Q1 2021 Coca-Cola Co Earnings Call

And I'd like to welcome everyone to the Coca Cola Company's first 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 from the media will not be addressed.

Media participants should contact Coca Cola's Media Relations Department, if they have any questions I would now like to introduce Mr. Tim leverage Vice President of Investor Relations financial planning and analysis. Mr. Leverage you may now begin.

Okay.

So ladies and gentlemen, this is the operator I apologize, but there will be a slight delay and today's conference. Please hold and the conference will resume momentarily. Thank you for your patience.

Good morning, and thank you for joining us today I'm here with James Quincey, Our chairman and Chief Executive Officer.

Sure and John Murphy, our Chief Financial Officer.

Before we begin please note that we posted schedules under the financial information tab and the investors 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 to our results as reported under generally accepted accounting principles.

You can also find schedules and the same section of our website that provide and analysis of gross and operating margin.

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 statements contained in our earnings release and and the company's most recent periodic SEC report.

Following prepared remarks. This morning, we will turn the call over for your questions. Please.

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'll turn the call over to James.

Thanks, Tim and good morning, everyone and.

And what remains a highly dynamic environment and.

First quarter results show promising signs that a broader recovery is on the horizon.

We are encouraged by early results and markets, where mobility is on the rise.

This morning, I'll share, what we're seeing around the world and provide an update on the actions we've taken to accelerate our transformation include.

Including improvements in our portfolio innovation and marketing approaches enabled by the evolution of our culture and our network organization.

And then I'll hand over the call to John to discuss the financial details of the quarter and how we will continue to deliver on our objectives over the course of the year.

And the first quarter, we positioned our business to recovery, while executing against our emerging stronger agenda equipping our system to win.

And the start of the year pandemic related Lockdowns was still impacting many markets.

We moved quickly as conditions changed improving along the way and getting better at managing each wave and its resulting lockdowns.

During the quarter, we saw mobility increase and some parts of the world, where Lockdowns east and vaccinations accelerated.

Leveraging our learnings, we drove sequential improvement and our business throughout the quarter.

And while we saw mid single digit volume declines through mid February trends have improved since then.

We're pleased to say that March marked a return to volume levels seen in March of 2019 prior to the pandemic.

We continue to see ongoing strength and App home channels offset by away from home trends, which have improved sequentially, but remained pressured relative to pre pandemic levels.

We are working with our customers and bottling partners, the sustain Idaho momentum and capture improving away from home demands for.

For example, and Latin America, and Prospera program with our bottlers helps the traditional trade thrive through assistance with their marketing efforts, resulting in outperformance and this critical channel.

And Great Britain, we launched open our business accelerated program to support pubs, and bars, and cafes, and North America I use of meal bundles is driving incidents and pickup and delivery transactions with foodservice customers.

In 2020, we gained underlying share in both at home and away from home channels offset by negative channel mix. This continues to be the dynamic affecting ash share year to date.

Through our ongoing initiatives and as away from home demand improves over the course of the year, we will seek to build on these wins in 2021.

Our clear opportunities to reaccelerate share positions of the recovery plays out and we'll invest to drive and momentum with focus and flexibility.

And market to the forefront of the recovery we've seen early signs that our actions taken during the pandemic are helping us outpace recovery.

It is important to note that the path to a full recovery remains asynchronous around the world. Many markets haven't yet turned the corner and are still managing through the restrictions.

Looking around the World and Asia Pacific China continues to lead the recovery with volume and the first quarter ahead of 2019 results and foot traffic almost back to pre pandemic levels.

Strong performance in India, and southwest Asia was driven by effective marketing across brands affordable solutions and distribution expansion with 250000, new outlets and a 45% more new coolers.

Spine the unexpected state of emergency earlier, and the year, Japan, expanding successful <unk> initiatives geographically and across brands to help drive improvements later in the quarter.

In EMEA vaccine rollout in Europe has been slower than anticipated and many countries have been impacted by ongoing lockdowns.

And Eurasia, and Middle East brand Coke recruited $4 4 million consumers through affordability packages and a focus on at home occasions.

New marketing campaigns drove improvement in flavors sparkling soft drinks and fuze tea reached an all time high value share in Turkey and.

And Africa mass vaccination is expected to take longer than the developed markets and despite ongoing volatility Africa work closely with our bottlers to deliver volume growth led by stepped up execution through cooler placements and affordability packs like returnable glass bottles.

In North America, the year is off to a good start.

Ongoing strength and at home channel was driven by core brands and our sparkling portfolio as well as simply share life and gold peak all with encouraging results.

Away from home began to improve in March and vaccinations and mobility picked up.

And Latin America, we leveraged our co brand digital initiatives and refillable packages to recover ahead of the economy and our industry despite ongoing restrictions.

While from away from home continues to be impacted by Lockdowns were expanding the at home consumption opportunity leveraging consumer dynamics like indulgence and our single serve multi packs.

Global ventures continued to be impacted by Lockdowns and the U K, but as restrictions loosen, we're focusing on driving digital engagement and traffic back to the cost of the stores.

Costa Express machines continue to deliver strong performance.

Turning to our transformation.

Our operating units are up and running and also a very good start and the rollout of our new model and.

Across markets and newly networked organization has us working more collaboratively with the overall enterprise demand.

Our operating unit and category leadership teams are working together to identify the most promising combinations across the industry based on economic outlook consumer trends channel dynamics and execution imperatives we.

We're using more disciplined resource allocation to capture the biggest opportunities, while making ongoing portfolio decisions faster and at scale.

We're focused on our streamline growth portfolio actively and thoughtfully transitioning brands to more powerful trademarks using a phased approach to bringing the consumer with us on the journey.

And we're maximizing shelf space, and new product launches and higher velocity products to drive higher quality growth.

As we discussed at Cagny with focusing on what we do best marketing I love brands and more efficient and effective ways.

As Brian let's be clear campaign kicked off and markets from Asia to Africa to Latin America. The message is resonating with consumers with impressions views and engagement levels above last year and intend to purchase metrics showing promising signs.

This campaign aligns with our transition to a more sustainable clear bottle, which is important and helping us achieve our world without waste goals.

Our media and creative agency reviews are progressing and we're also executing more targeted opportunities. In addition to the big strategic shifts.

Instance, we've taken a scaled digitized approach to buying trade materials, resulting in up to 15% cost reduction and improved user experience all while offering more consistent better quality and sustainable alternatives. We've extended this pooled buying opportunity to our bottlers and many of whom are already on board to share that.

Benefits system wide.

And a more disciplined innovation approach is yielding results as we balanced big bets with intelligent experimentation.

Using our network approach, we are scaling our best innovations quickly and effectively while being disciplined with those that don't get the traction required for further investments.

Local experiments like Aquarius with functional benefits and <unk> Cafe matched last day, and Japan, Panther's exciting mystery flavor innovation and Europe and.

And package innovations like the $13 two ounce recycled PT bottle and North America could all be lifted and shifted globally over time similar to what we're doing this year with a half flavored sparkling water.

Our big bet. So 2021 include ongoing work to scale, our coffee platform and the Costa <unk>.

We're expanding ready to drink coffee in China, and taking a portfolio approach to complement our powerful Georgia coffee brand in Japan.

We're also rolling out and enhanced Formula and package design for Coca Cola Zero Sugar, This month, and Europe, and Latin America and across markets globally. Later this year.

The improved recipe brings its taste, even close to that of the iconic Coca Cola original taste.

This was influenced by consumer insights and our focus on constant improvement.

And despite its enormous success Coca Cola zero sugar is still represents a relatively small percentage of the trade book.

And we continue to respond to consumer desires for lower sugar options and the rollout will be supported by global occasion based marketing campaign.

Finally, it's early days, but we're excited to come back and report on our expanded experimentation and flavored alcoholic beverages with topo Chico hard Seltzer, and Latin America, Europe, and most recently the U S.

We also continued to rapidly digitize our ecosystem for example, a chat bot and South Africa engages with consumers on social media to increase away from home transactions.

And China, we've used digital campaigns to harness consumer data to drive traffic and incidents leading to incremental growth.

We're using machine learning and AI tools to stay on top of our rapidly evolving consumer trends and identify emerging needs are.

Our dedicated digital transformation structure, and leading to strong online to offline growth we've.

We've seen e-commerce share gains and a key advanced markets like North America, Japan, and Great Britain.

And in markets like Turkey, where the channel is still developing with more than tripled sales and gained almost 10 points of share versus last year.

As always we are supporting these initiatives with strong revenue growth management and execution.

Through our GM, we continued to capture at home occasion, with multi pack options and both premium and affordable segments.

While expanding distribution of smaller packaging like gas fleet counts and China.

And we have affordability place like a successful refillable and Latin America, the Philippines, and now Africa.

And as part of our new organization, we're dedicating more resources to Archie M continuing to raise the bar even higher standard.

And many markets, we're working with our bottling partners to optimize cooler placement driving incremental volume through outstanding customer service, our cooler productivity and innovation.

Our bottling partners are executing strongly and together we are working on initiatives across the enterprise to identify more efficiencies.

Operating and a networked way leveraging our platform services organization to scale, our collective data marketing digital and supply chain capabilities.

Our system continues to evolve as shown by the pending combination of Coca Cola European partners, and Coca Cola Amatil and.

And just this morning, we announced our intent to list Coca Cola beverages Africa, as an independent African bottler through and initial public offering.

I'm, especially proud of how we are delivering on our purpose as a company every action is guided by our ambition to create a more sustainable business and better share future that makes a difference in people's lives and communities and the planet.

And throughout the pandemic, we focused on helping communities through relief funds from the company and the Coca Cola Foundation.

And this next phase we are supporting vaccination efforts and regions, where distribution has been slower.

For instance, and Brazil, our system has partnered with the country's ministry of health co create a vaccine awareness campaign.

And we're using our networks deliver 700000 doses with vaccine information to more than 350000 mom and pop stores.

Tomorrow, we'll release, our 2020 business and ESG report, where we will highlight last year's progress.

While 2020 was a milestone year in terms of meeting and exceeding some previous goals by women's empowerment and global water replenishment, we continue to work toward and even more ambitious agenda.

This includes our 2025 and 2030 packaging goals at 2030 climate goal and our new 2030 water security strategy with more details to come later this year.

In conclusion, we are optimistic about the future I am bullish about our ability to continue to deliver on the objectives. We laid out at the heart of the crisis more consumers more share better system economics, and a positive stakeholder impact.

Now I'll turn the call to John to discuss how we're delivering results through a continued dynamic environment.

Thank you James and good morning to everybody on the call.

Today, I will highlight our first quarter performance and go over our topline and earnings guidance.

Which we are reiterating.

And then I'll provide a progress update on working capital.

Our ability to manage through the current commodity environment and other factors that may impact our outlook.

2020, one is off to a good start with the quarter showing steady sequential monthly improvement.

We're leveraging our learnings and strategic initiatives from 2020.

And leaning into growth and a thoughtful way.

Our Q1 organic revenue was up 6% driven by concentrate shipments up 5%.

And price mix improvement of 1%.

While shipments benefited from certain timing impacts and the five additional days this quarter versus last year you and.

Net cash volume was flat versus the toughest quarterly compare of 2020 and.

And March volume was in line with 2019 levels, largely driven by strength in Asia Pacific.

Comparable gross margins, although still down year over year improved sequentially.

Driven by less pressure from channel and package mix.

And when currency was still somewhat of a drag.

It was less of a headwind than prior quarters.

Comparable operating margin expanded through ongoing disciplined cost management.

We continue to reintroduce marketing spend and a targeted way.

Particularly as we ramp up investments and markets that are seeing recovery.

First quarter comparable EPS of <unk> 55.

Is an increase of 8% year over year.

And was driven by topline growth.

Margin improvement and some contribution from equity income offset by currency headwinds.

Regarding our ongoing tax with the IRS.

There are no material updates since our last reported.

Our decisions and actions from last year, certainly were not easy.

But we are seeing the results of our efforts start to come through.

And our organization is embracing the changes as we move forward into the recovery phase.

We stayed very focused on driving a healthy topline.

And we remain on the journey to maximize returns, including strong cash flow generation.

We never relented on our cash flow goals and indeed have had an even sharper focus on managing capital spend and working capital.

Since we embarked and the journey towards best in class working capital performance.

We've made great strides and extending our payment terms Jen.

Generating and working capital improvement of more than $1 billion.

Over two years.

And the same vein, we are implementing accounts receivables factoring programs, which are rolling out across a number of markets.

And also looking at initiatives to better manage inventory days.

At the Central and these efforts is a robust digitization and automation agenda.

In addition, and you.

<unk> heard us talk conceptually about the network model.

And is a great example of the network and action.

And when you put the right people from different parts of the organization against key initiatives.

It delivers a step change and performance.

Last quarter, we said that despite a rising commodity environment we.

And we expected a relatively benign impact in 2021, given our hedged positions.

While this continues to be the case.

We're closely monitoring upward pressure and some inputs such as high fructose corn syrup.

Metals, and other packaging materials, and the impact us as well as our Boston partners.

Given the environment will continue to benefit from revenue growth management initiatives.

True and intelligently diverse price pack architecture, we can produce a range of options.

And that meet the needs of consumers across the income spectrum.

And also capturing value for customers.

2020 provided great learnings and has to be more surgical and data driven and our promotions.

And we'll continue to be purposeful and our approach driven by the consumer and the strength of our brands.

We will also continue to pursue productivity across the supply chain pushing all levers at our disposal.

Since we last provided guidance the U S. Dollar has strengthened and as we noted in our release, we now expect currency to be a tailwind of approximately 1% to 2% to the top line and approximately 2% to 3% to comparable EPS in 2021.

Based on current spot rates and our hedge positions.

For the full year, we now expect and underlying effective tax rate of 19, 1%.

Putting it altogether, our quarterly performance and.

And the momentum we saw in March and give us confidence and our ability to achieve our 2021 guidance.

We expect high single digits.

Organic revenue growth and high single digit to low double digit growth and comparable earnings per share.

We still expect recovery to be and synchronous and <unk>.

We see signs of a return to normal and more markets later in 2021.

We are preparing our end to end supply chain for stronger demand.

And we will fuel the momentum and recovering markets as they emerge from the pandemic by accelerating investments and our brands.

There is no doubt and uncertainty remains Europe continues to see challenges.

Many countries and regions like Latin America and Africa.

And I expect further waves and slower vaccine distribution.

And India is seeing a charge and cases and responding with localized lockdowns.

As we begin to lap the most difficult periods from last year.

We feel good about our position and our ability to navigate the environment and the company and as a system.

Based on the lessons, we learned and.

And the agility provided by our new networked organization.

We remain confident that our actions and the progress we've made will enable us to deliver 2021 earnings.

Our above 2019 levels.

With that operator, we are ready to take 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 and the interest of time, we ask that you. Please limit yourself to one question. If you have any additional questions. You may be joined the queue. Our first question comes from the line of Dara <unk> with Morgan Stanley.

Sir your line is open.

Hey, guys.

So.

Clearly topline growth and Q1 and it recovered to a greater extent and the market expected you guys mentioned and good start to the year. This sequential improvement. So I guess can you just discuss volume trends in March and market square restrictions of loosen and mobility has picked up such as the U S. Maybe contrast that with the markets where we are.

<unk> are still in place and what that portends going forward and.

And be totally understand its a very fluid environment, but with March volume already back to 2019 levels, the topline upside and the quarter can you just help me understand the unchanged full year top line outlook.

Is it just that it's early given the volatility and we only have one quarter and the books to become more positive on the full year, just sort of trying to understand your mindset on the full year revenue guidance relative to the Q1 upside.

Yes.

Sure.

Thanks Sarah.

So.

Firstly, the first quarter was strong.

Absolutely, we gain momentum and we.

We achieved that and good momentum in the first quarter, which is really the fruition of the emerging stronger plan, we set out a year ago, saying, we wanted to get back to 2019 levels well ahead of the economy.

By gaining more share more customers better system economics.

And I think that's what you're starting to see happen in the first quarter and obviously, we've been driving that by focusing on the brands and on the innovation and the bottlers have been executing in the marketplace and it's certainly heartening to see us get back to 2019 volume levels.

In March.

And we did all of that whilst doing finishing the implementation of the reorganization. So the employers on the on the company side, we're able to both deliver the result, and stand up and the organization with the operating units and platform services and and really hit the ground running so I think it is actually a super creditable.

Performance.

And in the first quarter.

Secondly, the downhill and the question about guidance I mean ultimately.

Early and it's not only just and a normal sense, it's only in the context of the pandemic.

And also breaking the news today is that weekly new cases of Covid has hit an all time peak.

And while vaccinations are rising and many countries U S UK et cetera.

Flip side is there is actually.

A new high in terms of cases.

Obviously, a number of developing markets developing markets, but also.

Europe is well continental Europe as well.

And the visibility into the downhill is very much linked to the trajectory of the pandemic.

And as it relates to our business the trajectory of the Lockdowns.

Very clearly as we've talked on previous quarters, Lockdowns, because we have half of our business and away from home are impacted.

Directly by a degree of the degree of Lockdown.

And there are still lockdowns coming on.

And Europe some of the developing markets.

Conversely, as markets start to open it's worth remembering it's not an on off switch as a phasing.

Of how markets tend to reopen and Thats true in the U S. So.

For example, and the U S.

Bounce and volumes were still negative.

In March because whilst people are going out to restaurants, and thats mobility, it's not back to what it was.

And the occupancy levels of offices are nowhere near 100%.

And so reopening is not an on off switch as a rebuilding and there's a series of phases.

Reopening.

And so thats in a very important factor and it is somewhat.

Unpredictable to the downhill so it's too early to call them up and a business sense, but in a lockdown and reopening sense and.

And the reality is there are more cases now than they were a while ago. So we still feel very confident and our guidance on the top or the bottom line.

But theres a lot of managing left to do and we certainly focused on giving ourselves the flexibility and agility to be able to do that and which leads me to my third point, which I think is worth making.

Online normal times, one should not automatically assume that more revenue is always going to flow straight down to the bottom line much as we did in 2020, we are going to be very judicious and focused on investing where we believe reopening and demand is coming back and not investing.

If we don't think the response and the market places there so youre going to see as we go through 2021, we will be looking at both levers. If we see that demand is coming in are coming in at the kind of the higher and cause more reopening has happened more quickly.

I have a reason.

And revenue starts accelerate we will also likely.

Reaccelerate the restitution of the marketing spend and Conversely, if whatever reason revenue starts to look a little weaker.

And then we are likely to hold back on some of the marketing. So I think it's important as you think about the rest of the year.

Don't think of it as a normal times one has to think about how we are.

And using the resources judiciously and wanting to invest to drive growth.

And get back to normal.

Your next question comes from the line of Bryan Spillane with Bank of America, Brian Your line is open Hey.

Thank you operator, and good morning, everyone.

John I wanted to pick up on some of the comments you made relative to inflation and I guess.

And thinking about it past 'twenty, one and into 'twenty two just given the recent trends, which have elevated pretty meaningfully across a lot of inputs really across our whole coverage universe.

If that stays in effect for 22 can you talk a little bit about what what you can do working with the system so with the bottlers.

Try to manage that inflation and really beyond revenue management. So just how much what type of actions can you take in terms of procurement.

Maybe finding inefficiencies that exist between the Coca Cola company and the bottling system.

Really trying to understand and it.

Scenario, where inflation stays meaningfully elevated and a way that we haven't seen and a real long time, just what types of things you can contemplate to try to help the system manage that inflation.

Thank you, Brian and good morning.

Good topics and.

And one that.

With our bottling partners around the world.

And we're looking at is a very holistic manner.

Managing inflation is not new to the system.

And it's one it's an area that needs to be looked at locally.

Working closely.

And partnership with with our bosses.

As you said day inflationary pressures.

Particular surrounding some of our key commodities.

Looks like it is going to be.

More of a headwind and 'twenty to 'twenty. One we are as we said and the release pretty well covered and in good shape and.

So when you think about the actions we take first and foremost I think it is important too.

And highlight that as it is and over arching principle around the world. We typically look to take pricing in line with inflation.

And I would expect that that principle will continue to be at.

Here too as we move into the back half of 'twenty, one and even and into 'twenty two.

And secondly, I.

And I know you mentioned beyond RJ and I do think it's important to.

To reinforce.

The value that <unk> brings to be inevitable.

Acute and pricing strategy, and the most relevant and meaningful fashion locally and so.

So that will continue to be a key priority.

And currently on the things that we can do on the.

Productivity area.

I would point to our supply chain, and particularly with our with our bottling partners and.

Last six to 12 months coming through the pandemic and indeed coming out of us that the level of engagement, we've had with our within the system.

Unlocking value and the supply chain true.

Pressure efficiencies has been has been phenomenal and.

And would expect that momentum to continue into the rest of this year and into 2022, we have had over the last number of years at the benefits of.

Leveraging our cross enterprise procurement group.

A group of people that work.

On behalf of the entire system around the world.

That are able to leverage the global scale of the system and and.

And <unk> some of the most.

Competitive.

And that we can guess at that anybody can guess when it comes to key inputs. So when you take a.

And sort of an overarching holistic view of us.

We've got I think and try it and <unk> per.

Factors and being able to take.

Take pricing in line with inflation and leverage our GM to do it and the most intelligent fashion and.

And increasingly operate as a global system to leverage our scale.

And to counter some of the sort of the historic group.

Groups, we have like cross enterprise procurement, but also new new opportunity and the founding as a result of the overall strategy, we've been pursuing during and after the pandemic.

Your next question comes from the line of Nik Modi with RBC capital markets net your line is open.

And.

Thank you good morning, everyone.

James I was hoping you could provide some tangible examples of how the company and decision, making infrastructure and manifesting and better outcomes.

Generally and maybe just kind of contract.

And what don't contingents would've looked like under the older model.

And.

Sure.

Nick.

A few examples one I think John has already mentioned the cash flow.

And we struggled for many years to get up into best in class.

Cash conversion of working capital and the work that has been done by the finance.

Network has produced a great result, and Thats clearly flowing through.

Not just in terms of the theoretical amount of days working capital, but the actual cash coming into the company.

And the first quarter, which was a really strong result, and thats something that we have struggled.

Two.

And in the past.

Another example would be we have been rolling out.

A global campaign on Sprite, which has got excellent early traction in terms of consumer engagement in terms of purchase intent.

And that was developed by the category leader and the.

Key operating units and a thing.

Rolled out across the world something that we.

We're unable to do or unable to convince ourselves.

Historically, and so we believe that that is making some cut through.

The supply chain optimization, and working with the bottlers and really focusing on.

Reducing.

The unit cost of what we do and looking across all the metrics and.

And increasing data transparency.

Is happening and then you go to some of our platform services.

We're really starting to be able to implement.

Especially in those areas, where one single global solution makes total sense.

We've had examples from.

Buying trade materials.

True global platform is driving significant savings for ourselves and the system and.

And then hopefully later this month, we'll turn on.

Our latest S&P update which will go from.

One that was done 20 years ago, which was probably one of the world's most complicated and therefore, most expensive to a much more effective solution. So I think across the company from the front end of marketing and engaging with consumers through our operations through to the bottlers.

We are able to make the contact points and get faster and better solutions.

Your next question comes from the line of Lauren Lieberman with Barclays. Lauren Your line is open great. Thanks, So much good morning and.

And this is probably a good lead and.

And the last question, but I wanted to talk a little bit about profitability. Because it was interesting to me is that I think margins and almost every division outside of EMEA. We're comfortably ahead of where they were and the first quarter of 2019, and knowing that COVID-19 comps werent necessarily a dynamic for all regions.

And the first quarter of last year free benchmark back to 19.

And the improvements are significant and so I was curious how much knowing James your comments on wanting to invest to support recovery is a very important dynamic but.

But how much do you think of that margin improvement and we're seeing at this point.

And is tied to these.

Broad range of cost management initiatives.

Yes across the board and our GM inclusive versus timing of marketing the need to put back in and continue funding at this day.

And then maybe different region to region of course as well thanks.

Yeah. Thanks Lauren.

Okay.

Clearly the Reinvestments.

Our marketing is going to vary somewhat by region in in 2021.

For the reasons I outlined and that answer to the first question. So I think.

It's important as you think about margins to recognize that 2021 is also going to be a somewhat atypical year, there will be markets around the world, where we where we judge the situations such that we don't have a normal level of marketing and so that does tend to favor margins.

Operating margins.

And that point in time.

And so it is it is important to break it.

To break it apart and look at it and by the different regions. We certainly are not coming out.

And with some numerical.

Margin targets for many of the same reasons that we removed the previous target, but we are focused ultimately on growing the business and embedded and our long term growth model is an implicit assumption.

The assumption that we can slowly.

Steadily perhaps better said improve margins.

Over time, because there is a lot of efficiency going on.

Within the cost of goods sold within the DMA, particularly the non working part of the day.

We've got a lot of focus on the.

And the agency roster and how we spend the money we spend before they even get to see the consumer and obviously, we've done the networked organization, which was about making us better able to support the growth aspirations, but it is all saw and more efficient.

Organizationally and.

So all those things will go into the mix.

And it would be remiss of me to not include the impact of all GM because to the extent that we can leverage all and GM that also helps on the gross margin.

And ultimately operating income margin as well, so we will be pulling all those levers.

As we go through 2021, but again.

It won't be a fully normal year in every region and so you will see some of these strange effects.

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

Yes, good morning, everyone.

Could you could you give us a sense of where you are seeing some notable progress this past year.

On digital transformation and perhaps tied into.

And to this inflation.

And margin question right by commenting on how digital tools or perhaps helping you mitigate or stay ahead of inflationary pressure and some and.

And some markets that might be getting ahead of the curve here.

Yeah.

I mean, the digital transformation is as much above and beyond.

Coping with them with inflation, although of course, some of the tools will help us.

Manage if there is an inflation rate spike.

Clearly you can look at the digital transformation in terms of our engagement with.

With consumers and there there are some good examples of progress China, which has started the year very strongly not just compared to 2020, but compared to 2019.

And a much bigger shift into digital engagement with consumers or even.

And in Japan, with the with our own Coke on apps that we use.

Net people to the vending machines, and the cashless options and <unk>.

Large uptick and multinationals and so there is a great deal of progress being made in terms of how we engage through digital media, how we engage directly with consumers and a digital relationship.

It is helping there.

And the system I used I talked about the example of buying materials.

And with digital platforms, but clearly there is a huge piece of what needs to happen, which is the backbone of both the company and the bottlers and the interoperability of all the data.

And while we're making excellent progress and ultimately all of those insights on all those efficiencies help us.

Manage the inflationary pressures out there, whether we use the insights to engage more consumers and we use the insights too.

Drive the RCM thinker.

<unk> thinking and implementations or to identify efficiencies.

And in Hawaii digital is becoming just the way business is done.

And it's just.

It's just like saying I turn up and have to manage the business unusual these tools to do all the things I got to do.

Maybe just another quick.

One commentary James.

If you think about the emerging stronger program that we've outlined over the last six to nine months and whatnot are impossible to do three years ago.

And the degree to which we have been able to offer.

Price and AR and AR.

A fast and efficient manner across across the globe to deliver this program is all due to the fact that we have essentially become digitized and how we work and how we offer it.

Just to support Bud and Bud your last comment there.

Okay.

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

Thank you.

Maybe pivoting back to the top line. So March volume is back to even with 2019 as interest.

And the very key and promising milestone and.

And we've seen sequential progress over the last few quarters, but I guess I'm curious whether the trend back to 2019 levels have been relatively smooth on a global basis or there's been more volatility underneath the service service and we appreciate it looking at the headline numbers.

If you could just frame for us how performance versus 2019 as trend over the past few months and if you expect those trends to and how do you expect those trends to evolve over the course of the year and in terms of whether it'll be relatively smooth and even or lumpy.

With case counts and vaccinations and the like and I guess ultimately.

Do you expect to be back to growth versus 19, when the dust settles on April or is that is that too ambitious.

So.

The the progress when you when you stand back and look at the numbers in aggregate.

Nearly all April was the deepest hole that we fell into in 2020, and Venezuela adapted the business.

And really drove what.

What we were doing.

And then we sequentially got better so it kind of fell into the Hull I think it was like minus 25% or something.

In April last year, and then it was negative teens, and then negative single digits slowly improving through the rest of us.

2020.

And then coming into 2021.

Lee will then.

Cycling.

The bad year, but if we compare to 2019 it got better as we went through January and February which was still below the 19 levels and obviously March.

Walls.

Was above I mean April April has started well.

It's obviously, there's going to be the way this month, because we're cycling something.

Low I think most importantly.

I would refer you back to the comment I made the second thing I said relative in the first answer which is <unk>.

Just because March is go back to the level and ask just because April and started well one week, but no. There is no guarantee that that has been some kind of trend that is in the bank.

The principle uncertainty remains.

The risk of additional Lockdowns.

Much of 2019, 2000, twenty's numbers well.

Heavily impacted by the degree of Lockdown and that will remain true.

So whilst we've got back above the line of flotation and March.

There is no guarantee there won't be some.

Extra degree of Lockdowns and Mayo September.

Samba.

That then.

Puts pressure back on the basis so.

I don't think I know I keep hearing this point, we had a superstar per year.

And momentum building, but this very unusual factors of the pandemic and the lockdown continues to be and uncertainty factor that one can't draw a straight line through the historic data now once you get onto the surface.

Of the overall global numbers, which kind of.

Look like the kind of the tick Mark if you like going down and then kind of steadily improving clearly you get much more variability at a country level again heavily influenced.

By the degree of Lockdown so.

And our fans April last year with the worst because you had the most number of countries. Most the highest degree of Synchronisation of Lockdowns globally.

And I think this idea of saying the recoverable recovery will be a synchronous as we already see that in the first half you've got countries, where the vaccine levels are going up and the reopening is occurring U S. U K, China four examples and yet you've got countries going and exactly the opposite direction with cases shooting up.

And more levels of Lockdown and Thats.

That's what we're trying to highlight with this asynchronous it may be that as a total company. It all looks smoothed out somewhat but this asynchronous feature will be very important in 2020 one.

Your next question comes from the line of Bonnie Herzog with Goldman Sachs. Bonnie Your line is open.

Alright, Thank you and good morning, everyone.

I was hoping to switch gears, a little bit and maybe hear a little bit more color behind your decision to IPO Africa, and I know you guys have explored a sale and the path, but why do you think this is the right decision for that business and then how do you expect this will impact the performance of the business going forward and.

And maybe potential benefits you might see.

Sure. Thanks.

Yeah.

I mean, certainly it's always been our intention to reduce our ownership and <unk> in line with our strategy as John puts it to become the world's smallest coke bottler.

And so we will always contemplating how we would re franchisees.

<unk> Coca Cola beverages is a strong well structured capable.

And we have always considered as one of the options.

And to have it be a freestanding.

Entity in Africa, and it and we have reached the conclusion that if one thinks about the future potential of the African market and the African continent.

And how much loan growth there is there I mean and it is the youngest billion people are in Africa. We think it would ultimately comes and it would be right for the development of the business in Africa to have and African headquartered African bottler.

The.

On the continent and so.

The REIT the read through is we believe and the future of Africa.

Continent as an economy.

We've got a great.

Capable bottler.

And that kind of helped lead our ability to grow there and then and IPO.

Allow us.

And to set that up.

To be a source of growth for many years to come.

Your next question comes from the line of Andrea Teixeira with Jpmorgan Andrea Your line is open.

Thank you operator, and good morning, and so can you quantify how much the impact of the winter storms had and your volume co.

Why.

And then as a follow up on your comments before can you. Please give us an idea of how your Chinese and Q2. The same way you did and helped us and the first quarter.

And just a quick one on on the West Texas fields.

What is your base case and comes on the timing for the IPO at this point and your impact on the cash flow.

Yes.

And maybe start with day.

Thanks.

Question.

And then thank you.

Questions, but let's start with the tax question.

And.

In terms of.

Timing.

We do not have.

We do not have it.

Picture at the moment, we are dependent on.

And the outcome of another case.

Before any further developments take place with our own cash.

And we have no visibility into that outcome. So.

And keep you apprised as we as we know more.

On the <unk>.

And as storms and the U S. Non.

And a material impact to our business.

And with regard to.

Volumes in Q2.

And so early and the.

And before Nonetheless, we found and lots to say at the moment and I think.

I think the key highlight really as we as we look to us as.

As we look at them.

And he'll is is the fact that March was.

It was significantly improved and a number of markets for mobility.

<unk> is improving and and we continue I think to see.

A closer relationship between mobility and our performance.

Your next question comes from the line of Cardinal cash <unk> from Credit Suisse. Your line is open.

Hi, good morning, everybody.

And fantastic pronunciation, operator, I don't get that frequently thank you.

Yes.

Yeah.

James and John about competition, and maybe particularly in the United States and it looks like Pepsi is getting some momentum we obviously just heard from them on Friday.

And it seems of course that pricing remains rational but.

That's from a competitiveness and pricing maybe that's increasing so if you could just talk about what youre seeing there.

And.

That would be useful thanks.

Hi.

<unk>.

Certainly.

Always.

Happy to see all the companies other companies.

First in.

Into the beverage industry, because that tends to create more consumer engagement.

And obviously, we pay attention to what they're doing and hopefully we can learn from them. There's a lot of very capable.

Competitors out there so we'd like to we like we like to learn from them.

But in the and we focus on what we can do and and and in the U S. In particular.

Cash channel mix aside.

We gained share we gained share going forward and beverages in the U S business and we feel confident that as the channel trends and the reopening and bring back the the away from home.

Businesses, which of course, they started to do.

March and then we will be able to capitalize.

And on those trends.

As well and.

As it relates to promotional activity I mean, ultimately we are seeing kind of rational pricing and promotional environment.

In the U S and we'll certainly be looking to build on that with our <unk> capabilities and with the bottling system to really drive and leverage.

The investments, we are collectively making us the system and the marketing.

And the execution to drive the business forward.

Your next question comes from the line of Rob and Steve with Evercore ISI, Rob Your line is open.

Great. Thank you very much.

Couple of questions on top of Chico.

It looks like a very strong start in the U S of about a 3% market share.

But you started even earlier I think in October and Mexico and Brazil.

And now rolling out in Europe can you talk to us a little bit about how.

And you feel about the execution of the bottling network.

And adult beverage.

Any signs of trends in terms of repeat and some of the earlier markets and.

And any general learnings that you've got and so far as you evaluate.

And what could be a new growth engine for the company. Thank you.

Thanks Robert.

So and.

And the markets, where it's been and longer So Latin America, and Europe about 14 markets between them.

A couple of things we are seeing obviously the degree of our residents is depending on the degree of category development that might already exist or not exist.

And some of those markets.

And so we're seeing different levels of engagement, depending on whether the categories there.

And secondly, I mean, we clearly in the mode of learning how to compete in this category both from a branding point of view and from.

And execution point of view, but we are definitely starting to see.

Improving trends and good repeats in.

In the context of the different markets, where it's been launched whether that be Latin America or in Europe, We're still building out distribution and.

Mexico for example.

But we have done a good start and Europe, a little easier as I said, because the categories are a bit more developed and the west versus east.

And so.

Focus is maximizing the amount of learning that we're doing and as it relates to the U S.

And whilst our overall share is three and.

And would double underline that topo Chico as a brand is well known in the U S and.

Therefore, you know get driving are creating trial on a well known brand with and innovation is actually relatively straightforward. The key is repeat and we have not yet got to the point of having good repeat data in the U S hardware and having opened a big caveat umbrella.

I would comment that topo Chico hard seltzer might have 3% overall in the U S, but actually in Texas.

Well, we've kind of concentrated some of the launch.

And it's almost hit a 20 share in the first two weeks.

Launch though.

We are encouraged by.

By the early results, but it's all going to come down to repeat and nothing's worth anything without repeat.

Yeah.

Your next question comes from the line of Kevin Grundy with Jefferies. Kevin Your line is open.

Great. Thanks, Good morning, everyone and congratulations on the nice progress this quarter Jamie.

James I wanted to come back to your Asia Pacific business, specifically, China, obviously and a really strong result. This comes on the heels of Pepsi co strong results in China as well.

China, obviously earlier to the pandemic than other countries and and Youre seeing nice strong consumer demand here. So a few questions. Please one can you talk about what youre seeing by channel both at home and away from home maybe comment briefly on the trends in April relative to the strong result, and the first quarter and then lastly, just how the strong demand in China and may be informing your view with respect.

<unk> and recovery and other markets. Thank you.

Sure.

Yes, clearly clearly good results good results and China.

We're definitely I mean, obviously, we're lapping will beginning to lap the kind of the worst part of 2020.

It was ahead of 2019.

Lantana.

So the reopening.

The reenergizing of China, with the consumer marketing with a big push into digital engagement with the consumer with a big push into.

E Commerce and we are we are benefiting from that it is worth noting that in terms of the channels almost what we say and this is true when you look at not just China, but if you start looking at Australia, or even or even the U S. You see kind of a.

Basil waves.

Of the reopening.

And so as the reopening occurs actually you get a lot of people going out to restaurants.

And the kind of the full service <unk>.

<unk> away.

And that goes up bearing in mind that.

The universe of mom and pop stores and the universe of small restaurants has shrunk people of the <unk>.

Number of people running those business as has shrunk and I think we're going to see that all across the world.

And there is a consolidation sectors and that's the reopening and because you see a lot of going out in the evenings.

And so all the channel is related to that come back first.

Second kind of wave of improvements and channels.

Is loosely and the bucket of office and commuting.

Because.

As the reopening happens people go out yet the office is on back to 100% capacity. So you have not got that ecosystem of commuting and lunch time and the big City centers.

At full.

And that's the kind of the second business coming back in China, and actually you don't see that back yet.

And the U S.

And Mark do you see the restaurants kind of bouncing back, but you don't see the kind of the ecosystem of commuting and office use.

Having bounced back anywhere near the same day rate and then there's a third phase.

Which hasn't really happened yet.

Which is kind of the <unk>.

Large gatherings kind of face of channels, whether that be cinemark concerts, sporting events et cetera, et cetera, and thats only very partial coming back. So I think think of as kind of a set of waves of reopening.

And the economy normalizes.

And we've thought about that and and we had kind of investing both in the consumer and the bottlers are doing a great job of investing for the customers and retailers and we're seeing a very nice result.

Our next question comes from the line of Sean King with UBS, John Your line is open.

Alright. Thanks.

And just happened and a number of regions, but APAC concentrate sales came in at 11 points ahead of unit case volume.

That GAAP besides the I guess the calendar shifts and should we expect like a reversal in this dynamic or is it something that is sort of kantar.

Continue and we see markets reopen.

So for APAC just specifically.

Specifically on your question.

Yes.

<unk> run ahead.

Mainly due to.

The extra days and the quarter.

And we also had a timing impact with regard to Chinese new year and.

And China obviously.

And and so but for the quarter overall you saw you saw.

So.

Gallons running ahead, mainly due to the extra days in the quarter.

Your next question comes from the line of low rank Grande with Guggenheim. Your line is open.

Yes, Brian nice pronunciation as well so good morning, everyone.

Yes, so I'd like to focus on I mentioned market. So you said and your per remark that the volume case East Korea.

The consumer mobility, driven by vaccination rates so.

And is that gone into that are you a true I mean vaccination rates should be about 70% by the end of the gearing and developed market, but sadly just put about 20% and emerging market. So.

Should we consider then that he mentioned markets would be slower to recover.

And.

And that really premium if you can provide some southern Africa.

So there and maybe some granularity between that between rich and thank you.

Sure.

No.

I think as.

Clearly the vaccination rates in the developed markets is going to be ahead of the developing markets.

For the duration of this year.

The critical factor to add to that is the market response to the level of cases, although at low vaccination rates in the developing markets because the thing that impacts our business. Most directly is the degree of lockdown.

And so it's the response.

To the level of case directly the level of vaccination because there are countries.

Low.

But because they are.

Look the country up.

Hey.

Started to reopen so.

The key factor to look for is the degree of Lockdown and and.

Think through for that market.

And what's likely.

Likely to happen connect data of course is the level of vaccination, but also to the level of cases and what the policy response.

In the country.

Is likely to be.

And they'll be countries, where.

Thank you.

And frankly in a non.

Unfortunately, they don't have the wherewithal.

The physical capacity to implement large lockdowns, even if they've got.

<unk> vaccines that they want and the markets remain open and of course, we will look for ways to adapt the business to support the people.

Port the retailers and continue to engage.

With consumers as that goes on.

Your next question comes from the line of Bill Chappell with <unk> Securities. Your line is open.

Thanks, Good morning, Hey, just wanted to follow up and this is fairly low.

Near term and acute to the U S. But I'm just trying to understand kind of the commentary of how you are looking at the business and net.

It seems that the U S will be different and kind of the reopening of everywhere else. So.

High majority of the population will be inoculated and the next 30 days just as schools are getting out just as the weather is getting good.

Kind of sporting events talking about full capacity and June are.

Is that a scenario you're prepared for it and the bottling network is prepared for it.

The business the on premise business just explodes.

And or do you really think that this is just going to be kind of go from phase II to phase III in may and phase four and June and slowly kind of open up over the summer.

I think the phases are going to and the U S. So if I if I look at what's already happening.

I put data eating and drinking in the evening and kind of phase one.

And those that bit of the away from home was trending negative and volume strongly negative and volume in January and February and as the reopening happen it jumps up.

In March.

And as you say is a school of education and and artwork opens.

And which are still running negative in March.

What I think we're going to say.

It is a quick succession of the site.

This is rather and the drawn out.

Set of the phases.

And the.

And programs.

Yes.

Slower than I think youll see a more gradual phasing of what happens.

Ladies and gentlemen, this concludes our question and answer session.

I'd now like to turn the call back over to James Quincey for any closing remarks.

Okay. So.

Thanks, very much everyone.

Certainly.

And great talking to you all.

<unk> had an excellent first quarter very encouraging.

Still many of the parts of the world yet to emerge from the pandemic.

But as we navigate this dynamic environment, we will continue to evolve and do better.

And we are well positioned for the recovery as it plays out both as an organization and as a system and.

And as always we thank you for your interest and investment in our company and for joining US today. Thank you.

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

Okay.

Yeah.