Q4 2020 Coca-Cola Co Earnings Call
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At this time I would 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 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 can leverage Vice president.
And the Investor Relations financial planning and analysis and Mr. Leverage you may now begin.
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 before we begin I would like to inform you that we posted schedules under the financial reports and information tab and the investors section of our company website.
Ww 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 under generally accepted accounting principles.
I would also like to note that you can find additional materials and the investors section of our company's website debt.
Provide the accompanying slides for today's discussion and and analysis of our margin structure. And addition, this conference call may contain forward looking statements, including statements concerning long term earnings objectives and should be considered in conjunction with cautionary statements contained in our earnings release and in the company's most recent SEC.
Reported.
Following prepared remarks. This morning, we will turn the call over for your questions.
Please limit yourself to one question if you have more than one. Please ask your most pressing question first and then reenter the queue.
Now I will turn the call over to James.
Thanks, Tim and good morning, everyone.
I'd like to begin today's call by reflecting on the past year, including our fourth quarter performance.
Then, let's turn the page and look at the new year.
I'll provide thoughts on the current environment and how we will continue to manage through near term volatility.
Finally, I will share how we are thinking about the year ahead and why we remain confident about the future. John will then discuss the quarter and our outlook and more details.
Now before we dive in I'd like to address our U S income tax dispute with the internal revenue service, including both the case and the opinion that was issued by the U S tax code and November.
We believe that the task or misinterpreted misapplied, the applicable regulations and its conclusions we intend to assert our claims on appeal and <unk>.
<unk> Lake defend our position.
We've consulted with outside advisors and conduct.
Comprehensive analysis.
We've considered all relevant information, including the Unconstitutionality of the IRS is retroactive and position of tax liability.
Putting this all together, we believe we will ultimately prevail on appeal.
John will provide insight into the range of risks, we see should the case not go in our favor.
I also encourage you to refer to exhibit 99 point too in the form 8-K, we filed this morning for the updated disclosure.
The tax matter is clearly important and we are.
Our dedicated ample resources to its resolution.
It is likely to take some top line.
We remain steadfastly focused on delivering growth and that business and driving long term value for our stakeholders.
In 2020.
We faced significant challenges posed by the global pandemic.
Company proved resilient and moving with agility to adapt that business and accelerate our strategic transformation.
And I work isn't done and I recognize and appreciate the ongoing support dedication and progress from our people and our system.
Turning to the fourth quarter we.
We saw improving trends through November, but a resurgence in the virus drove renewed lockdowns in many parts of the world.
The relatives and restrictions impacted our recovery in many markets, resulting in a modest deceleration in volume and December which has continued year to date with volume currently down mid single digits.
Speaking generally true.
Trends are still tied to our exposure to away from home coupled with the level of lockdown.
But our business has become more durable compared to the spring of 2020 based on the learnings and actions we have taken.
And our teams around the world have applied these learnings from the peak of the crisis to better and navigate short term setbacks.
Globally, and the fourth quarter progress remain mixed and even within regions. There was ongoing recovery as well as challenges.
For example, and.
And Asia Pacific countries, there are different stages, and China, we are indeed emerging stronger thanks to our strategic actions with Q4 share gains to complement our 2020 share gains and both on and off premise.
Japan drove incremental transactions through that price pack decoupling, but soft traffic and vending continued to pressure mix.
And India challenges remain but at home trends was strong and we saw signs of recovery and away from home channels through the holidays.
EMEA showed resilience despite experiencing varying levels of locked down through the quarter driving a dispersion and results between developed and developing markets.
And Europe was the most affected by the resurgence Wild West Africa, and Turkey share positive momentum.
And North America away from home volumes were impacted by multiple states restricting baas and banning indoor dining spa.
Sparkling water trends remained robust with the expansion of our hall, and topo Chico mineral water as well as simply and fair life also performing well.
And Latin America trends with strong early in the quarter, but slowed and December due to restrictions and less stimulus support.
Single serve is recovering as a percentage of mix in that business and multi serve renewables grew at a double digit pace.
Brazil's results remained strong and Mexico improved sequentially.
And global ventures, despite the headwind of renewed UK lockdowns impacting our cost retail stores express machines performed well with.
We continued expansion and China, Japan, and further into Europe and are testing express and proud to serve platforms, along with the launch of Costa coffee Dot com and the U S.
Our bottling investment group further improved operating margin performance and made progress on cooler productivity and SKU rationalization.
Almost all markets gained or maintained share with Vietnam, achieving its highest ever sparkling share.
From a category perspective, we saw relative outperformance for sparkling and the fourth quarter <unk>.
Trademark Coke delivered 1% volume growth delivered by a zero sugar offerings, which were up 3% for the quarter and 4% per the year.
While our overall market share performance continued to be impacted by channel mix as our higher share away from home business remains pressured and we did gain underlying value share in both at home and away from home channels.
We are poised to emerge stronger and both channels due to our actions to support customers and to ensure seamless execution from a supply chain perspective.
Thinking about 2021.
There is no doubt the near term trajectory of a recovery will still be impacted by the presence of the virus and both markets and is still early days and the vaccination process and we'd expect to see further improvements and our business as vaccinations become more widely available over the coming months.
It's clear that the pace and availability factors will look different around the world and therefore will likely see some level of asynchronous recovery, depending both on vaccine distribution and other macroeconomic factors.
Amidst this backdrop, we will ensure that the system remains flexible to adjust our near term uncertainties. While at the same time continuing to push forward on initiatives, we have championed to emerge stronger.
So let me touch briefly on our progress against several initiatives today, and we will provide further detail on these as well as other important business drivers and our virtual Cagny presentation next week.
And net growth organization is coming together and creating impairment through clear decision rights and accountability, we have our overall operating unit and global category teams structures and are already changing the way we work.
We've established a new platform services organization nine hubs are currently being stood up.
Ultimate goal is to scale, our resources and capabilities to drive value and growth, including investing in new consumer analytics and digital tools.
As we go through the transformation, we are ensuring that we have a diverse and equitable representation across our global workforce.
Our long term profitable growth will be powered by our optimize brand portfolio with.
And we streamlined our portfolio from 400, 200 master brands, allowing global category teams to identify the greatest opportunities and al.
Kate investments accordingly.
And the investments will leverage our leader brands more effectively and convert challenger and explorer brands into leaders more quickly and consistently.
Additionally, our portfolio streamlining allows us to focus attention and resources on what we do best brand building and innovation.
This will make room for more consumer centric products down the road.
Great brand building begins with a deep understanding of consumer debt.
<unk> into superior quality products to enhance our marketing effectiveness. We are building targeted experiential campaigns that are data driven and occasion base and all resolved.
We are eager to share upcoming work generated by this new marketing model, including our first ever global Sprite campaign is called let's be clear and advised strength is to reset and refresh and France's new colorful initiative seeks to make stacking moments more playful around the world.
At the same time, we are optimizing our marketing spend focusing on our strongest brands and most compelling opportunities we.
We have a global creative and media agency review underway, which will improve processes eliminate duplication and drive efficiency to fuel reinvestment and our brands.
Our innovation pipeline for 2021 has been shaped and coordinated for scale and impact.
Consistent global bets like the new taste and designed for Coke zero sugar and regional banks across categories like the expansion of our <unk> franchise across Asia.
We are still pursuing intelligent local experimentation like adding functional benefits to some of our local hydration and brands.
And there's also innovation that leverages, our strength and revenue growth management through packaging initiatives.
This includes our first 100% recycled bottles and the U S for Smartwater understanding and.
Along with a new 13, two ounce, 100% recycled PT bottle for trademark Coca Cola.
We will also continue to expand topo Chico hard Seltzer, which is already launched in several cities and Latin America and Europe.
The global pandemic has undoubtedly expedited the shift to a digital world and we are structuring the organization around this opportunity.
And we've been digitizing the enterprise for several years and have stepped up our evolution into an organization that can skillfully execute marketing commercial sales and distribution both offline and online.
Also leveraging existing pockets of excellence and E commerce around the globe.
And my Coke <unk> platform continues to add outlets and is expanding to new markets.
<unk> partnerships with multiple food, Aggregators, and Shaw beverage availability and visibility.
And multiplatform venture Huawei it connects our system and other consumer products companies to store owners and and consumers through and ecosystem digital apps.
Thanks to a network model <unk> is now available and 23 cities across five continents.
And the system is powerful and has already attracted bottler interest and collaboration and several regions.
While our alignment also remains an imperative seamless system connectivity helps us maintain the local relevance while benefiting from global scale.
We continue to engage with our bottling partners Holistically to fuel the network for long term growth.
And working to lift and shift capabilities.
We can focus on being successful today, while also pursuing our ambitions for the future.
And before I turn it over to John I wanted to express how proud I am of our support for communities and our sustainability achievements during a year that brought much disruption to the world.
We remain grounded by our purpose and our <unk>.
<unk> work is embedded in our business and the value we create.
We contributed to COVID-19 relief around the world.
We continue to focus on racial equity, including the introduction of our global Social Justice framework.
We've made progress against priorities such as world without waste, which includes setting a new target to reduce the use of Virgin PETN and packaging.
We're also making progress against that 2030 science based carbon target, which is a critical milestone to achieving our ambition to be net zero carbon by 2015.
We accomplished our goal to empower and 5 million women by 2020, creating shared value for these women with families and communities, while growing our business through their involvement in both retail and distribution businesses.
And we won't stop there, we'll have more updates and our business of sustainability report and world without waste report and the coming months.
To summarize we have confidence that we will successfully navigate through a dynamic market environment in 2021 to deliver against our objectives, we will emerge stronger with more consumers higher share stronger system economics, and greater stakeholder impact.
As vaccine distributions continue we'll have more visibility into how the global recovery will take shape.
And given our confidence and the levers we have to manage the business, we are providing an outlook for 2021.
Importantly, we are staying true to our commitment to consumer Centricity and our beverages for life strategy, We've made great progress and equipping the company to win for years to come as we will fulfill our purpose and refresh the world and make a difference now John will provide more details on our results and our guidance.
Thank you James and good morning, everyone.
Today I'll go over our fourth quarter performance and touch on the components of our outlook for 2021.
First let me start with a comment on the tax case items referred to earlier and the call.
As he mentioned, we disagree with the U S tax court opinion and.
And we will vigorously defend our position.
And the form 8-K filed this morning.
We provide detail on the process, we've undergone and arriving at our current position and.
Determining next steps.
Total analysis has led us to believe we will ultimately be successful.
And while we have recorded a tax reserve.
$438 million and.
And consideration of the alternative transfer pricing methodologies that could be applied by the courts and resolving the litigated matters.
We have not made any changes to our underlying effective tax rate going forward.
That said there is no assurance that the courts will ultimately rule and the companys favor. It is possible that all or some portion of the adjustment proposed by the <unk>.
IRS and affirmed by the tax court.
Would be upheld.
To this and we have estimated approximately $12 billion for the aggregate incremental tax liability for years up to and including 2020.
Including interest accrued through December 31, 2020.
This amount assumes the IRS prevails and the per.
And as their methodology.
And considers any adjustments from previously accrued transition tax payable.
Payable under the tax cuts and jobs Act of 2017.
We have also indicated and applying that methodology.
And would increase our underlying effective tax rate by approximately three and 5%.
There are many puts and takes that inform the range of incremental liability and potential change in Texas.
I encourage you to refer to the disclosure and the form 8-K for more in depth detail.
While there is uncertainty associated with the timing and ultimate resolution.
We will continue to prioritize investing and the business to drive long term growth.
As well as supporting dividend growth for our shareholders.
And while we strongly believe we will prevail. We are confident we have ample flexibility between our cash generation and balance sheet to manage the range of outcomes outlined in this morning's disclosure.
We will be as transparent as possible.
Throughout this process.
Turning to our performance and the fourth quarter and fiscal year 2020.
Our Q4 organic revenue decline of 3% showed sequential improvement from the 6% decline and the third quarter and 9% decline for the full year.
October and November volumes were down low single digits and approaching flat year over year trends.
And as mentioned we saw a slowdown in December.
Due to a resurgence and the virus and.
And increased lockdown restrictions and many markets.
The contraction and the comparable gross margin was primarily driven by continued pressure on our channel and package mix between away from home and at home.
As well as currency headwinds.
Additionally segment mix swung to a headwind and the quarter due to outperformance of our bottling investments group.
Comparable operating margin expanded two ongoing disciplined cost management more than offsetting pressure from the top line.
It's worth noting the decline and SG&A spend this quarter was impacted by timing.
Due to the phasing effect of marketing reduction over the year.
As we've previously stated.
We have been reintroducing marketing spend and the targeted way identifying compelling opportunities to invest across countries categories and brands.
Fourth quarter comparable EPS of <unk> 47.
Represents an increase of 6%.
And full year comparable earnings of $1 95 reflects a net percent declined relative to our 2019 results.
On a comparable currency neutral basis.
Earnings were up 14% for the quarter and 2% for the year.
Throughout the crisis, we have remained intensely focused on our cash flow goals.
While our cash from operations was down 6% for the year we.
We have continued to make good progress on our working capital and have exercised tight management of our capital spend.
This is exemplified by our 2020 free cash flow performance coming off a strong momentum and 2019, we finished up 3% per the year and reached free cash flow conversion.
We're 100% despite the headwinds our business space.
As we begin to see prospects for recovery later in 2021, driven by vaccination and consumers returning to many of their previous routines and socializing work and travel or.
Our focus.
And we'll be on converting top line growth.
<unk> returns.
Our improving level of visibility into a recovery of vehicles as well as the many lessons we've learned in the last year.
And to enable those supplied and outlook for 2021.
We currently expect organic revenue percentage growth of high single digits and.
And comparable earnings per share percentage growth of high single to low double digits versus 2020.
And while we're confident we will see recovery this year and expect to deliver 2021 earnings.
Or above 2019 levels.
We've provided a wider range than usual to account for lingering uncertainty and the near term as well as the potential for the acceleration.
I think Chris and nature.
There are many considerations as you think about the drivers of our guidance.
The calendar shift will impact the quarterly cadence as.
As we have five additional days and the first quarter and.
And six fewer days and the fourth quarter of this year.
The trajectory of the recovery will be a significant sector.
And we expect to be dealing with COVID-19 for the better part of the year with the first half likely to be more challenging than the second half.
Currently year to date volume is down mid single digits as we lap the toughest quarterly comparison of 2020.
Before the pandemic hit much of the world.
To the degree that the top line is driven by away from home recovery, we'd expect the channel and package pressures experienced last year to the base.
Which would drive price mix improvement and gross margin expansion.
From a cost perspective, we.
We see several factors at play.
And 2020, there are many operating expenses that were significantly reduced or eliminated debt are likely to come back this year.
And we will continue to set up levels of investment behind our brands to drive the top line.
We expect the return on that spend to become more favorable as mobility stabilizes and.
And away from home channels, we gained momentum.
The changes we are driving with our strategic transformation will lead to more efficient and productive spending over time.
These changes include our organizational restructuring streamlined portfolio.
Disciplined innovation and optimized marketing approach.
We will continue to flex our spend relative to what is dictated by the market conditions around us.
While we are seeing commodity prices begin to rise.
Given our hedged positions. We currently expect the impact to cost of goods sold to be benign.
As we noted in our release based on current spot rates and our hedged positions, we expect currency to be a tailwind of approximately 2% to 3% to the top line.
And approximately 3% to 4% to comparable EPS in 2021.
We will continue to focus on free cash flow and expect to deliver at least $10 billion and cash flow operations.
While we expect capital expenditures of approximately $1 5 billion.
This does not contemplate and a payment relating to the tax case.
We look forward to providing more insight into the drivers of our outlook.
And our virtual Cagny presentation next week.
And the face of this global pandemic.
Im extremely grateful.
For our team around the world and the way they were able to pivot and execute so.
Such a challenging environment.
I'm also excited about the work we've undertaken to set us up for a very promising future.
I am confident that our overall strategic direction will enable us to deliver 2021 earnings.
And that are at or above 2019 levels as we emerge stronger.
With that operator, we are ready to take Q&A.
Thank you, ladies and gentlemen to ask a question you will need to press star one and your telephone to withdraw your question press the pound key and the interest and 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 the line of Steve Powers from Deutsche Bank. Please go ahead. Your line is now open.
Hey, guys. Good morning, Thanks, So the profit and the free cash flow flow through that you delivered in 2020 and guided to and the year to comments.
And there is impressive given the top line headwind and the complexities you are facing and I know a lot about and driven by underlying productivity and that's set to continue but I would also assume its been aided by some level of diminished level and strategic investment marketing capabilities that kind of thing that is probably set to continue for a good part of 'twenty. One before demand is more clearly on an upswing so I guess the.
Question is there a way to frame how much strategic investment is embedded in the 'twenty, one outlook, perhaps relative to 2019 or some other benchmark and where do you think the right level of investment will be post pandemic on a run rate basis to make sure you're positioned to hit the high end of the long term algorithm that you've been targeting and if there's a way to talk a little bit.
The phasing and it does that investment come and coincident with recovery.
Is it should we expect it to be ahead of recovery and just how youre thinking about those dynamics would be great. Thank you.
Sure.
Hey, Steve good.
Good morning, let me start with <unk>.
Let me start with the future and work backwards.
When things have become new normal post pandemic.
The World is fully open and clear.
<unk> will be back investing at the sort of pressure levels of marketing and all the other components of the business.
But we believe is necessary to drive the top line and a margin accretive fashion that is consistent with the long term growth model and as you think about comparing that to 2019, clearly we will have baked in to that Ben.
The benefits of not just the new organization, but the fundamental rework of the marketing.
Some of it is.
Re programming of where the marketing goals and Thats <unk>.
Most obviously reflected in the advertising number that we show in our disclosures, but there are other marketing spend.
And they get pulled enabling and while we have a major program.
To really look at how we can make that much more efficient right across the board are all things we do from re looking at the agencies and re looking at the revenue research the digitization of many things.
And the wheel when comparing the new normal.
29 million and embedded.
<unk> of efficiency across the board and.
And we are of the view that the <unk>.
Marketing pressure will need to be.
Similar to the sorts of pressure levels, but it was 19% and 19, when we were achieving the sorts of revenue growth rates on Stan you'll see the flow through into profit that we were looking for.
And the run up from now to that future. We have of course taken a measured and balanced view of what we think 'twenty 'twenty one will look like.
And our guidance ultimately is a corridor, where we believe we can manage waiver.
And things get better.
In line with our view will quicker than our view will be and the Colorado line will start reapplying the pressure.
And the marketing and the innovation that we believe will drive the revenue growth or things that are a little slower on the opening we will pull levers and be more cautious about the rate at which we reapply the market pressures or and in the and the as you mentioned free cash flow, obviously, one of the levers too.
And sustaining or in fact growing free cash flow last year was to back off on some of the capex and simply understood.
Some of our Capex is in new found and equipment or new vending equipment and if those channels are not open and there's no there's no point and putting new equipment and there until they're on the verge of being open. So there is a self regulation between the marketing and some of the Capex on the Lockdown is greater and we will logically.
Back off and then as the lockdown reduces and the market. Moreover, and those things will come back on and so we'd spend more marketing more capex that have more revenue and Thats why we believe we can operate within the corridor with the guidance we've provided.
And the more stronger from this and really drive growth into the future.
Your next question comes from the line of Lauren Lieberman from Barclays. Please go ahead. Your line is now open.
Thanks, Good morning.
I wanted to talk a little bit about North America profitability over the longer term I mean, obviously this year there was a nice step up but tough to look at 2020 is.
Change in isolation.
But I was struck by the.
And you mentioned it today.
10 ounce bottle.
So I was just I was just curious about and.
Efforts to get broader and more aggressive on price back management revenue growth management and the U S.
And talked about what that could mean for our longer term profitability and North America.
And without addressing the nature of your supply chain here and by the way. If there's anything you are starting to explore and in terms of supply chain structure and.
Thanks.
Sure.
The the revenue growth management journey.
Has been a multiyear journey.
And globally and indeed more recently.
And North America, and starting to see some some good benefits come through from that.
And the third thing just over 13 hour bottle is obviously good from a revenue growth point of view. It is also worth mentioning that the home, 2% recycled P. T ball alone co, which is the first one and U S. It's very linked to our world without waste strategy.
Clearly we are going to continue to explore.
And drive, particularly some of the smaller packages, whether it's smaller bottle or some of the sleek cans.
As part of providing the sizes that consumers are interested and Thats also connects with our revenue growth management story.
And as I said, our vehicles I believe that it's a multiyear runway for our efforts our GM in North America, and Thats, how all starting to pay dividends over time that that is not just helping on the margin bump, but frankly is helping.
On the revenue front, so I think theres a lot more that can be done.
And to drive that in North America, and that's that's kind of in the underlying category of March and of course, there are structural changes to the margin on whether we.
Re franchise or north to the volatile is and whether we continue and what our exact role is and the <unk>.
The systems and total supply chain and therefore, if we do finished products. So we.
And all of the bottle is manufacture those products.
And what we will do over time is look to do the most efficient and effective ecosystem of supply options for ourselves and our bottling partners we have recently.
Move some lines.
Third party sales.
Party co packing of water and as and when other opportunities are there and we'll consider them, but ultimately we have to have the <unk>.
Most efficient and effective supply chain and between ourselves and the bottlers to.
Occupancy and rates.
Your next question comes from the line of Dan Fannon from Morgan Stanley. Please go ahead. Your line is now open.
Hi, good morning.
So.
John I just wanted to follow up on the comments around <unk> and ample flexibility to handle the tax judgment.
And just working for a bit more detail on two separate scenarios. One just more short term versus the unfavorable $3 billion of opinion.
Potentially in order to appeal that.
And Mark do you have to post cash that could impact your dividend plans. How do you think about that as well as capital allocation and then second if we think about the subsequent decade, if there were to be an unfavorable outcome and I understand that's not what you believe.
But what if type of scenario or the cash outflows far enough out that it doesn't have a significant impact in terms of the way you think about the dividend and the sustainability or do you have to sort of adjust plans ahead of time and case and and how do you think true that conceptually.
Thanks Todd.
As I mentioned and the script.
I think we've got us.
Total flexibility.
Through both the when and which we've been.
Managing the balance sheet.
And when we think about the cash generation prosper.
Prospects for the for the next few years too.
And as any scenario.
We continue to believe that we have.
Very strong cash.
Unlikely to have to.
Consider that worst case scenario.
But.
The work we've done.
Beginning last year too.
Organize our debt portfolio and the way that gives us more flexibility.
And when we take that into consideration along with the cash we will generate and the next two to three years I think we feel pretty confident we can.
Take care of just about any scenario.
Your next question comes from the line of Ghansham from Credit Suisse. Please go ahead. Your line is now open.
Thank you I'd like to ask and a few more details on advertising spend.
John You you mentioned, a few phrases cube creative media and review marketing efficiency and such.
And then also and you mentioned marketing pressure and being similar to <unk> 19 level. So if we look at 19. The AD spend was roughly around $4 3 billion. Obviously is much lower than that for 2020 should we expect that figure to get back to where it was this year or.
Is it the sort of thing that you've just become more efficient and perhaps it's a it's a figure that is 5% lower 10% lower than when it was running at before.
Yes. Thanks.
I don't think were fixed on a on a number that's necessarily linked to 2019.
Given a couple of factors number one the.
And we have highlighted we are doing around efficiency.
And we believe that there is a tremendous opportunity for us to tell.
And <unk>.
A greater efficiency across the marketing spend portfolio, and particularly and the NDA enabling area.
And secondly, we've also become and I think a lot more flexible.
Flexible.
Learned a lot and the last year.
And that allows us to.
So to say turn the turn the tap on and off.
With with much greater fluency than perhaps we've done and the cost and then thirdly, if you look at the the marketing landscape.
And the mix of spending that will be required markets and markets.
Is going to evolve and we need to be.
Flexible and order to handle.
And the net so the net net is we will continue to focus on but our markets need both.
And then total investment terms as well as and the mix of spend that's appropriate for each of these markets.
We will continue to.
Drive the kind of efficiency that we now know is available to us.
And I think the.
Yes, we land and whatever landing spot that means in terms of total dollars, but I think we've got a good handle on both being efficient and effective and and.
Investing appropriately as markets recover across the world.
Your next question comes from the line of Bonnie Herzog from Goldman Sachs. Please go ahead. Your line is now open.
Thank you and good morning, everyone.
I wanted to touch on innovation obviously.
It sounds like Youre, making a lot of progress on your portfolio streamlining initiatives and you've been doing I think a good job at managing all of this but I guess I'm trying to understand how youre balancing this innovation and messaging your new more streamlined portfolio strategy within your organization and then.
Are you at all concerned that this increases.
Some risk of stifling innovation, and possibly discouraging and risk taking over the long term.
I guess, the headline and small we don't think were going to stifle innovation.
Quite quietly opposite we're looking actually for innovation to continue.
Well, the 19 and 19 in terms of applying an import raw and driving consumer engagement and interest across the mobile net or revenue growth on a multiple profitability.
And so this is very much about finding a way to.
And that will be able to identify the biggest best within the innovation pipeline understanding that there's still going to be on very important role for experimentation and there's just no way of knowing.
From the outset, Nevada, what one might think.
From a personal point of view for which ones like and the B.
Absolute debt.
Going forward well.
Back to innovation clearly, we did less in 2020, we will be increasing meaningfully and the degree of innovation in 2021 very focused on all these attracting more consumers to.
Two our portfolios.
Is it allowing them to GAAP revenue is perhaps more frequently or greater.
And then Sheryl.
And greater prices ultimately, we're looking for more impact.
We have looked at our innovation pipeline and while we have done a lot we had some inefficiency and it so we're driving for greater impact, which we were able to achieve and 2020 and that we will get again in 2021. So I think there is absolutely the right level of focus on innovation will continue to.
<unk>.
More as we go through 2021.
All of this rationalization of the portfolio is about walking away quite the contrary.
It's about if you like.
Clearing away.
Lease successful so there's more room for the both successful and for the next generation of innovation.
Your next question comes from the line of Sean King with UBS. Please go ahead. Your line is now open.
Hi, good morning.
With respect to your restructuring and streamlining plans announced last or mid last year are you seeing any areas for greater opportunity for savings across the organization I guess, just given that the disruption has dragged on longer than most of the time.
I think what we what we have at the moment is a very clear plan, we are but we have been implementing.
And the reset and the organization and go forward again.
The need and the objectives of the organizational changes we made were pretty existing COVID-19, we knew we needed to find a way to.
And to make the organization more agile more focused.
And Paul scale up some of the activity for more platform level, especially given the ever increasing importance of data on the logic that that can't be done lots of different ways everywhere.
It was a preexisting idea that we took.
And of the necessity, if we like the opportunity.
In the course of 2020 to accelerant accelerated implementation of course, there'll be ongoing opportunities and we will learn.
And we'll evolve we will evolve.
And change will happen and into the future, but I will not solve the planning, but this is recovering levels all.
Volatility and diesel to levels much beyond that.
Current music will impact at the moment.
Your next question comes from the line of capital from two and Securities. Please go ahead. Your line is now open.
Thanks, and good morning.
Hey.
A question on the comments of.
A balanced outlook for 'twenty 'twenty, one I fully appreciate that you are giving guidance and it's a wider range and theres a lot of uncertainty, but I mean, how do you figure out what sales do look like and the third and fourth quarter. This year I mean are you going off of.
Vaccination rates by country, and then assuming things open up 30 days later.
And I appreciate any effort but.
And I'm interested how you do a kind of a bottoms up approach to looking at country by country around the world to come up with kind of even a rough ballpark.
Great cash available.
<unk>.
And relatively early on and the price has actually gone back to the second quarter of last year.
That was a team that did a lot of battery.
<unk> and interesting work on looking at private prior crises, where the military economic or pandemic going all the way back through our history around mid year and looking at what happened and the clubs and we came off.
And with a set of assumptions set of analysis than shaped out to you.
Walking the stairs scenario, we face.
Well.
And in simple terms.
The biggest day.
Indicators will drive up was a view on how long the.
And then with loft and therefore, how long each comps you would take to get back to we've plenty 19 levels of GDP. So you can take global countries and the World and you can you can say the segment them into.
It will take them one year and two years three years and there are countries that will take for you to get back line.
And that is what we've done and we were able to see.
Obviously by the end of 2020.
And that the progress of the world and the progress of countries quite closely followed.
<unk> in our model.
And in the overall macro idea. So he has given us some things as we continue into year two of those projections as the wall with Florida, Colorado will be looking at.
Going forward through 'twenty, one and into 'twenty two.
Likely to look like by by country by region.
Your next question comes from the line of ground day from Guggenheim. Please go ahead. Your line is now open.
Hey, good morning, James and John.
I'd like to focus this morning on the 'twenty one guidance.
It seems soft in terms of EPS growth, especially in the year were.
And you expect I mean, the high single digit organic top line growth.
<unk>, 4%.
Forex tailwind on top of it so it probably doesn't embed and fast recovery of the on premise channel. There is more profitable so but could you help reconcile or should we think it's a conservative EPS guide.
I think the simple starting point to reconcile this is a few points of our one.
The debt.
The impact in 'twenty plan say came a lot of it came on total.
Up finished goods.
Businesses.
And do not have the same margin levels as the concentrate business so simple.
Sample the closure of our cost per store.
Disproportional impact on revenue.
First as profit is not selling.
Some co products through the contemplated.
So what we expect in 2021.
Great.
Calgary and some of these away from home, particularly our finished product businesses, whether it be some of the cost of the business is or the BRG bottles.
And those are.
Mechanically.
Headwinds in terms of margin.
And very important effect in 2021 is of course, the reversal of fusing of resources in 2020.
And we clearly took the decision that that was not good.
Good reasons to invest in marketing or in market facing capex.
Market pricing operating expenses and then.
And then we would not do so and <unk>.
But more of the recovery occurs in 2021, the more we are volatile day.
<unk> expenses as well as of course.
A number of elements of the incentive scheme.
Which will be.
And at 400%.
In 2021, well that's why we have not gone line by line guidance within 2021, there's so many moving pieces that are not your typical year of moving from a normal year and comparing it to another global year <unk>.
Got these weighted effects of what's actually in 2020 underway.
We skew weighted the resource is.
Still able to drive free cash flow.
Hi.
Given some why the Colorado and how given the pulp and the bottom line.
We think are the most measured and balanced approach that we can get to that.
Your next question comes from the line of Kevin Grundy with Jefferies. Please go ahead. Your line is now open.
Great. Thanks, and good morning, everyone. James I wanted to spend a little bit of time on the total Chico hard seltzer launch and the U S, but sort of within the context of learnings.
From the launch of the product and Latin America, and Europe, you spent a little bit of time earlier and the call.
As I recall, the company mentioned tweaks to Coke energy on the formulation with with some learnings and Europe. So a handful of questions. How is the product delivering against market share objectives, so far and those regions where is it sourcing occasions and thats been in line with expectations and then maybe we spend some time on investment and where does.
Total Chico hard seltzer launch and the U S sort of rank in terms of the other priorities you mentioned and a global campaign around sprite and the importance of <unk> and Asia. Maybe you can just sort of characterize force even at a high level, how big of a priority of the product successes this year and the U S. So thanks for all that.
Yeah sure. So we've launched.
Topo, Chico hard Seltzer, and a number of Latin America markets, Mexico, and Costa Rica, Peru, Chile, Brazil.
Strong initial feedback from consumers and customers still very early to even have market share range.
And the rate of sale and the repeat look very good.
But.
It's still too early really to tell also we've launched and a few buckets and Europe again still very early to tell Paul repeat rates and and.
And right a sale look encouraging.
And so in the coming quarters will be happy to share some of those learnings and I'm sure they'll be learnings and we'll tweak things as we go forward.
Now as it relates to your question about the U S. A.
Important to remember how different the U S east.
Net international market because of U S alcohol market regulations. The topo Chico has us it will not be going through the company throughout the bottling system in the U S. It will be handled by our collaboration with the Molson costing so it is north competing in any way shape or form.
The per IRR with all the other things that go along that are all obviously being done by ourselves and the bottlers.
In the U S.
And I think multiples are very excited about the opportunity in the U S. It's certainly been good initial reception from distributors in that marketplace.
More to come in future quarters.
Your next question comes from the line of Rabat and John <unk> from Evercore. Please go ahead. Your line is now open.
Great. Thank you very much.
You referred in the and the earnings call press release that Q4.
Had better market share trends.
Roughly even.
As opposed to down a little bit for the full year.
How much of that was due to at least the initial reopening of on premise and so.
So channel mix effect and how much of that.
It was due to commercial momentum either.
Either and particular countries or particular brands.
And that you would expect to carry on into 2021 and.
And then.
Just as a follow up on a prior question.
And you just give us an update on Coca Cola energy. Thank you.
So fourth quarter market share trends, we're definitely better than they have been.
In the previous two quarters.
And whilst yes, we did benefit from the reopening remembering that we have generally speaking.
Materially higher share and the away from home and the asphalt, but obviously the reopening tends to improve the overall share count, but we will also gain.
Gaining share.
In Q4 versus Q.
Q3, or Q2 in both at home and the.
Away from home.
And that is.
And then commercial momentum built into what was going on and those channels and we would certainly expect.
The gain share away and at home in 2021, and therefore gained share overall, particularly as the reopening.
Happen and.
And then.
And Coke energy, we will be obviously, particularly in the U S debt was.
Trying to launch that coming into the beginning of 2020 was particularly difficult given the.
And the immediate Lockdowns.
And so we've got to come back on Coke energy in 2021.
Despite the challenges we've had interesting with pay rates.
Recruiting new users to the category.
At rates that are very interesting versus although recent launches in the category by bringing new drinkers into energy and had.
Interesting levels of retail dollar retail sales in year, one compared to other innovations. So we think.
Thats something working there back to the original hypothesis that there was space.
And the energy category to come in with a proposition that would attract new drinkers to the category.
Reasons to think that it's the we should double down again in 2021.
Your next question comes from the line of Andre and to share from Jpmorgan. Please go ahead. Your line is now open.
Thank you and good morning. So my question is a follow up on the expense savings from the reorganization and also I have a follow up on <unk>. So how much are you embedding and stay there.
And a stronger Europe Asia EPS guidance per year.
And on the clarification James on the comments on <unk> and the relationship and the partners are you embedding highest project meets price seems to be executed by the bottlers or interest costs on top of the lower strength Spencer.
Perhaps and are partially offset the mix impact.
That you had and training training and at the pandemic and owners.
And let me take let me say on day X.
<unk> savings, we had highlighted and.
Our release last year and expected benefit of between $2 50 550.
<unk>.
And we're on track to we're on track to deliver that some of it falls into this year some of it will fall into and through the first part of next year.
And are aligned to the progress that we make on the implementation of day of the new model. So.
And that's on the expenses and.
Uh huh.
Wholesale pick of of orders yet.
The past year has actually I think highlighted even more than ever the importance of having this as a key part of our top line algorithm.
I don't expect us to have material changes and how we go about this.
We're very clear on the drivers at the local market level when it comes to both pricing.
And its relationship with inflation.
And having the right packaging architecture to enable us to.
Managers.
And and optimal way the conditions of any given market.
And if anything I think our teams around the world are even more focus.
And on that area as a way to navigate.
Our path forward debt allows us to deliver on the revenue objectives that we've outlined.
Your next question comes from the line of Chris <unk> from Wells Fargo Securities. Please go ahead. Your line is now open.
Hi, and good morning.
Just a higher level or a longer term question.
So in the past the company has had.
Our longer term goals for for operating margins clearly some M&A and.
Tax accounting changes.
Made those margins less relevant, but giving us even greater focus on efficiency.
And the recent margin flow through and probably that gives you some increased confidence around your ability to lead on margins in case of certain uncertain outcomes.
Just judging by your outlook for 2021.
And I guess depreciating, our response to prior questions around mix.
Mix and spending levels that could potentially return, but but I wonder if you have any just high level thoughts.
And from the learnings that you had this year about your ability to drive margin.
And where you think the company's margin structure might be able to go.
Over the longer term and and maybe specifically.
North America factors into that and.
And does that outlook. Thanks.
Thanks, Chris Yes, Okay, I think the answer really is rufus and our belief and the.
And the sustainability of our of our long term growth algorithm and.
And as you know embedded into that algorithm is an assumption that overtime, we can and we will continue to expand margins.
Any given year needs to be taken and the context of that longer term perspective.
2020, as you say it was a particularly unusual year.
And has afforded us the opportunity to.
Under the umbrella of never waste a crisis and.
To drive greater efficiency and to have.
A bump and and our operating margin performance for 2020, but but I would think of the longer term and the context of the long term growth model.
And we manage a portfolio of 30.
<unk>.
Distinctive markets around the world and then contribute at different times, along that journey and North America is no different we see plenty of opportunity.
James highlighted earlier, and the North American business to improve profitability levels overtime.
And that will I think be the.
A key factor and our belief that the long term growth model as it currently is.
And as expressed as is doable and sustainable and.
And so.
And sort of coach to the whole margin topic and that trend.
Greg maybe you can tell.
Thanks.
Thanks, very much everyone.
Just a few closing thoughts.
<unk> and the priorities, we set for ourselves at the peak of the crisis.
Really galvanize the company.
And are driving our ability to continue to execute through the volatile near term dynamics.
And while the virus is still a factor and the near term we are well on our way to emerging stronger and to returning to the path of delivering at the high end about loans and growth model focus and the flexibility at the network level will drive the entire ecosystem yet to come as always.
Thank you for your interest your investment and our company and for joining US today. Thank you.
Yeah.
And ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect.