Q4 2019 Earnings Call
Okay.
[music].
At this time I'd like to welcome everyone to the Coca Cola companies.
Fourth quarter earnings results Conference call today's call is being recorded.
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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 on the media will not be addressed media participants should contact Coca Cola's Media Relations department they have any questions.
Mr., Tim leverage Vice President Investor Relations Officer, Mr. leverage you may now begun.
Good morning, and thank you for joining us today I'm here with James Quincey, Our chairman and Chief Executive Officer, and John Murphy, Our Chief Financial Officer.
And again I'd like to inform you that we posted scheduled under the financial reports and information tab in the Investor section of our company website at Www Dot Coca Cola Company Dot Com. These schedules reconcile certain non-GAAP financial measures, which may be referred to by our senior executives during this morning's discussion.
Our results as reported a generally accepted accounting principles I'd also like to note that you can find additional materials and the Investor section on the company website that provide an analysis of our margin structure. In addition, this conference call may contain forward looking statements, including statements concerning long term earnings objectives and should be considered in conjunction with cautionary.
Segment contained in our earnings release in the company's most recent periodic FCC report.
Following prepared remarks. This morning, we'll turn the call over for your question. Please.
Please limit yourself to one question if you have more than one please ask your most pressing one first and then reenter the queue now let me turn the call ever to James.
Thanks, Dan Good morning, everyone.
I feel abstain from our results date, we're pleased to report another quarter of strong performance capping off.
Full year and 29 team.
We delivered on our financial commitments to the yet even in the face of stronger than expected currency headwinds.
We see the REIT strategies, taking hold supported by the right partners all underpinned by a growing and vibrant industry, but we're just getting started.
This is what gives us confidence in our 2020 outlook and we're optimistic about the long term opportunities in front of us.
As we got 29 thing our business performed well we gained value share globally. In addition to gaining share in each about geographic segments, achieving our largest share gain in almost a decade with 34 about top 40 markets gaining share.
Organic revenue grew 6% two points ahead of our initial forecast.
The top end about long term growth model.
Topline growth was driven by strength across all the operating segments.
Comparable currency neutral operating income grew 13% versus our initial goal of 10% to 11% through accelerated top line growth and delivering on our productivity targets.
Comparable EPS grew 1% at the top end about guidance, despite higher than expected eight point currency headwind.
Finally, we delivered $10.5 billion in cash from operations up 37% for prior year well ahead of our initial guidance.
At 29.
2019 performance was the result of up brought by success across the majority by markets globally, we achieved high single digit organic revenue growth within developing and emerging markets along with mid single digit organic revenue growth and not developed markets. So let me walk you around the world a little.
Touch on some of the strategic actions that we have been taking.
In North America, we delivered a solid performance in 29 team and we are well positioned with a strong marketing and innovation pipeline heading into 2020.
Organic revenue grew 3% for the year and while we continued to gain overall value shacks.
Trademark Coca Cola drove outperformance with 4% retail value growth.
Volumes and trademark Coca were positive for the second consecutive year, even as we continued to execute on a smaller pack initiatives.
Across our Refranchised North American bottling system that has improved execution and continued conviction about the long term growth opportunities for our business.
Over the past few years the system has invested nearly three quarters of the billion dollars to support our innovation revenue growth management agenda. This includes expanding availability of our popular mini cans, which again grew in the double digits for the year.
Turning to Latin America.
Hey, we achieve 13% organic revenue growth, while navigating a tough macro environment by focusing on the fundamentals.
These include expanding cooler placements the acceleration of single serve packs and increasing availability of returnable packaging and on the index markets.
For example in Brazil.
We delivered the best performance, we've seen in seven years growing more than twice the rate of consumer spending.
Our results were driven by high single digit growth of single serve packages Julian parts are more than 20% increase in cooler placements by Apple.
This aligned focus on investment is a testament to the long term opportunities ask system sees in this launch and import market.
The resilience of Brazilian business helped delivered solid results in Latin America, despite market, such as Argentina, where the economic situation continued to deteriorate during the year.
In EMEA organic revenue growth of 5% was balanced between solid industry growth and strong share gains growth was driven by strong results across developed developing and emerging markets, while innovations with Coca Cola led to the best performance. We've seen in the last eight years for the trademark.
Our innovation with iconic brands also went beyond trademark Coca Cola Swift's grew double digits during the year boosted by our new adult mix offerings.
Fuze tea continued to perform well across the group now fully lapping its 37 market rollout in January 2080.
We have strong plans in price for the black brand heading into 2020.
Just on new winter flavors, no should that antioxidants infused offerings.
These results led to the strongest share gains we've seen in years across the region supported both by sparkling and on sparkling gains.
Turning to Asia.
Concerted effort to recruit new consumers a driver horizontal expansion helped deliver 5% organic revenue growth for the year.
Across Asia, we added 1.4 million new customer outlets led by our two largest markets in the region, China and India.
Our success in China is not just solely based on increased distribution.
In order to help expand the consumer base, we've been adapting to that the new digital first consumer landscape. For example, we launched an integrated Coca mailed campaign with a heavy focus on online food Aggregators. This helped us recruit more than 20 million new consumers boosting ashare online meal ordering to over 60.
Actions like these led us to be named the fastest growing FMCG, Brad in Asia by Canto.
I've also been encouraged by the systems response in markets, where we faced challenges in Japan for example.
It didn't move quickly to rebuild production capacity following natural disasters in 2018 and stepped up execution performance in order to support innovation pipeline.
Across the globe, we've seen that a constant focus on innovation revenue growth management and improved execution. All supported by integrated brand building forms the foundation delivered strong results today and in the years ahead.
Although we have much room to improve I'm pleased with the progress we've made across these areas during the year.
On innovation, we've leveraged the strength of our flagship brand, while continuing to innovate across the total portfolio.
Cope with coffee launched in 35 additional markets in 2019 is satisfying a new occasion recruiting consumers back into the brand driving incremental sales to Coca Cola trademark. We've also launched Coke energy in select international markets.
And while we've seen some success with initial rollout will continue to learn how to enhance the consumer proposition as we expand further into 2020 , including our recent rollout in the U.S. that takes a little more like Coke, we're putting the full marketing muscle behind our Coke energy launch in the U.S.
Turning to the juice dairy and plant based portfolio.
Neutral abuse continues to grow strongly across Asia behind our new and innovative functional dairy products the kids and young adults Nutri based started as an internal innovation in Vietnam and continues to expand across the region, including its latest launch in Australia.
We look to continue accelerating our innovation pipeline in 2020, just touching on North America I renovation plans include the launch of a hot sparkling water in March with a distinctive age in the sparkling waters, but space as to flavor offerings contained caffeine for little morning, or afternoon pick me up.
We're innovating within us bolstering portfolio as well with the rollout of power at Ultra a breakthrough innovation for this boats drink category with cutting edge ingredients, including creating a more electrolytes than original powered.
We're also expanding our capabilities through the recent acquisition of Fairlawn, giving us a strong position in the fast growing value added dairy space.
We've also taken several steps in the ongoing evolution of our revenue growth Monica agenda.
We're strengthening our competitive advantage by making better more informed decisions and making them faster translating data into insights and insight into action.
Importantly, these insights equip our customers with a new view on how to create value in the beverage category, one not dependent on lowering prices to drive foot traffic.
For example, working whatever what with one of our European Bottling partners. We added an incremental hundred thousand transactions per week for one of our largest customers through insights driven by our AARGM capabilities.
This kind of collaboration helps drive results leveraging the power of our consumer insights to support growth for us our bottling partners and our customers.
It's another example of how we create shed value for all new touched the Coca Cola business.
And we still in early stages of building out these capabilities and see this as a source of growth for long time to come.
In the end ultimately, though it comes down to execution as you can have a fantastic brand a compelling consumer proposition, but it must be available the right place of the right time I.
An execution continues to be based on the fundamentals for example in the Philippines through the placement of more than 10000 coolers and a 23 point increase in order fulfillment rates, we achieved double digit volume growth of the year long with us our highest availability coverage and market share in seven years.
To support our growth agenda, we've always been clear that M&A serves an enabler to our strategy rather than a strategy in of itself.
During 29 team, we acquired cost the coffee, we provide the platform to create a world class global coffee business.
And we're moving we speak to build a strong foundation for long term value creation under the brand.
We started with the launch of ready to drink costs through across Europe already achieving six points of value share in GB within the category.
We've also accelerated placements of Costa Express our premium self serve coffee solution, including more than 700 units across key markets in the fourth quarter alone.
We're working closely with our bottling partners to accelerate the total cost the platform in 2020.
Well I'm proud of our team and delivering strong results I'm equally proud of what we're doing to build a sustainable business for the future.
Our initiatives address water stewardship, sugar reduction women's empowerment and climate, but our focus here on out well without Weiss initiative, which includes a number of goals to reduce packaging waste.
We made steady progress for example, bottles made with 100% recycle PT and now available in 12 markets with more planned for 2020.
Coca Cola, Sweden announced it would be the first market in the world to transition to 100% Pat hundred percent recycle PC all plastic bottles made in the country fully circular economy.
In 2019 in Western Europe , we use nearly 30% recycled plastic across our total portfolio PT bottles and are accelerating fast in line with supply.
By the ended the year, we projected reached 40% recycle plastics in apples in Western Europe targeting 50% My 2023, and working to increase the recycled content steadily thereafter.
Within our flagship flagship U.S. market, we came with partners and large competitors to launch everybody back program, which is designed to improve sorting processing and collection in areas, where the biggest infrastructure against this will help increase the amount of recycled plastic available to be remade the beverage business.
Speaking more broadly we are preparing our system for the future the flexible packaging portfolio, we're investing in innovation to design in sustainable solutions and design out waste, while also reducing our carbon footprint in line with our science based targets.
We're also maintaining a portfolio of aluminium and glass packaging and creating package list solutions like freestyle and the sandeep, you'll feel to provide more choice.
As we look forward I'm encouraged by the progress the organization is making progress that gives us confidence in delivering consistent and sustainable financial performance. It's clear that I call to shift is gaining traction we continue to rise the performance, but across the organization.
Looking at the bigger picture as success comes down and our ability to craft the beverage brands. The people love at the refresh them in body and spirit, we strive to do this in ways that create a more sustainable business and a better shed future that makes a difference in people's lives communities and our planet simply put is about.
Loved brands done sustainably for better shed future.
And I look forward to sharing more with you at upcoming tightly so with that I'm turn over to John .
Thank you James and thank you so everybody for joining us this morning as James mentioned.
2019 was another solid year, we delivered on our financial commitments, while continuing to invest for growth and years ahead.
Our press release covered our fourth quarter results in detail.
Big picture, we saw another quarter of solid results with 7% topline growth.
Translating into double digit operating income growth.
When you factor in timing of shipments.
And the extra day in the quarter. The topline is closer to a 6% none of these factors and inline with our full year topline results.
With that I'll focus.
On some of the progress we've been making on our priorities as well as on our 2020 guidance.
On the topline we continue to see a strong response from the strategic actions we've been taking now in the second year of delivering at the mid to high end of our long term growth algorithm with contribution from both volume and price mix.
Delivering quality topline growth is translating into underlying margin expansion and profit growth.
For 2019, we achieved underlying operating margin expansion of 150 basis points driven by topline acceleration.
Leveraging our cost base through productivity initiatives.
We expanded margins, even as we accelerate as reinvestments in the business, helping us to drive double digit profit growth on the currency neutral basis.
Comparable operating margin compressed by approximately 100 basis point.
Since as underlying expansion was more than offset by a combined approximate 250 basis point headwind from currency and acquisitions.
Free cash flow has been a particular area of focus this past year, enabling us to deliver $8.4 billion during the year up 38% from the prior year and well ahead of our plan.
We achieved this to accelerating our underlying performance capturing working capital initiatives.
A reduction in productivity and reinvestment costs.
And more disciplined use of our capital spend.
Progress on cash is a good example of when the organization is clear on the opportunity and the drivers to achieve it.
As we've seen the results can sometimes exceeded even our own expectations.
Turning to the 2020 outlook.
On the progress we've been making and the plans we havent, yes, we expect to achieve results well within our long term growth targets for revenue profit and earnings per share for 2020 Importantly, we expect to deliver meaningful us dollar EPS growth.
Specifically, we expect organic growth organic revenue growth of approximately 5% and comparable currency neutral operating income growth of approximately 8%.
Key drivers of our operational outlook center around our continued focus on innovation revenue growth management, an improved execution all supported by a comprehensive approach to brand building.
James highlighted a few aspects of the innovation pipeline and we continue to get sharper on how to better connect our revenue growth management initiatives into an integrated execution strategy in the marketplace that delivers on both the top and bottom line.
From a macro perspective, although volatility remains in certain spots around the world. We do expect consumer spending to remain healthy for 2020 and expect the emerging and developing world to outpace developed markets similar to 29 thing.
In terms of currency based on delays as rates are hedged positions and our forecasted business mix, we anticipate a zero to one point headwind that revenue and a two to three point headwind at operating income.
These headwinds are inclusive of cycling any hedging gains in 2019, which as noted in the past were minimal.
Considering these factors, we expect comparable earnings per share of approximately $2.25 for 2027% increase from the prior year. We also expect to generate approximately $8 billion of free cash flow for 2020 through $10 billion in cash from operations.
And $2 billion in capital investments.
Cash generation will.
Be driven by continued strong underlying performance.
Capturing further working capital benefits further reduction in productivity and reinvestment costs and even more disciplined use of capital spend.
We remain consistent on our disciplined capital allocation program, which balances financial flexibility with efficient capital structure, specifically will continue to invest reinvesting cash generator to support our growth agenda.
We also continue to return cash to shareowners by growing the dividend and after investing for growth and delivering on our dividend commitments, we intend to use the excess cash to repurchase shares overtime.
My last point to cover is timing considerations for our 2020 outlook as we expect the majority of growth to occur in the back half of the year. The two biggest sectors. Our first we have one less day in the first quarter and two additional days in the fourth quarter and second we will be cycling the impact from our European box.
Increasing their safety stock in advance of potentially disruptive Brexit area. In 2019. This was a benefit to revenue growth in the first quarter of 29 thing and then was subsequently reversed in the fourth quarter.
The second thing effect will create a natural headwind for the first quarter of 2020 and a tailwind in the fourth quarter.
So in summary, we are pleased with our 2019 results.
And confident in our ability to deliver on our commitments for 2020 .
We're also very clear on the direction, we're heading as assistant.
And well equipped to execute on the strategies to get us there.
Operator, we're now ready for questions.
Ladies and gentlemen to ask a question you will need to press star one on your telephone to withdraw your question press the pound key any interest of time, we ask that you. Please limit yourself to one question.
You have any additional questions you may rejoin the queue.
Our first question comes from Dara Mohsenian with Morgan Stanley . Your line is now over.
Hey, good morning, guys.
Well good morning.
Just wanted to touch on the organic sales growth guidance for 2020, obviously posted a strong 6% result in 2019, but your guidance does imply a bit of a slowdown in 2020. So.
Just wanted to hear if anything is giving you specific concern there driving that slowdown maybe an update on emerging markets anything you're seeing there or is that guidance more than you typically start the year, assuming some things will go wrong and whats bit of a conservative Ben similar to 2009 tape. Thanks.
Thanks.
I think the first fundamental point to make is we don't see any change.
On the line business business momentum.
As the.
As we've considered the kind of global macros, and the geopolitics and the wins that could Buffett things. We've got really focused on what we can control. The more we can drive I'm really putting together a program around the brand building the innovation the revenue growth management and the execution.
Served us well.
In 2019, and we believe it will serve us well in 2020. So we're expecting a solid result in 2020, there were a few puts and takes in 2019 that perhaps favor. The results are little the contribution from biagi, which obviously is a little more disproportionately contributing on the revenue versus the profit line. So we feel.
Well that as we look out into 2020 .
We're seeing the same momentum the same leave as we know how the pull.
When you compare it backwards to kind of a two year run white or make a small adjustment for will be largely I think you said it very much in line. We what we are delivering of course, if we do better in the year.
I will update guidance as and when that becomes appropriate, but we think we got a great plan GAAP solid momentum 10 quarters doing in the range.
And I think Thats, how you should think about 22 way.
Thank you. Our next question comes from Steve Powers with Deutsche Bank. Your line is now open.
Great excuse me thanks.
Maybe just sticking with the topline.
The 2019 was a great year on organic growth as you just described but particularly in terms of price mix realization and I guess the question is is there a way to parse out how much of the the five points of price mix you realize in in 19 was driven by initiatives that you would see is real and repeatable versus things that might be considered more onetime step ups or price.
Things simply as a byproduct of outsize inflation in certain emerging markets and I guess more importantly, as you think about the competition of growth in in 2020 do you expect a similar.
Price mix versus volume composition or is it to be more balanced as we look forward.
Thanks, Dave low lots of moving pieces as warm looks at the aggregate.
Price mix ratio, obviously 29 team was a little heavier on price mix I think there was.
Some inflation coming through places like Argentina, we've certainly talked about previously.
How we're looking for a balance between volume and price over time.
You get up into the 5% to 6% growth six last year five year before looking for five yeah. We're looking for two to three of each so clearly five would be more than we were more than you would imagine is the long term, but we're going to focus.
On what drives the core business the way I think about pricing is it pricing have to be years. It has to be around with the consumer it has to be with the customer because they want their business to grow. So it's about the brand building. It's about the innovation. It's about the AARGM initiatives, we've talked on previous calls about how we see that as a lot.
Long runway of opportunity on AARGM on the pricing of the packaging opportunities and of course executing it and just final thought is in 2019, the price mix is a little over weighted by what happened with biagi being very strong as well so we'll continue to push.
On pricing and we'll be looking going forward for a balance between price mix and volume.
Thank you. Our next question comes from Ali Dibadj with Bernstein. Your line is now open.
Hey, guys.
So okay, hi, I think that despite just the first two questions you guide it feels like investors seem to maybe move down a little bit from question too much at least.
Your your organic topline growth sustainability I hope that's true how thats right, but we all certainly kind of keep looking for your topline a show leverage on your EPS line and that seems to be a little bit more leases.
And one of your perspective on that you know you 2020 guidance that you'd given obviously, 5% organic topline growth that's only 7% error.
EPS growth for a lot of other companies that would be much higher than that and the FMC world.
And and Love your perspective on why that is for you guys in particular, whether that can change and in particular why not get more leverage out of being more decisive on your share buybacks at this point.
Especially John Europe point.
Given how free cash flows improving why not do something more now.
Well, firstly I think that long term growth model is pretty clear.
On the revenue guidance for 2020 is in the middle of the range and the operating income guidance is in the middle of the range.
And yes is that we're still projecting at this point in time.
Mild currency headwind, which then gives us the seven on EPS. So.
I think the the key is to keep looking at the on the line performance of the business and currency neutral and as good leverage built in there.
We've certainly benefited over the last number of years from a lot of leverage for having coming out of Refranchising, having focus on productivity, having used innovation to give us leverage between revenue and operating income we see ourselves entering our more steady phase where there is.
Renewed leverage from revenue operating income in this case three points in the guidance for 2020.
And it's partly being driven by productivity and partly being driven by innovation and revenue growth management. So I think there's not that should be the stable outlook going going forward.
Having come off a very strong period of getting operating leverage.
You also talked about earnings Yes, let me just let me just at a point on the EPS on the.
Share buybacks.
I think it if we got to look at and the context of two two areas one is.
Our overall capital allocation priorities.
And then secondly, the cash we have available at a given point in time, so with respect to capital allocation priorities we.
I think we've been pretty consistent that.
Priority number one is to invest in the business.
Number two to grow the dividends number three so.
Okay look it's opportunistic M&A and then number four is too.
As to silica reduced share repurchase that has to be in the context of cash we have available well our free cash flow.
Progress in 2019 was was terrific I think when you take a step back and look at the cash we have available.
Last year and even this year.
Looking about relatively small amounts so will we continue to factor that into our at decision, making as weak as we go through 2012 going into 2021.
Thank you and our next question comes from Lauren Lieberman with Barclays. Your line is now open.
Great. Thanks, good morning.
Two questions first John I'll, just wanted to talk a little bit about cash because it for cash conversion was pretty dramatic change I think 96% by my math and I know working capital benefits, probably helped a little bit with that but the guidance is still really strong.
Your next year. So if you can just talk a little bit about how you've driven such a big step change in performance on that front.
Speak a bit to sustainability.
And then James I, just you gave a lot of color on plastic and I just had been thinking a lot about kind of consumer awareness and preference changes and how quickly that seems to be building momentum, particularly in the U.S. So if you could as our perspective on how as a system you can sort of balance dealing with is that the consumer interest, but also the costs.
That's implied in in sort of changing changing that packaging mix. Thanks.
Thanks, Lauren and your math is pretty accurate so.
Well done.
[laughter].
I think I've been pretty consistent in the last year talking about this has been a top priority for.
For me in terms of an update for the team.
Were very clear on the drivers to improve.
Our free cash flow.
I have a great team in place and and frankly speaking today.
The only surprise was that they made progress as fast as that have hitting it over the past, especially in fourth quarter.
As.
As I look to the sustainability going forward.
See continued opportunities to improve the underlying fundamentals.
Cash from operations should continue to improve.
We still got opportunities on working capital.
We will sit nothing much benefit and the comparative year.
Capex, but overtime that will be better and.
We will have lower.
Sort of transformation costs and the front in the productivity arena, particularly.
For 2020 , we do need to factor in.
A couple of.
Special items Theres, there is a real cycling of the special dividend from 29 Dana.
If some transition tax payments on a two year basis. If you look at as we're we're in the mid to high Eightys and I expect us to continue to make.
Upwards progress upwards from there so.
Yes, good progress and.
So a lot of opportunity ahead.
Perhaps will be.
Excite general cost into two questions as to rally.
On the on the plastics.
Bit lower.
Clearly consumer awareness is going up on plastics in particular and packaging all consumer waste in general.
For sure is going up U.S. on and.
Perhaps even further ahead places in Europe .
So check when it's going up second thing that that's happening is a.
I think the the the emergence of I'm more profound.
Our investigation of what is it really Maine.
Certainly sometimes initially there's a danger it becomes a philosophical question of plastic good plastic bad.
Whereas actually when you get into the first thing to realize is there are different types of plastics and some plastics have high value allow easily made part of the circular economy song how are very hard to recycle and have very little value on the stuff in the middle So what's happening now is.
I kind of more structured moved was okay. What can we really do about it and what happens is two objectives come together when you stand back and plastic and actually it then applies to plastic aluminium Los cabos whatever packaging materials are talking about is two things come together, how do we have zero waste and how in doing that.
We have the lowest possible carbon footprint because that that's the other objectives is going to come back into the equation here I think the plastic spade started more on the way side, but the two things are going to come together and the objectives are going to end up being how do we design a system.
Deliver the brands and beverages that people want with zero waste and a lower carbon footprint and when you go down that road and you get into plastics for an example of the material. What you find is high value plastics, which PT bottles of the preeminent high value plastic if you can get them back that fully recycle monthly reusable embed.
Average bottles and as we pointed out we're going to have our first mark in the world, we're going to achieve a circular economy of getting the bottles back I'm, making them back into plastic bottles.
Fully circular economy in Sweden, with our model and that those recycle PT volatile have a lower carbon footprint now just one way bottle possible, but also have a low carbon footprint than cans or loss at least on today's technology. So actually if your objectives remain.
Ciro wise and lower carbon footprint, which is where I believe the conversation is going to move towards then achieving a circular economy RPC is actually that the best way to achieve that objective now there are as I said other types of plastic and we as a system have gone through the process of yes. The ball has lots of value.
There are other plastics, we lose use like shrink wraps, which don't a much harder to recycle have low value. So for example, our western European Bottler.
Just going through a process of investing.
Under the European single use plastic directive to remove all about plastic from the supply chain and putting in Calgary cost a little bit more but it can be accommodated within the business system. So we're starting to work or how do we eliminate low value super hard to retire recycle plastics and then the bid in the middle where we're investing with company.
The other people are doing it so on innovation because what's needed that is.
Some new technologies enhanced recycling, we came out with a.
And innovation last year because of the marine ball, where we were able to take very dull TPG, which doesn't fit in the normal stream actually with enhanced recycling chemical resigned you were able to turn that back into food grade PC. So I see the circular economy on plane PT bottles being the lowest.
Carbon footprint, and and and and zero waste and Thats the solution for today, new technologies coming into the middle types of plastics.
On a complete the circular economy play and the system moving out of Harm's recycled glass. These are all of that if we do it.
Collectively we pay manufacturers in beverages, and other FMCG and retailers and put in place with governments. The lowest cost collection systems possible. This can all be accommodated within the business system going forward and therefore, we can continue to use a range of packaging vehicles for the consumer not figure.
Adding that we are also one of the largest enterprises that have packaged us dispensing between our foundry business our freestyle business. Our cost are expressed business, we provide a wide platform.
All of our basically bottle cannolis dispensing of beverages, and we continuing to innovate with the sandy pure feel and so we will run jewel track system and make sure weaker offer the consumer the beverages they want.
And achieve a future, where we have zero waste and allow our footprint.
Thank you. Our next question comes from Robert Ottenstein Evercore. Your line is now.
Great. Thank you very much and congratulations on a strong quarter capping an excellent year.
Hi, James when you came on board you talked about changing the culture.
Trying to drive more agility.
Speed.
Accountability and certainly we're seeing strong results, but I was wondering if you can talk a little bit about the cultural changes that you are actually doing what kind of the sustainability of that perhaps how you have adapted the compensation system.
And then maybe to also touch on the change that you did initially you went from a CMO to growth officer now you've gone back maybe a little bit about a little bit around that decision and how that works into your overall objectives. Thank you.
Sure.
Let me start with the culture pace, and then come to the to the CMO piece.
Absolutely.
What we said on on the culture and simply put around.
Really fundamentally driving a growth mindset and celebrating all his great about the coke culture, and the Coke system culture, but to get us more growth oriented in you know its.
I've said before any large system, particularly large successful system is.
Pre destined.
In a wide the effects of gravity to suck focus inwards, the bigger and bigger it gets in the more successfully gets on solar has to be pushed against it has to be pushed against to drive and external view of what is the consumer doing what do they really want how are we going to help our customers grow the business.
Without that things will go wrong and sold that's been the focus of the cultural shift to really drive that it then goes along with the organizational strategy around empowerment.
And accountability and backing it up with compensation I don't think we should.
Lose sight of the fact that cash got included in the compensation in the last couple of years and we have done slumped somewhat better in 2019 on cash so.
It is about.
Organizational strategy the various components it working together to drive the end result, which is about the growth mindset leads to a focus on growth which leads to better results.
And as we think about that.
Switching over to the CMO question, we put in place the growth office. We we've just with the purpose of providing more structure. We have spent a number of years expanding the portfolio into different categories with different brands.
And and we have not been disciplined enough.
About working out which ones were truly brands that off with the consumer compelling proposition, which would just bulking up.
We have to comment would be more disciplined so the work that the growth obvious did with francisco driving it to create the lead a challenger explorer and the zombies and really get clear about what's working what's not working and how do we how do we administer a structure.
The portfolio in a more strategically it was a critical piece of getting more organized over the last couple years and now the next phase, which is kind of why we come back to a more of a chief marketing officer structure is having put that strategic.
Logic in place we have to continue to XL on one of the four fundamental leaving the business, we talked about brand building innovation AARGM execution, having a sharper focus on the hard core of marketing is critical now we have a clear structural and how we want to approach the portfolio.
Thank you and our next question comes from Cardinal cover Wall with Credit Suisse. Your line is now.
Hey, good morning, everybody.
You are going more quickly than you then you have in quite some time, including in volume terms and it sounds like the spread or the mix between volume and price might skew a bit to volume next year. It also sounds like there's a lot of there's quite tight cans capacity at the moment is there any risk of that there could be a limit or Lynn.
On your growth because of lack of access to the cans.
At the moment, we don't see any problem accessing can capacity given our current plans. We're obviously, we have high a global procurement team that works on buying out of the medium and can capacity for us.
We believe we have a good visibility into what we need going forward I know that some thinking out there the plastic come under pressure than Kansas suddenly going to.
Shoot up cans are doing well certainly we're going to continue with our strategy are driving the mini cans, which has been a strong.
Piece of the North American success, so there's going to be innovation in Kansas is going to be more growth in cans.
But we don't see the market, becoming wildly on stabilized and so we we believe we have all the accounting capacity with our supply base.
To drive the growth that we need.
Thank you. Our next question comes from Andrea to share with JP Morgan Your line is now.
Hi, good morning, Thank you so.
And with you mentioned that you're putting on the full Coke marketing force behind Coke energy.
And I know, it's too early but how has the largest on so far and what is incremental shelf space come from I mean, where it's.
Coming from the energy cooler and what have you learned about shelf placement in the other parts of the war that you're applying to the U.S. and if you're generally is also with me can you. Please break down to 17% price mixing Latam into list price, Argentina benefit and better mix of single served that you called out in Brazil, and Mexico, and how should we see.
Think about the region embedded in your 5% guidance globally. Thank you.
Okay, maybe I'll start with Latin America and.
Zhu generosity through the whole coal.
The seven that Argentina, I think accounted for about three points of extra inflation rate pricing within the Latin America number so that would give you something in the kind of the low teens.
Latin America.
For the full year, if you excluded if you excluded Argentina, and I think thats more consistent with what you see going backwards.
In time for price mix for Argentina, we don't breakout the the kind of single serve in Brazil, and the other pieces. So I think.
If you believe that Argentinian inflation is gone.
Come down than taking it seeing Latin America's price mix go back.
Or exclude that benefit will be with them would then be logical.
In terms of Coke energy.
We certainly making a strong effort in North America kind of a version 2.0, having having done a 1.0 in a number of the international markets.
One of the things we learned.
As we went to the North American market as we wanted to move the flavor profile of the product closer to Coke.
Let's say to see more coke like we think thats going to work well for the North American market and we'll be rolling that Formula Route.
Some of the some of the round one marketplaces so.
Certainly in terms of shelf space on execution in the customers are we're very clear and we're looking to take.
Space from the energy category from that brands that are competitive to those carried by the coke system by which I mean I also include monster in that among the Coke system. So we're looking to take from other competitors.
And generates bites of the the strategy is clear we looking to expand the access to the energy category.
And we think token do that we're certainly giving it to go and as you said, it's very early days.
And so we don't have any clear conclusions yet in the U.S. marketplace, but it certainly seems to have generated a lot of interest.
Thank you. Our next question comes from Bill Chappell with Suntrust Robinson Humphrey Your line is now.
Thanks, Good morning.
Can I just.
I realize it's still early but any kind of thoughts of how krona virus changes your plans in China be it just current sales or plants rollout Costa and also maybe any update or reminder of kind of what Sars did to numbers. If it if anything 10 years ago were 15.
Years ago.
I'm sure.
Well starting at the end.
Obviously, China's economy was in a different place when solves happened almost 10 15 years ago.
Net net win seen on an annual basis.
The effect was not not particularly noticeable from a business point of view, obviously, the human help what is different but from a business point of view.
So it did not ultimately seem to make that much different it's worth noting the Chinese economy is much bigger on this could become more connected to the rest of the world.
China accounts about 10% of our global volume less on a profit in revenue basis, but about 10%.
Of our global volume.
It is early days, our focus is firstly our employee safety.
Secondly to support efforts the Chinese government wants in accommodating what needs to be accommodated to help them.
Deal with the crisis, whether that's making donations.
Our product on Monday.
To help in the efforts, which we've already done through the co foundation through the Coke system and through donation of a product.
And then thirdly to worry about business continuity and recoverability or recover bill feeling continuity.
So far.
Of course, the short term effects of the office is a closed.
A good number the factories are closed.
And so that's that's the current situation.
There will be that is an effort by of course, the Chinese government that still has to be food and beverage available for the population.
So we on the under the auspices of.
Of the Chinese government them, they're kind of crisis management reopening the call I'm at some of our manufacturing facilities to make sure. We continue to produce our product for the population and get a distributed.
In a way that's not going.
Make the spread any.
Be part of the spreads so it's way too early to tell what the impact in the short term is.
And I think ultimately.
In the long run it will it will rebalance as I said number one priority is employee safety number two is help support the efforts to contain.
The virus and manage the crisis number three ensure business can be recovered and to support continues in the short term.
Thank you and our next question comes from Laurent Grandet with Guggenheim. Your line is now.
Hey, good morning, everyone.
I do I do have a question regarding the cash for trend. So teach strong progress this year, which should be a positive for many investors.
Now you mentioned in the past due whereas going through a task of you don't define to right size of ownership level of your bottling partners.
Could you please a bit us on on that specifically thank you.
Yes, it's them.
We talked that we've talked about that in the past in the context of looking at our overall balances.
And making sure that we are.
Fully utilizing our asset base and the most efficient and effective manner.
We continue to look us.
At all all aspects of the balance, including our our equity investments.
It's a it's a thoughtful process it requires us to.
To work closely with our partners, which we are doing we've had a couple of.
A couple of initiatives and 29, saying that that you're aware of and I will continue to do what's right for both our balance sheet, but also for for the businesses that were invested in.
Overall, it's not immaterial measure when it comes to the our future cash flow trends.
And we'll continue to update you as early as we make progress.
Thank you and our next question comes from Carlos Laboy with HSBC. Your line is now.
Yes, good morning, everyone on price mix.
Can you comment on the role of Bottler digital platform advances.
For driving things like directed initiatives by point of sale.
Where do you see the system advancing these digital capabilities further.
As you look out to 2020 2021, and how important do you think these are as you look ahead.
Sure.
I mean, the the ability to.
Dr. AARGM, absolutely can be made more powerful and to some extent will have a greater reliance on our ability to capture use analytics to generate the inside for the next the further around not just the overall aggregate price packaging, but abilities to work.
Customers.
Kind of won all want in a segmented why to drive results. So no question that the the increasing availability on gender ability if I could just the bed that word of data.
It's going to create a competitive advantage for the coke system for the bottlers are to be able to drive revenue growth management and engage with customers on how to drive it and ultimately at some point that'll that'll bring in Ireland and also the tools.
But I see that as all on the you know version 4.5, 0.06, 0.0 of driving AARGM and that AARGM is a competitive advantage for the coke bottlers and the Coke system overall.
Thank you as a reminder, ladies and gentlemen that Star then once ask a question.
Our next question comes from Sean King with you, Yes. Your line is now.
Hi, good morning.
Are you thinking about the or the margin impacts of the innovation pipeline you have planned for the U.S. 2020, I guess I'm thinking in particular about Aha Coke energy and in that light any insight you can provide on the pricing and promotional strategy for the rollout of those different products to be great.
No not a lot of not a lot of real news and I think the margin impact for both energy and a half should be so the overall very very positive.
I think when its zoom out and take a look at the overall innovation pipeline. It's at links back to the what James referred to earlier. It is one of the key drivers of both sustainable topline growth.
But also conversion into into the kind of margin expansion of where we're committed to for the future I think with a shift from been volume centric to to value centric.
We've we've seen our our business units at our R&D centers.
Readjust their focus on making sure that's what's comes out as pipeline on a on an overall basis has got the right margin characteristics. So.
Good work underway and I think for.
You'll see you'll see that been reflected in the overall output from innovation not just in North America, but in the rest of the world.
Thank you and our next question comes from Kevin Grundy with Jefferies. Your line is now open.
Thanks, Good morning, everyone and congratulations on strong year.
John I wanted to come back and drill down a bit in the area of productivity. So earlier in the call. You said the organization is clear on the opportunity with respect to free cash flow and congratulations you've done a great job since taking over but similarly is the organization clear on the opportunity regarding productivity and this is something you intend to quantify for the investment community.
Do you believe that the incentive structure at the Coca Cola Company reflects this opportunity beyond just operating income targets, maybe something more specific at the business unit level, and then strategically maybe discuss the role of productivity as an enabler to fund reinvestment to sustain the topline growth. Thank you.
Thank you.
Yes productivity is is a critical part of the of the equation going forward. It's.
It's embedded in our long term growth algorithm and.
So it's a it's an area of particular focus for for us here and around the world.
I think it's important to highlight that for the last two to three years. It's it's offered an outsized.
Portion of the expansion due to the reset of the cost basis, driven by the transformation plans that have been underway.
As I as we look to the future night I think we talked about this at the Deutsche Bank Conference and 29 thing.
And similar to the cash flow conversation, we're very clear on de lever that we have entered disposal to influence the productivity agenda and it's got to be links to the overall growth agenda as well.
We are very clear on holiday.
Led to the different businesses that we have the core business, our global ventures group and our bottling organization and so the short answer is yes, it's very much embedded in the in the operational plans, it's very much a part of the overall compensation model and.
We expect to continue to make to make progress.
As I said to deliver on our overall algorithm as early as we go into 2020 and beyond.
Thank you ladies and gentlemen, this concludes our question and answer session.
I would now like turn the call back over to James Quincey for any closing remarks.
Thank you.
As we've talked about we made good progress in 20, not 29 team by delivering on our financial commitments and growing in a sustainable way. We continue to transform the organization chart, where the growth mindset, which gives us confidence in delivering at 2020 targets and our ability to create a better shed future all our stakeholders as.
Always we thank you for your interest your investment in our company and for joining US today. Thank you.
Ladies and gentlemen, this concludes todays conference call. Thank you for participating you may now disconnect.
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