agreements with the bottlers where our revenue will be a percent of the revenues that they achieve in the marketplace. So therefore, we are both incentivized to work diligently to increase the total size of the pie in a much more aligned way in terms of both trying to drive the same outcome. So, in that sense, the bottlers -- we work together and the bottlers take the pricing in the marketplace, whether it’s rate pricing or working on the mix between the brands and the packages and the channels, and then we take a percentage of that. And of course, we’re both looking at the various input cost challenges that we have, and we work through and come up with a pricing plan, and the bottlers take that to the marketplace and get it done. We do have a few businesses where we sell the finished goods, whether that be some of the, for example, the chilled juice businesses here in the U.S. or in Europe or the Costa business or the BIG business. Clearly, there, we’re operating the vertically integrated businesses, and we’re doing very much what we do with the bottlers we do our own for those businesses, and we work it all through. So, I think you can take it as we work very much in alignment working back from the consumer, trying to drive value for the customers. And we manage the portfolio of all the different input costs, including our needs to kind of invest in marketing, invest in innovation and invest in execution capacity as the bottlers would do.

Andrea Teixeira:

My question is on the pricing that you embed in your guide. And is it pricing actions yet to be implemented or already in the market? And can you elaborate a bit more on -- James, on your commentary about balancing volumes and pricing in 2022, which implies you probably expect an additional low-single-digit volume growth in 2022. And is that predicated mostly on the on-premise recovering as you pointed out, and an improvement in supply of cans and how we should parse it out? Thank you very much.

Operator:

Your next question comes from Chris Carey from Wells Fargo Securities.

James Quincey:

Thanks, Chris. And just to confirm, you’re talking about sequential improvement in gross margins?

James Quincey:

Right.

James Quincey:

Yes. Okay. Clearly, as we talked about on the last question, we are expecting some extra improvement in the away-from-home going into 2022. As I said, it’s not yet back to the 2019 levels, and that is a plus from a gross margin point of view. I would not want to characterize that as the biggest thing happening next year. There’s a lot more moving pieces going on. So, I think it is a factor. It’s probably more important, the overall growth of the business and the reopenings in the different geographies. But I think that’s the key. I think, John, do you want to add anything?

Operator:

Your next question comes from Carlos Laboy from HSBC.

James Quincey:

Well, thank you for calling out the reusable goal, Carlos. Clearly, achieving it will mean using much less of virgin PET and make it easier to achieve our objectives of a World Without Waste, where we intend to collect back a bottle or can for every one we sell by 2030. In terms of the marketing and the innovation question, I’m not quite sure I completely captured what you’re going for. But let me throw out some thoughts, and I think that will help. The consumer elasticity and pricing power, yes, I think a lot of people have noted, it’s been relatively inelastic in recent times. It’s certainly our historical experience that when multiple categories go off at the same time, there is less elasticity. But it is also our experience that often that it’s in an environment of a crisis where there’s a support of a lot of injection of money into the economy, which I think is what has been happening over the last couple of years. Eventually, it moves to another phase where there’s inflation and a squeeze on the income. And so, we are very attuned to the need to be -- burn our pricing as we go forward. And earnings, whether it’s with the marketing that really engages with the consumers, whether it’s with the innovation that, again, engages with the consumers and gives our customers the opportunity to do different things and more interesting things in the stores or whether we earn it through the excellence in execution and the in-store presence that our bottling partners are so good at. Because the next phase is much harder than the previous phase. It’s easier to do pricing in a stimulus environment where everyone else is going up. It’s much harder when there’s a real squeeze on income. So we’re very focused on winning in the next phase. It’s something that we and our bottling partners have a lot of experience with, and it will certainly be an opportunity and a necessity to deploy the whole toolkit from marketing innovation through execution to continue winning as we go forward.

Steve Powers:

I guess, it kind of builds on that theme. I’m thinking about it in the context of the ‘22 outlook. And I missed all the cost pressures that we’ve spoken about and your plans to drive forward operating leverage and continued progress on operating profit. I guess, can you just talk a little bit more about the invented flexibility you have and your plans around strategic investments in ‘22 specifically? Where those are targeted? What level of strategic investment, whether it’s A&P or capabilities building? Just to give us a little bit more context about your ability to support the volume momentum, justify pricing, not only in ‘22, but to set yourself up for ‘23 and beyond. Thank you.

Operator:

Your next question comes from Bill Chappell from Truist Securities.

John Murphy:

Sure. I think the short answer first, it was always intended to be one of the arrows in the quiver. The longer version of that answer is clearly COVID impacted, not just our total business, but it impacted the cost of business, which is an almost entirely away-from-home business. And so, it was very much a bit like our fountain business in the U.S. It was very much in the crosshairs of the COVID impact, particularly in 2020 at the beginning when the lockdowns were very severe. And in fact, most of those coffee shops are all closed in 2020. So, it was very hard on the Costa business. The 2021 made a lot of progress, reopenings, not back to where we were yet, so the coffee stores are bouncing back, but not back to where they were yet. The vision we have for coffee included a number of other components. One was the Express machines, the digital kind of barista. Obviously, 2020 was hard to install new machines, but the performance of the existing machines was extraordinary and very positive, and that last year, we began to install thousands of new machines. And then, we’ve launched, partnered with our bottlers to have Proud to Serve, where they provide the beans and machines to the HORECA channel. And we’ve launched a ready-to-drink, where it’s done really well in certain parts of the world. So, the vision is still there. We see it as one of the arrows in the quiver. Clearly, we’ve lost a couple of years. I mean, there’s no beating around the bush, and we’re going to have to bounce back from it. But the learnings we had and the experience was where we were able to do things give us some confidence and belief that we need -- that we have an opportunity to execute against the vision, which, of course, we still need to do.

Kevin Grundy:

Question for John on share repurchases. And I’d also like to tie it into the bottling divestitures and potential proceeds there because the topic is related. So again, to echo sentiment earlier, great job on improving free cash flow conversion. That’s outstanding. As you sit here now at $10 billion in share buybacks, in addition to the fact that you have the CCBA offering coming up later this year, you’ve been very clear about your intent to divest the remaining bottling assets. So, kind of tying this together, number one, what are thoughts? What’s embedded on repurchases? When can you get back to that? The Company has been fairly inactive for reasons that we understand. And then, relatedly, with the proceeds from CCBA and what potentially may come in the near to intermediate term around further bottling divestitures, does it seem likely that you would put that -- put those proceeds towards buybacks? So, thanks for your comments there.

Operator:

Our next question comes from Laurent Grandet from Guggenheim.

James Quincey:

Yes. Thanks, Laurent. I mean, as you say, it’s -- and as John has noted, it’s a finished product business that we are integrating into our company and have had some mechanical effects. And as you say, we have not chosen to change it to a concentrate model. In fact, to be more specific, we’re keeping the current operating model where the manufacturing of the product is largely done with co-packers. And that is what has been driving the momentum, and we have no plans to change the model with using the co-packers at this stage. They’re doing a great job. And then obviously, the distribution of the product is done through the Coke bottling system here in the U.S. If we were to try and change the concentrate model, that we would let you know in due course. We have no immediate plans to do so. Again, it would be a mechanical effect on the revenue and the gross margin because it wouldn’t be changing the profit coming from BODYARMOR. It would be more of a mechanical effect on the top -- on the gross margin for operating model reasons. But as I said, our intention is to operate it very broadly as we do at the moment, connected but not integrated, so that we can continue to drive the growth at what has been a very successful brand. They tripled sales in the last 3 years, gained a lot of share in the sports drink category, actually expanded the category and has done a really good job. So, we’re going to kind of keep focused on driving that into more success in the current year. Then, as we expand internationally, we have not decided where and when as of yet. We will be doing that work this year. And then, as we get there, we will, of course, in that process, look at the appropriate operating model, whether there’s any -- whether it should be finished product or concentrate. Clearly, our preferred route to market is to the bottlers, and it will certainly seem to make more sense to organize it as a concentrate model, whether that’s then co-packed or produced by the bottlers is very situational and capacity-driven. But, see the concentrate versus finished product as a mechanical effect on top line rather than an impact on the bottom line. But our focus is driving the growth of the business.

Rob Ottenstein:

James, you’ve done a lot over the last couple of years in terms of the organization and the culture to drive more agility, accountability, leaner, reward risk-taking. So, wondering if you maybe can talk about how that has played out in your mind. Maybe kind of benchmark or kind of give yourself a report card on that. And any new moves or further evolution of that this year? And then, more specifically, one of the actions that you took was the brand and SKU rationalization. Can you quantify the impact of that on results in ‘21? And any potential results in ‘22? Thank you.

Operator:

Ladies and gentlemen, this concludes our question-and-answer session. I would now like to turn the call back over to James Quincey for closing remarks.

Operator:

Ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may now disconnect.

Operator:

At this time, I'd like to welcome everyone to the Coca-Cola Company's Third Quarter Earnings Results Conference Call. Today's call is being recorded. [Operator Instructions]. I would like to remind everyone that the purpose of this conference is to talk with the investors, and therefore, questions from the media will not be addressed. Media participants should contact Coca-Cola Media Relations Department if they have any questions. I would now like to introduce Mr. Tim Leveridge, Vice President of IR and FP&A. Mr. Leveridge, you may begin.

James Quincey :

Thanks, Tim. And good morning, everyone. After a strong first half of the year, we saw continued momentum in our business in the third quarter. While the global recovery remains asynchronous, our people and our system are leveraging the learning that deliver good results and emerge stronger. And while markets are at different stages of reopening around the world, our local businesses have been increasingly resilient through restrictions and lock-downs. As a result, our underlying volumes have accelerated on a two-year basis with quarterly growth versus 2019 for the first time since the pandemic began. This improvement has been supported by our transformation agenda, which set us on a path to more efficient and effective marketing, as well as more disciplined and intelligent innovation. We are investing accordingly behind our portfolio of loved brands and are seeing signs of early traction. Given strong results year-to-date, and increased visibility into the rest of the year, we expect to deliver organic revenue at the high end of our previously provided range and are raising bottom line and cash flow guidance for the full year. This morning, I'll provide a business update and discuss how our network organization is executing well in this dynamic environment. Then John will discuss our financials and raised guidance and some early considerations for 2022. In the first half of 2021, mobility and business levels improved in many markets, as lock-downs eased and vaccinations increased. The recovery has not been a straight-line, and continues to be uneven around the world. But despite the asynchronous recovery, in the third quarter, our volumes surpassed 2019 levels for the first time since the pandemic began. Although not yet back to 2019 levels as a percent of our business, we saw sequential improvement in away from home volumes on a two-year basis, as consumers return to many of their former routines. At-home volumes also showed ongoing strength even as away-from-home channels improved. The quarter was off to a promising start in July, but the Delta variant impacted several markets, resulting in a softer August, followed by improvement in September, as the variant began to lessen in some of our key markets. The pandemic continues to be a key factor across our operating environment, in addition to the ongoing pressure points in our supply chain. However, our network system is leveraging the learning's from the past 18 months, sharing best practices and skillfully executing by applying Revenue Growth Management, and working our supply chain leavers to capitalize on the strength of our brands and mitigate disruptions. The industry is growing and we continue to gain shares. Our overall value share improved year-on-year, and remains above 2019 levels. We're pleased to report gains across categories, as well as both within at home and away from home channels. Our operating units are combining the power of scale with a deep knowledge required to win locally in an environment that remains dynamic. So diving a little into the key drivers across geographies, starting with Asia-Pacific. In China, media investments across categories are yielding promising signs. Results in the quarter reflect strict COVID lockdowns and some weather-related disruption in August, while September marked sequential improvements. Japan state of emergency was lifted at the end of the quarter after consumers spent the majority of 2021 in lock-down. Strengthened execution across our teams and innovation has helped lessen impacts, and our consumer base has grown beyond 2019 levels. In India, we participated strongly in the recovery by focusing on affordability and omni -channel growth through e-B2B. We grew both trademark coke and local icon Thums-up using effective marketing activations. We had share gains in ASEAN and the South Pacific Operating Unit, despite pandemic-related restrictions in all of its top markets. Our investments behind Sparkling flavors and Coca-Cola Zero Sugar, will continue to create value when lock-downs are lifted. In EMEA, in Europe, we gained value share across nearly all categories as restrictions eased, while weather, a slower recovery in tourism, and the delta surge had an impact on global campaigns to key brands including Coca-Cola Zero Sugar, Sprite, and Fanta helped drive sparkling share. As vaccinations accelerated in Eurasia and the Middle East, we maintained momentum through effective revenue growth management initiatives, resulting in top-line that expanded faster than the macro environment in those top markets. Our results in Africa were balanced across regions and categories during this quarter, despite a third wave of the pandemic that resulted in targeted lockdowns. Vaccination rates remained on the low side relative to the rest of the world. And our focus remains on affordability and single-serve packs as mobility increases in countries like Egypt and Nigeria. We maintained strong momentum in North America despite the COVID resurgence in many states leading to stalling consumer sentiment and supply chain challenges that resulted in both missed opportunities and incremental costs. The at-home channel remains healthy, and although away-from-home growth accelerated early in the quarter, labor shortages have constrained capacity with some on-premise customers. Recent price actions to offset higher input costs have been effective with lower-than-expected price elasticities to date, and promotional levels remain below 2019. In Latin America, successful commercial initiatives, including affordability packs, increased availability of our key products, and strong customer execution in both modern and traditional trade, drove volume growth across all major markets amidst an improving COVID environment. Improvement in single-serve mix, some pricing actions, and connecting brands strategies to on-premise customers to drive further recovery in the away-from-home channel all contributed to strong price mix. Within Global Ventures, Costa benefited from retail store recovery as the UK re-opens. With improved reach and frequency from its enhanced loyalty program Costa continues to expand across platforms into new markets in partnership with our bottlers, resulting in growing brand awareness. Our Bottling Investments Group performance was driven by India and the Philippines. BIG saw strict lockdowns in several markets, as well as rising inflation, but has continued to see share gains year-to-date in South Africa. Adverse impacts have been well-managed through package and category mix improvements along with cost controls preserving progress on our operating margins during the pandemic. Global category teams are working with our operating units to build an engine to drive effective marketing scale and innovation, which we amplified across the world. Highlights from this quarter include Coca-Cola Zero Sugar’s new recipe has rolled out in more than 50 countries and has had accelerated growth in the last 3 months. In September, trademark Coca-Cola’s new global brand philosophy Real Magic was unveiled featuring a refreshed look for our iconic logo, the Hug. The Real Magic platform takes a digital first approach and our executions feature a range of experiences that are tailored to Gen Z and leverage passion points like gaming and music to attract a new generation of drinkers. Sparkling flavors gained share in the quarter driven by investments in targeted brand country combinations with a focus on occasions and Zero Sugar offerings. In China, Sprite volume growth was accelerated by leveraging the global Let’s Be Clear campaign during summer music festivals. Similarly, the 'What The Fanta' campaign focuses on snacking, and is driving growth across all key metrics in Europe. The hydration, sports, tea and coffee categories are seeing a good return on spend behind global brands. AHA’s expansion into new markets this year, has shown flexibility to adapt to local customer and consumer needs. In Advanced hydration, functional benefits have helped to stretch brand power and drive share for Aquarius, as it becomes more of a global brand. Tea and coffee have had success with FUZE tea in Europe on both Ayataka and Costa, ready-to-drink in Japan. There is an opportunity to recover share in Georgia coffee as the at work occasion returns. Our juice portfolio gained share this quarter helped by Minute Maid Pulpy performance in China, Del Valle via growth in Latin America, and strong results across brands in Africa. In dairy, Fairlife is set to become the first billion dollar brand in our dairy portfolio and has recently launched its joint venture in China. Our experimentation with Topo Chico Hard Seltzer is expanding and we're gathering valuable insights globally, including the importance of building the category in regions where it is nascent. We are seeing encouraging performance where the flavored alcoholic beverage category is growing rapidly, and we have on-shelf presence. Molson Coors recently announced the national roll out of Topo Chico Hard Seltzer in the U.S. with new Margarita flavors. We also recently announced an expansion of our relationship with Molson Coors to bring the brand into Canada. As the pandemic recovery has progressed, we've seen challenges and disruptions in many parts of the world, in addition to inflationary forces that could persist. We have years of experience in dealing with these types of environments, and are enhancing our strong capabilities that enable us to do so. We are using the crucial tool of Revenue Growth Management in its many forms, and are executing in collaboration with our bottling partners. We continue to refine our ability to optimize price and package offerings, according to occasions, brands, and channels, striking the right balance between premiumization and affordability. In addition to streamlining our portfolio, targeting more disciplined innovation, intelligent experimentation, and transforming our marketing model, we're also building strong digital capabilities. We have taken an enterprise approach and are progressing on the roll out of multi-category Ebb3 platforms with our bottlers globally. As an example [Indiscernible] is seeing strong growth outside home market of Latin America, and that's more than 50 categories contributing meaningfully to it's sales on the platform. Additionally, we are delivering outsized growth with powerful, and growing omni -channel presence across regions. We're driving incremental instance with partners like foodservice aggregators. North America, for example, has grown attachment rates by mid single-digits with third-party and restaurant owned platforms. And we're gaining share in e-commerce, with significant wins in Eurasia and hitting record levels in Latin America this quarter. I'll also like to reiterate the sustainability is an integral part of our business strategy and it's a key driver of future growth. For 2018 when we launched World Without Waste to today, we've made much progress against our pillars to design, collect, and partner to deliver against our goals. Our commitment to reduce waste globally is also closely connected to our climate ambitions, collecting more empty packages, using more recycled material, light-weighting our bottles, and using plant-based materials always we are embracing the collective efforts to decarbonize the global economy. We strive to provide stakeholders with clear progress against our goals through our annual business in ESG report and World Without Waste report, including using the Global Reporting Initiative, SASB, and TCFD reporting frameworks, as well as disclosures through other publicly available avenues like CDP and the Ellen MacArthur Foundation. We continuously revisit our ESG reporting and disclosures to ensure our leadership position. We do not take our responsibility lightly, and we carefully and thoroughly [Indiscernible] long-term objectives with our system partners, and only commit to new goals with a clear, actionable plan. To ensure we remain transparent on responses to this evolving landscape, we'd like to invite you to join us for our virtual ESG event on November the 3rd, where key business and sustainability leaders will provide an update on our initiatives, and answer your questions. As we look at our year-to-date performances in the system, it's clear that we are emerging stronger from the pandemic, delivering solid results under more network structure. Now, I'll turn the call to John, to discuss our third quarter results, our updated outlook, and some initial thoughts about 2022.

Operator:

Ladies and gentlemen, to ask a question, [Operator Instructions]. In the interest of time, we ask that you please limit your questions to 1 question. If you have any additional questions, you may rejoin the queue. Your first question is from the line of Bryan Spillane with Bank of America.

James Quincey :

Sure. Good morning, Bryan. Firstly, we clearly have been executing [Indiscernible] emerging stronger strategy. And you can see that coming through, we've called out that the third quarter was the first quarter to be growing versus -- in a full quarter versus 2019. So a sequential improvement, as we've been going through this year from the first half, which was below 2019 to the third quarter, which was above it. So it's clearly sequential improvement coming through as we have adapted our ability to cope with the ups and downs of the lockdowns and the re-openings. Now, in the quarter as you say, we called out that July started well, and then August was softer as there were more lock downs and then September was better. When you think about where that's going in the fourth quarter and into next year, clearly the fact that we have raised or clarified guidance on revenue to be the top end of the range should lead you to feel confident that we see visibility in the downhill of the rest of this year. October has started strong and in line with expectations so we feel good. The momentum is there. I've made the caveat, as many other people have done through COVID, that who knows what could happen in the downhill with variants and with lock downs. But at the moment what we see is the momentum is there, we feel good about our top-line guidance for the year and October backs up that statement. And then as it goes through 2022, obviously too early to call the full year next year, and we will do so in February. But again, in the comments, in the press release, in John's comments, we said we feel that we think we have momentum in the business. Again, the caveats of who knows what will happen with variance and potential lock downs but we do see the world emerging from the crisis a bit like an earthquake. You get more aftershocks, but the consequent aftershocks tend to be smaller than the early ones. And that's how we see '22. We feel there's good momentum and the strategy is working and it's getting us back on track.

Operator:

Your next question is from the line of Lauren Lieberman with Barclays.

James Quincey :

I'm not sure I used with the word isolated last quarter, but I know what you mean. Look, firstly, we have a lot of capability of managing through crises. This may be a unique and global one, but most managers and leaders at Coke have, sometime in their career, managed a part of the world or a country that's gone through severe dislocation. And so we have built capability over the years to manage through this. And in the mean -- in particular, in the supply chains, organizations of the Company, and with the bottlers, And so we have strong capabilities, we look for long-term partnerships with the ecosystem of the supply chains, whether that's imports, materials, or logistics. We also act as a system in a number of regards. We have something called the Cross Enterprise Procurement Group, which buys key commodities on behalf of the Company and the bottlers, so there's a great deal of coordination between ourselves and the bottlers. In terms of the problems it's a bit like whack-a-mole, things pop up. We've talked previously about can pressure in the U.S. self-evidently, there's issues in shipping and freight and availability of labor in places, then you get one that pops up. The price of gas spikes in Europe, and the availability of CO2 comes under pressure. There's a PET plant went offline because it burst into flames in Brazil, etc. So there is a heightened degree of sporadic problems appearing, as well as kind of structural shortages of certain ingredients. But we have global scale, we have global coordination, and we have long-term relationships with many of our ecosystem partners that are allowing us to manage and offset what's going on. Now, as regards the bottler inventory towards the end of the year, clearly we are working with the bottlers and obviously they can have the comfort and the assurance that they don't necessarily need to hold it in their hands for us to be certain of having it as a system. We obviously ourselves, being the key player in providing the contract, make sure we have enough buffered availability of ingredients and concentrate to make sure the bottlers are going to be in a good position, and we manage that accordingly with them in every year and particularly this one.

Dara Mohsenian:

Hey, guys. The thoughts around top line and volume recovery, you mentioned earlier for 2022 were helpful. Can you spend a bit more time discussing the pricing environment that you're seeing also in the U.S., other developed markets, and then in the developing markets? Obviously we're seeing a pretty unique spike in commodity costs in terms of the magnitude. So how is your system approaching pricing in this environment given that unique level of increase? And specifically for Coca-Cola itself, is the expectation that pricing can generally fully offset commodity increases on a dollar - for -dollar basis ex any demand elasticity secondary impact given you don't have as much commodity exposure as the entire system but share in the retail pricing moves. And then also maybe can you just detail the competitive pricing environment you're seeing from your key competitors. Thanks.

Dara Mohsenian:

Multipart?

Operator:

Your next question is from the line of Steve Powers with the Deutsche Bank.

James Quincey :

Yeah, sure. I'd say look, Q3 is above 2019 in volume. If I look at the mix of the business between away-from-home, and at-home, the at -- the away-from-home has not yet recovered to the same share of mix that it was in 2019. And so of course, implicit in your question is that a tailwind going forward as more of the away-from-home recovers because of either the package or the brand or the occasion that is related to and then -- excuse me. The answer in some extensive is yes. Now, worth bearing in mind, but it's not a snap back, which is what you are seeing. It's not just a function of lock down and when the lock down ends the away from home comes back. I think we are seeing an evolution of the landscape. You're going to see some -- of course, away-from-home is a series of a whole set of sub-channels. You're going to see some of those sub-channels -- well actually, over the last two years -- almost two years now, there's been a reduction in the number of outlets. And so our hypothesis is it will take time to see those outlets re-expand, reappear. And so, just because the lockdown end doesn't mean the outlet reappears. So we will see some of that. But of course there will be some channels that are not yet fully opened. Much of travel and kind of hospitality, there are whole series of sub-channels that are still running far below their 2019 levels. So yes, it's a headwind -- it's a tailwind going into the future, but it's not dependent just on the end of lock-downs. And I think -- well if you imagine a curve, we've got -- the snap-back has happened, and now it's going to be a little more of a smoothing of the curve to recover the rest of the away-from-home, because in part people's habits have changed. Like I said, it's an evolving landscape, I mean, what degree of more permanent at homework here are we going to see. Not quite clear. So I think we've got a big piece of it, let's say half of it back, of the mix, and there's another half to come, but it won't come overnight, it will come over time.

Operator:

Your next question is from the line of Nik Modi with RBC Capital Market.

James Quincey :

I'm not sure I would ever call it arriving at the destination off to be optimally running because by the time we get there, something else will have changed in the world and we'll need to make some tweaks and evolve. Certainly we stood up the organization in the first quarter and then it was off to a good start. It's very much on track with our expectations. As you say, one would expect that the recent bumps and some kings that need to be worked out and that is what we're going through at the moment. And it's not that all of the change has happened yet. We've been running [Indiscernible] and the marketing team have been running a big agency review through this year. We're coming up on the final decisions on that in the fourth quarter, which will start bringing a structural amount of change next year in the way we interact in our marketing the enabling spend ecosystem. They'll be more change and we will continue to that. So we are focused on working out the bumps and the bits we've already listed up. We'll be bringing more change in terms of how we get the marketing sorted out next year. And I'm sure things will happen in the marketplace that will cause us to want to make further revolutions. But we certainly see that the early signs of how the new organizational model could help us both deal and manage through the crisis, whether it's what we've done on the supply chain or the procurement, but also set us up Ultimately, this is all about being an enabler to give us confidence in driving and delivering on our long-term growth algorithm.

Bonnie Herzog:

All right. Thank you. Good morning, everyone. I was actually hoping you guys could talk about whether or not you have a competitive advantage during a period of rising input and transportation costs relative to your peers, given your asset-light or asset-right, refranchise model. I guess I'm thinking about this in context of your preliminary outlook for FY '22 as it relates to COGS pressures and then, curious to hear, I guess, how you're working with your bottlers who really are experiencing pretty sharp cost pressures to essentially help them navigate through this tough environment. Thanks.

Bonnie Herzog:

All right. That makes sense. Thank you.

Kaumil Gajrawala:

Hey, everybody, good morning. Can I please follow up on Bonnie's question as it relates to the incidence pricing model and maybe some of the new models that we're putting in recent years? How does it work in this environment? Because the pricing is, of course, still taken by the bottlers, but I guess the relative price inflation -- the relative cost inflation is much higher at the bottler than it might be for yourselves. I understand that you take it as a system, but how does that work from an incidence pricing perspective? Does it still hold in that you were able to follow on wherever the bottler does in the marketplace or are there tweaks being made for what right now seems to be a bit of an abnormal situation?

Kaumil Gajrawala:

Thank you.

Andrea Teixeira:

Thank you, and good morning, everyone. James, I wanted to go back to your pricing commentary. If you can talk to your ability to continue to take pricing, or if the actions you took so far, including the one you alluded to in North America in August, will suffice to mitigate the additional mid-single-digit cost pressures in 2022. And how do you see the balance in between bringing back promotions to historical levels into 2022 for the at-home consumption. Thank you.

Andrea Teixeira:

Thank you.

Operator:

Your next question is from the line of Carlos Laboy with HSBC.

James Quincey :

Yeah, sure. Well, thank you for those observations, Carlos, on the -- resuming taxes or something like that. As you as you well know, as a long-term reserve of Latin America, we certainly have been trying to fuse together what the best of what the U.S. system does with some important thinking from Latin America on our GM, and on the ground up and down the street execution. As we look forward into the U.S. clearly we're trying to bring a combination of more investment in the marketing of brands, more innovation targeted to the marketplace. That with the increasing use of RGM to be more sophisticated in the price and the mix opportunity, but also back with ongoing improvements in the execution capability, not just in the larger stores or with the larger away-from-home partners, but also up and down the street with the small stores. And really being within an arm's reach desire not just, perhaps, an arm's reach of job, but within a clicks reach of desire, and I think the system is continuing to backdrop as we go forward.

James Quincey :

Sure.

Rob Ottenstein:

Yes. Thank you very much. First, just a quick point of clarification. If you could give the breakout of price mix in LATAM how much was price mix and channel. And then my more substantive question, some really great progress on the free cash flow side, significantly higher than your initial guidance. Can you talk about some of the drivers there? Are you where you need to be in terms of cash conversion at this point? And are these levels sustainable? Thank you.

John Murphy:

Thanks, James. On the free cash flow, clearly pleased with the progress we've made, looking forward a couple of observations on our free cash flow conversion. Our long-term algorithm has free cash flow conversion of 90% to 95% range. And I still believe that's the right level for us to be pitching us. This year is better than that. And due to some specific items through the year, our marketing accruals in '21 were much higher than '20 as the marketing spend returns to 2019 levels. Our incentive compensation was down for obvious reasons in 2020 due to the pandemic impact. We -- as I mentioned on the call earlier, we anticipate some headwinds on Forex going into '22. Taking all that into account, I would expect us to be still able to deliver against the range that we've outlined in the long-term algorithm. Some of the drivers, Robert, in the last couple of years, we've made a lot of progress on working capital. We've talked about that in the past. We continue to do so in a strange way, the one area that we are below how I would like to be is on inventory, but in a paradoxical where that's been actually a good thing to have more buffer around the world. And so in the immediate short-term, I like it that way. But it's an area that we will continue to attack over time. In a number of areas.