Q2 2021 Coca-Cola Co Earnings Call
By our associates and our bottling partners, we executed on our key emerging stronger priorities as many parts of the world gradually reopened.
So we continue to deliver on our transformation. We are encouraged by our results and are raising our top line bottom line and cash flow guidance, even as we are accelerating investments for the future.
At the same time, we also recognize the trajectory may be dynamic and understand that we must remain flexible to respond to changes and the environment.
This morning, I'll provide a business update and discuss how disciplined innovation and more effective and efficient marketing and driving broad based share gains and are delivering enhanced value for assets.
Then I'll hand, the call over to John to discuss our financial update including our improved outlook for the year.
Last year and the face of a global pandemic, we laid out a path to emerge stronger across 5 strategic priorities, we are delivering against those priorities and this quarter demonstrates the power of our system.
We started 2021 with promising results.
<unk> business levels improved and the first quarter and this trend continued in the second.
Consumer mobility increased and markets, where vaccination rates are reaching meaningful level.
And our business has recovered as we lap last year's biggest lockdown impacts and see our strategies and motion.
Consumers have started to return to many priorities and.
And as a result, our away from home volumes.
Headley improved as a percentage of our business this quarter driving strong price mix and margin acceleration across the enterprise.
However, the recovery remains asynchronous and several parts of the world have dealt with further waves and infections, leading to delayed openings and in some cases tighten restrictions and.
India, and South East Asia, where our only areas that did not see sequential volume acceleration on a 2 year basis this quarter.
Despite the asynchronous recovery, our revenues and earnings and the second quarter surpassed our 2019 results.
We also made progress on shared this quarter, we've said many times and gaining share is a key objective and our emerging stronger agenda and.
And I'm pleased to report that we have achieved that objective with broad based share gains across categories as well as and both at home and away from home channels in the quarter.
And importantly, despite the away from home channels, not having fully recovered our valve.
Sure today is higher and the 2019 levels confirming that our effective brand building and innovation along with our advanced revenue growth management and market execution capabilities all working.
So let me dive a bit deeper into the key drivers across our geographies.
And Asia Pacific.
China saw continued momentum across categories, driven by both volume and improved mix with trademark Coca Cola we are.
Outpace the overall macroeconomic recovery and by strong performance and away from home channel and business to consumer E Commerce.
Australia, and New Zealand were bright spots performing at or close to 2019 levels, but they are currently seeing renewed lockdowns.
While Japan is struggling to come out of lockdown, having tangible successes with consumer led innovation small pack initiatives and improved customer execution of key initiatives.
As I mentioned earlier, and India and across much of Southeast Asia.
Surgeons and the virus impacted further recovery.
India's restrictions have eased a bit we're encouraged by the level of resilience and both the business as well as our system associates as they have navigated this resurgence.
In EMEA.
Europe is still being impacted by some level of restrictions and vaccination rates and consumer confidence and recruitment because of this and our strong bottler alignment and marketing investments. We are seeing a much improved away from home mix, even as at home volumes continued to growth.
Great Britain, and Russia, where mobility was at the highest show notable volume outperformance relative to 2019 and.
Our sparkling soft drinks gained or maintained share and most of the top 10 markets in Europe.
Eurasia and the middle East are performing well, despite the diverse recovery landscape and Turkey, and Pakistan strong execution during the key Ramadan holiday and emphasis on snacking and meal occasions drove new consumers to the Coke brands.
Africa delivered a strong first half performance with affordability packages delivering good results despite tightened restrictions heading into the winter season and <unk>.
Vaccination rates that are behind the rest of the world.
In North America, the consumer environment improved through the quarter as many states lifted restrictions and consumer and mobility increased more.
More frequent social gatherings, and rising travel and event activity drove significantly higher demand for our brands and away from home channels, while at home volumes remained robust leading to broad based share gains in the quarter.
Within our away from home eating and drinking was the strongest performing channel with travel hospitality and artwork trailing.
And Latin America, Lockdowns east as vaccination programs rolled out in countries, such as Mexico, and Argentina and.
And stimulus programs in Brazil, and Chile also helped drive recovery.
Our results and year to day share gains in the region continued to be driven by commercial and initiatives to improve execution as well as a focus on affordable packs light renewables.
Costa is U K coffee shop revenue recovered almost entirely to 2019 levels through the reopening phase despite ongoing capacity restrictions.
Increased consumer traffic and digital momentum are also supporting recovery as restrictions ease and other countries, where we have a retail presence.
Our bottling investment group faced pandemic related challenges, particularly in India, and South East Asia, but managed to sequentially improve or gain share in India, Vietnam, The Philippines and South Africa.
<unk> also made great progress against this growth and productivity agenda, increasing year to day comparable operating margin approximately 300 basis points from the 2019 levels.
Our category teams are collaborating with our global Lim and enabling us to move even faster towards that beverages for life ambition.
Ah continuously engaging consumers around their passion points and testing ideas in a coordinated and increasingly digital way, we're getting even better and what we've always done best building.
Building love brands around the world for.
A few examples.
Our coke trademark portfolio is experiencing robust growth led.
Led by brand Coke and driven in part by Coca Cola Zero, Sugar, which has contributed double digit growth and value and volume year to date and.
New Coca Cola Zero Sugar recipe has already launched and nearly 50 markets across 6 of our operating units, including last week's announcement and the U S with more to come this year.
Early results indicate the recipe and simplified packaging design are resonating strongly with consumers.
And sparkling flavors, we're accelerating and zero sugar offerings and executing global campaigns that focus on key occasions.
Price has done well globally benefiting from the let's be clear campaign, which has led to improved share gains.
Likewise, I want the Phantom mystery flavor campaign, and Europe drove accelerated growth and improve share.
Dairy remains an opportunity for the overall portfolio.
And with premium offerings, and key brands like Hollandia, drinkable, yogurt, and Santa Clara's flavored milk showing healthy growth.
We continue to leverage <unk>, great success, and and U S and the recent expansion in Canada.
There are many bright spots and hydration sports channel coffee, you see momentum across brands and the U S and <unk>.
And good results from our renewed focus on smart water and new brand bundle from gold peak T.
Exciting flavor innovations and Dunkin' coffee and continued growth from expanded distribution of topo Chico sparkling mineral water.
We've had early success with Costa ready to drink launches in Asia with meaningful share gains in key markets in China and was already voted product in Japan.
The rapid consumer traction and attractive proposition of healthy indulgence, Baja which began as an intelligent local experiments and the U S. Led us to believe we can transition to be a bigger bed and travel internationally.
The recent launch in China with the local name of Little Universe has been encouraging with meaningful value share gains and a short period of time.
We continue to build our momentum with the launch of a half first 360 degree marketing campaign with a significant digital emphasis titled can I get and Ah ha.
Finally last summer, we announced more exploration and the dynamic flavored alcoholic beverage category with the launch of Topo Chico hard seltzer.
Topo Chico ourselves with 917 markets worldwide, and we've authorized Molson Coors, the right to produce and sell topo Chico hard seltzer and the United States.
Launching a global brand in markets, where the categories are different stages of development comes with many learnings.
And our local knowledge allows us to adapt with speed to win or in some cases develop this new category.
From strong performance in Europe, where available to a top 2 position and Mexico to the U S where velocity is robust and the product has enjoyed positive consumer reaction. We are encouraged by recent trends.
Gaining valuable insights along the way.
We continue to make progress with our consumer facing digital propositions and.
Internally, we were building out our platform services organization to support the enterprise as we have a sizeable opportunity to become a holistic digital leader.
Digital is of utmost importance and we're also building and integrated ecosystem the platforms and create value across the digital and physical world worlds.
We are partnering with our bottlers to leverage the power of the systems physical footprint online.
Creating enhanced value for customers across the globe through our best in class E B to B platform.
And with pockets of excellence in many regions, we are working with our bottling partners to evolve and streamline our approach.
Working together as a system allows us to improve distribution economics.
Unmet needs of outlet owners and opens new revenue streams by providing other CPG brands and access to a deep customer relationships and global distribution network.
We are building a digital 1 stop shop for customers.
With me offering most of the products they need to stop their shelves and operate that day business.
We're also ensuring consumers get the frictionless experience, they demand and more availability and assortment of the products they need and love.
On top of the initiatives discussed today, we also continue to work with our bottlers to embed, our GM principles and integrate execution capabilities into our processes to continue driving basket value and incidents as the world Reopens.
Enhanced execution, we have an opportunity to win with more consumers and grow share by having the right products and the Rod channel at the right price supported by the right Activations.
We also continue with our sustainability agenda to create shared value for our stakeholders and communities we serve.
In addition to integrating ESG considerations into our daily business decisions during the second quarter, we released our business and ESG report.
And <unk> progress across all our goals as well as our world without waste report, which focuses exclusively on our work to create a circular economy for our packaging materials.
Highlights include the continued rollout of 100% recycled PT with 30 markets, representing approximately 30% of our total sales offering at least 1 brand and 100% all pet packaging.
We've continued the expansion of renewables and dispense packaging and ultra light weighting technologies, and we delivered a 60% global collection rate for packaging and 2020.
We are proud of these achievements and we know there is more work to be done.
Recently, we announced that we'd become a global implementation partner for the Ocean Cleanups River projects supporting the deployment of cleanup systems across 15 revisit across the world.
We will embed our marketing capabilities into this partnership to create consumer awareness of the issues and the actions we're taking.
Putting it altogether.
We realize there is a range of possible outcomes when it comes to the pandemic and the second half of the year given the asynchronous recovery.
While we over delivered relative to our expectations and the first half and have raised guidance for 2020..1 we are biased towards the growth mentality and we will invest behind this momentum going into the rest of the year.
And networked organization is beginning to help us move faster to capture opportunities and create value for our stakeholders.
As a system we are increasingly equipped to win and we are excited about the future now I will turn the call over to John to discuss our second quarter results and the drivers of that.
<unk> outlook.
Thank you James.
This morning, I'll highlight the drivers of our second quarter performance as well as our revised guidance.
In the second quarter, we built on the momentum from the beginning of the year and our business mix improved as consumer mobility increased across many markets.
Our Q2 organic revenue was up 37%.
Price of concentrate shipments up 26%.
And price mix improvement of 11% as we lapped the biggest pandemic impact of 2020.
Unit cash growth was 18% our shipments outpaced unit cases, and the quarter and.
And year to date and due to cycling the Destocking, we experienced last year.
And certain timing impacts this year, including 5 additional days and the first quarter.
Improvement and the away from home channels and positive segment mix from higher growth and our finished goods businesses.
The impact of our price mix.
Channel and package mix also affected comparable gross margin.
But showed significant improvement relative to last year, even with certain inflationary cost like transportation coming true.
As we said throughout the pandemic our goal is to emerge stronger and.
And we are investing ahead of recovery as markets reopen.
As a result, we have doubled our marketing dollars year over year.
And the significant pullback from the same period last year.
Even with the step up and those investments we delivered a 170 basis points improvement and comfortable operating margins driven by the strong top line.
Below operating income we saw a benefit from improvements and our equity income as our bottling partners also emerge stronger.
As well as reduced interest expense on a comparable basis.
As a result second quarter comparable EPS was <unk> 68 cents.
And with an increase of 61% year over year.
We also delivered strong year to date and free cash flow of approximately $5 billion double last year's results.
Our cash flow performance has also driven the written.
Turn of our leverage to within the targeted range of 2 to 2.5 times.
Since we reiterated guidance last quarter the operating environment.
<unk> and our business has clearly improved.
Given the improvements year to day and the increased visibility we are raising our outlook for the full year.
And now expect to deliver year over year organic revenue growth of 12% to 14%.
And comparable EPS growth of 13% to 15% and 2021.
Our steady focus on cash generation continues to progress.
And our updated guidance for free cash flow of at least $9 billion.
Implies a dividend payout ratio significantly improved from where we began the year and is edging closer to our targeted levels of 75% over the long term.
So as we think about the remainder of the year a few things to keep in mind.
The recovery phase continues to be a synchronous, creating a dynamic demand environment. In addition to causing many parts of the supply chain, we experienced tightness and those results.
While experiencing some isolated pressure points are team is navigating the challenge as well to supply our diversification and inventory management.
Despite the recent upward pressures and many commodity is driven by pandemic related disruption.
We feel good about the rest of the year.
And as they anticipate hedges rolling off and 2022.
We are working with our system to take appropriate actions and the back half of this year.
The ongoing volatility using revenue growth management capabilities and.
Supply chain productivity leavers.
With regard to marketing investments, we have 3 priorities.
Increased consumer facing marketing spend toward level similar to 2019 improve.
<unk> improves the quality of that spend.
And allocate the spend and a more targeted manner.
Our currency outlook continues to contemplate a tailwind of 1% to 2% to the top line.
And approximately 2% to 3% to comparable EPS in 2020.1.
Based on current spot rates and.
And our hedge position.
That said the currency markets remain volatile and dependent on recovery from the pandemic as well as macroeconomic factors.
We will also have some additional timing considerations with the leveling out of our concentrate shipments and a run.
<unk> a bit ahead year to day as well as 6 fewer days in the fourth quarter.
To summarize our company and our system of tackled many challenges through the pandemic.
Our emerging stronger thanks to the hard work of our people and the focus and our strategic priorities.
With our networked organization up and running we're.
We're on a path to operate more efficiently and effectively and.
And to unlock and.
Enormous potential we have and our brand and.
Across our market.
Tim mentioned earlier, we remain clear eyed as we look at the rest of the year.
With many markets continuing to face obstacles such as the spread of the COVID-19 Delta variance.
But others continues to see the benefits of reopening.
Overall, we are pleased with our progress and the first half of the year and.
We're grateful for the commitment from the stakeholders across our ecosystem.
And that contributed to our results.
With that operator, we are ready to take.
<unk>.
Ladies and gentlemen to ask a question you will need to press star 1 on your telephone.
And your question press the pound key.
And the interest and time, we ask that you. Please limit yourself to 1 question.
You have any additional questions you may rejoin the queue.
Our first question comes from Dara <unk> with Morgan Stanley. Your line is open.
Hey, guys.
And so on the revenue front and in markets like the U S where COVID-19 concerns of milk dissipated can you just discuss how quickly consumer behaviors coming back how that compares versus what you originally expected and presumably it's done and unexpected with the raise for your top line guidance, but how that impacts your strategy going forward.
And maybe also what you see is the lasting changes in consumer behavior and some of those markets.
Yeah sure well first of all Im not sure I would characterize the U S as the past Covid.
And certainly move to a phase.
Like several of the markets, where there's high levels and vaccination, whereas.
The COVID-19 the most serious parts of the COVID-19 affecting mainly on the non vaccinated as well as some of the vulnerable. So it's not it's not over and we can see that and the numbers. If you. If you just take a look for a second and what's happened and the U S.
A couple of interesting things as it moved into this reopening phase.
Firstly.
Consumers as we've talked before on these calls we've always believed that humans are social creatures and that once the.
And the restrictions come down and the Panorama.
All of the pulp to the virus allows people with confidence to go out but they will go back out all the away from home channel. They wanted to be social and they will go after the experiences and as you can see very much beginning to happen in the second quarter. So if we look at our away from home channels.
You can obviously see large rebounds.
Compared to the second quarter last year, which is obviously logical given how much they fell last year, but they have not yet all reached the levels of 2019, you could take a couple of channels like <unk>, which was 1 of the ones that went down and leased last year.
As they pushed the delivery as they pushed.
And pickup open and close the in room dining and.
Those those channels.
Even though many Qs sales have still not yet fully reopened.
<unk>.
And in restaurant dining.
They have bounced back and back kind of at or above 2019 levels.
So for example, Q1 did well and they are doing very well now, whereas if you take channels like bars and taverns.
They went down by about 3 quarters last call US Q2 last year now of course, they've reopened and people flocked back and I may have gone up by 200%, but that still means and not back to 2019 levels and you can go through the various away from home channels.
Obviously.
Travel and transportation are very like <unk>.
And so.
People, who had a good second quarter last year generally held on our expanded on those gains and this 2021 and some.
<unk>, which a bounce back is still not that in part because COVID-19 restrictions are still not fully gone and.
Competencies and still more feedback, but interestingly and I.
Think positively from the Coca Cola company's point of view, if you look at the at home channels those that.
Those gains, although about extra consumer interacts and with brands and products at home over the last 15 months has created some new behaviors and and and engagement with brands that may well be enduring so it's quite possible that overtime, we will both regain the away from home business.
Miss that we had before and hang on to some of the games and.
And the at home and you can look at E Commerce, which was the poster child for growth and Q2 last year, which grew exponentially that is basically stabilized grown a little bit. This year. So they've held onto a step up but you can also see that and some of the large stores, which obviously did well last year. They continued to grow this year, so you're getting.
Growth on growth and even the small stores that were impacted last year are bouncing back. So net net if you look at the U S you see and in jewelry.
Resilience in the step up of the at home business and.
A rebound in the away from home business that is in progress, but not yet complete.
And I think that's what's driving the business and that pattern. I think is very visible. If you look around all the countries and life stages of development.
In the Covid Europe trajectory in other words restrictions are coming down and there's a high percentage of the population vaccinated and therefore, because we honestly and whether the UK and other places goes going into Europe.
Yeah.
Yeah.
Thank you. Your next question comes from.
Lauren Lieberman with Barclays.
Great, Thanks, and good morning and.
John you offer and definitely some perspective on the bigger picture of profitability and I know this quarter and what's kind of a new high watermark and operating margin, but I was curious as you think about the full year and frankly, even intent into 'twenty 2.
And how youre thinking about the ability to better leverage your sales growth.
And as a result of and some of the restructuring work that you've been doing but also and as Ana This come out stronger and what <unk> been able to achieve already and think you'll still be able to achieve in terms of changing package mix and premium innovation and it's sort of a.
Longer term margin question with the awareness that perhaps this quarter and it was more timing than something directly related to my question. Thanks.
Yeah, Thanks, Lauren and Youre right. It would take us the rest of the calls explaining all of that happened before and so I'll spare you, but let's take a step back and I think it's first the first part to your questions and the first part of the answer.
Let's think about the 2 year picture.
And 2020, we saw at the gross margin line, we saw expansion driven primarily by a significant scale back of our operating costs and marketing investments.
Even despite there being and also.
Some gross margin compression and the same period.
And.
2021.
I'm pleased with the progress year to date.
And getting gross margins back to where we would like them to be and I think we'll continue to.
She has cut back close to 2019 levels.
And at the end of the year.
Yeah.
But we're also as James highlighted in and.
And the script, we're also very focused on and investing in our brands and our key markets for the future. We've seen a good setup already year to date and we continue to have that as a major priority for the second half of the year.
And in a nutshell, if you take the 2 year picture you're going to see.
On the operating margin front, you will see.
2021 is there'll be some compression versus 2020, just given the nature of what I, just said gross margins getting back not quite there.
Significant focus on reinvesting back into the business for the for the mid to long term, but the good news I think by the end of this year 21 will be better than 2019.
So that's first part 1 part 2 is if you look at 'twenty 2 onwards, we've talked about our flywheel.
Driving the business from the top line to a a much stronger marketing and innovation agenda to support a streamlined portfolio and plan. So that we know are our focus on we've talked about innovation has been a continued driver of growth and the future and.
And Thats, all wraps into execution and the marketplace with our bottling partners and through a variety of levers and not.
Not the least of which is our RJ and labor so going into 'twenty 2 'twenty 3 'twenty 4.
The goal is the same as it has been to continue to be hyper focused on improving our overall margin margin equation and.
Q2 was was it was a good shot and the arm for us to continue on that path.
Our next question comes from Nik Modi with RBC.
Thanks, Good morning, everyone.
Ill.
Keith I was hoping you can talk a little bit about lobby.
And the fact that you're rolling out to more countries. Maybe if you could just give us some context on where exactly you're rolling it out and what have you seen from from that initiative.
And the data standpoint, and I know you that can get direct access to net whereas maybe some other.
Like a consumer.
Don't get that data and is it something that you think could work in the U S market.
Sure.
Wow why B is a set of features and.
And a digital ecosystem that allow us to both.
And I'll do direct to consumer and I'll come back to us specifically, how and to be to be both.
Or either for just the beverages all for multi.
And multi category.
Yes.
Now predominantly where we're using why be in partnership with our with our bottlers is more in the <unk> space, we have Don and some.
Experiments doing b to C, but in the case of <unk>.
Model that was used.
And is very appropriate and Latin America, where.
And where you have a very high density of mom and pop stores essentially the consumer uses the Wap app to.
Place an order.
Want to have a whole set of coke sudden and fanta and sprite and whatever.
That order goes into the App and the App and shops the order.
To the mom and Pops that are nearer to the consumer and they can access.
And that order much like Oh.
Ride hailing service.
And given that they are likely to be 50 to 100.200 meters from the consumer and these high density cities that will just run round of the product and deliver it and a very short space upon 15.20 minutes or less.
So it is very interesting and we've actually also used it use that platform with some of the <unk> restaurants and places like Argentina to do the same thing. So it's an interesting time and we're getting a lot of insights and data. We have also expanded on the beat to see price actually at all the categories of.
And all the Mcg partners. So now you can you can place an order at the mom and pop for a whole series of categories not just beverages.
And so getting lots of interesting data.
And insights on that day.
Other thing that we're doing.
And with B to B with a number of the bottlers.
Is using it to accelerate the digitization of 1 part of the relationship, particularly with the fragmented trade, where the mom and Pops.
All restaurants, and cafes and around the world.
Which is of course not.
The rollout of smartphones and <unk>.
<unk> is expanding you don't necessarily need the sales person.
And also the store and in order to capture and order and so.
Ill with blending the use of the sales force to do drive account development and drive only in store Activations that we now create impulse purchases and give us.
Advantage and execution, but leverage the platforms.
To drive order, taking and again, we're getting a lot of learnings with the ball on how that improves not just efficiency, but just as importantly, the effectiveness of the selling and the execution process again, there are depending on where you are and the world. Sometimes that's just the beverage approach, but we're also.
<unk> got some experiments, where it's a multi category approach through the platform and linked to the wholesalers who deliver.
Or non beverage categories et.
Et cetera anyway.
Standing back and net of it is we continue to see ongoing digitization all the interaction.
Both of the consumer with the retailer and the retailer with the suppliers and we.
The coke system globally.
And with our bottling partners is and a tremendous position to expand and.
And the depth of our relationship with the retailers and we are being open minded as to exactly what form that takes and working with them to do.
Drive a whole set of experiments to see what works more to come.
Our next question comes from the line of Bryan Spillane with Bank of America.
Hey, good morning.
So I think it just as a follow up to Lauren Lauren's question earlier around.
Around margin and just just to 2 items John if you can if.
He can provide and 1 is just in terms of marketing for this year.
I think I heard the way I read it was was that you've actually increased the spend.
And our plan to increase the spend now more versus I guess what was in your original plan and then the second and if I don't know if I missed it but just can.
Can you give us kind of where we stand today in terms of how much of the savings from the reorganization had been captured and and how much more the risk to them.
Thanks, Brian.
And the first part I think again looking at day at year to day, I think we saw a big rebound and the second quarter.
And with doubling our spend on consumer facing activities.
And for the rest of the year.
And I too both.
Delivering the year, but also been and well prepared for 'twenty 2.
We have a very very.
And very robust investment agenda that will see us getting back to 2019 levels.
And that's just that's just comparing dollars.
And then when you look under the Hood, though I think 1 of the big changes we've made and in recent months is to is to improve the quality of that spend and so my.
Working with them and all of our our objective is to is to be able to.
Actually generate more with the same.
And we're pleased with the progress that we're making in that space, particularly as you think about some of the newer areas digital media etcetera.
Regarding the savings.
It's it's a piece of the overall equation and I think for me rather than provide hard numbers. It's it gives us a degree of flexibility.
To invest behind some of the bigger bet too to think of us.
Our our ongoing ability to pivot.
And as market conditions dictate and so it's it's really less around.
Taking those savings to the bottom line and much more around having to flex 2 to be well positioned to go after opportunities as we see them.
Our next question comes from the line of Steve powers with Deutsche Bank.
Thanks, and good morning.
James.
And maybe John wants to weigh in here too, but following up on where you started with.
There are panning out globally.
And updated guidance from today seems to call for a further acceleration and underlying growth on a 2 year basis.
And the back half versus 19, especially at the top and the range and I guess I'm curious, where you see that most things sourced from from a segment perspective, but also whether you have a bias.
As to the acceleration and.
Sequential improvement being more volume led versus 19.
Or price mix slide of the system.
And fight through inflation or whether you see a bit of both just how youre thinking about the mix of revenue and the back half. Thanks.
Yes sure.
So you know.
Our expectations for the year, obviously, we said we wanted to get back.
2019 levels, and we made good progress and and we.
We believe we're emerging stronger and were obviously raising the guidance as we look at.
Into the back half of the year.
As John said, we're being clear eyed about.
The puts and takes that exist out there.
The first thing I would suggest to you is is is really take a look at the.
The 2021, whether it's whichever core do you want to look at and have it on a 2 year stock prices, whether that'd be the volume.
And all the price mix, obviously, you've got to look through the the stocking and destocking of the gallons because obviously this time last year, we were destocking gallons rapidly and and notwithstanding the extra days and the first quarter, we've been restocking gallons.
Yeah, and this second quarter, but if you look at.
Volume and price mix on a 2 year basis, and what we're what we're expecting to say is yes. Some continued improvement into the back half of the year on a 2 year stacked volume basis as more countries get more vaccinations done and.
And more restrictions come off clearly there's plenty of room.
For different things to happen the famous Synchronisation because markets go up and markets go down but.
Generally speaking, we expect to see steady some steady although very moderate sequential improvements on a 2 year basis and similarly on a price on a price mix basis.
We were looking actually you start looking at price mix on a 2 year basis. In Q2, you said in the sort of ballpark. We have always talked about we've always talked about it and the long term growth model and we're kind of expecting 2 to 3 on price on and on any average year.
And when you start looking on and.
On a 2 year basis is taking the annual increase you start to see that in the second quarter and.
So our expectations of price mix on north to.
And to see something radically different notwithstanding.
11, and you saw in the second quarter, clearly is not going to continue and 11, because it is cycling a much more negative number in Q2 last year, which is heavily driven by our package and channel mix, but once you look through all of that.
In underlying terms essentially maintaining the same approach that we have had historically pre COVID-19 during this.
Kind of reopening.
Our next question comes from the line of Bonnie Herzog with Goldman Sachs. Thank.
Thank you and good morning.
I am actually had a question on your guidance you raised your full year outlook given the strength you saw in the quarter, but you didn't flow through the entire beat and especially on the bottom line given your new guidance now suggests EPS growth and the second half will be negative. So I was really hoping to understand the drivers behind.
And this is at cost.
Cost pressures that might have gotten worse and the last few months versus the planned stepped up investments that you called out.
Recovery.
Thanks.
Thanks, Bonnie a.
A couple of a couple of comments 1 is.
The first half of the year, we saw we saw gallons ahead of cases.
Which we would expect to.
To normalize and the second half a day here. So I think you've got to factor that into account.
Secondly, and the first quarter, we had a few extra days and they will come off and the fourth quarter. So that's a big piece of the <unk>.
Equation.
And we've designed for for the full year.
And then second as we already discussed and.
And the investments space to where we are.
And would love to sort of and the full year.
With.
And our marketing investments.
Continuing to step up and.
And you know and margins back to better than 19, but not as strong as.
27.
Satisfaction and then.
Our next question comes from the line of condo Kashmoula with credit Suisse.
Hi can you just maybe oversimplifying it but can you maybe help us the business has changed a bit and <unk>.
And.
And maybe if you could just help us with what operating leverage looks like.
And a 5% revenue 7% profit growth this 6% revenue mean and can you just give us.
Yeah.
Lives down the P&L.
Yeah.
Yes, I'd say that.
Referrals back to our long term our long term algorithm.
And we're.
We're managing to as we've been discussing.
Very very interesting period.
We still think that the when you take all the puts and takes and with the businesses that we have at the moment that the long term algorithm is still 1 that best reflects.
But we can deliver.
And the years and that clearly if that if the business mix changes and the need to we need to review that but.
But I think the.
And then.
I'd just refer you back to the algorithm.
And we don't we don't see that changing and in the foreseeable future.
Our next question comes from the line of Andrea Teixeira with Jpmorgan.
Sure.
Thank you so much so I just wanted to go back to the how the on premise and tracking as and exited the quarter.
So I was hoping to see if you can and cloud James and found that you.
Closer than that we're seeing that lapping and and.
Okay.
Looking at the West as an example, as you mentioned you were quite confident that worldwide and we're going to see.
Net adding to sort of be covering and adding something on.
At home consumption.
All things and see how you exited the quarter and places where inflections.
Come back on a global basis and.
How can you quantify how volume.
2019 levels, I think you called out and developed coming back.
And.
And how your mix in terms of finished goods and some growth is relative to the 2019.
Sure I'll try and offer a few thoughts.
That might help clearly.
When countries are gone when infections go off and greater restrictions.
Have come back in.
During the course of the second quarter, you do see negative impacts on the business now over the last 15 months, we have worked very hard to make.
Our business more adaptable and more agile and able to pivot in the restrictions to help.
To help the consumers get the beverages, they love, but often and the very short term and impacts of the business. So if you look at places where infections have spiked up reason recently and the second quarter. So you know Vietnam went into some restrictions and they've done a good job of avoiding.
Large restrictions and so they were doing they were doing they were doing fine. The first few months of the year and then all of a sudden they've had some restrictions and they were negative in June.
Similarly, India earlier in the quarter brought in.
A strong set of restrictions on the business went negative, but then when they reopened and they bounce back so clearly.
Whilst we have adapted the business and made it more.
Resilience to levels of Lockdown when these when they do occur wherever they do occur around the world, it's going to impact the business, we're going to bounce back quicker and we're going to suffer less but it is going to impact the business and so as you think about the outlook.
Clearly the direction of travel of Covid, it's there and it's the levels of infections and the levels restrictions are going to make a difference to the business and.
And then as it relates to immediate consumption.
And future consumption, if I look on a worldwide basis and I.
Look on.
A 2 year stack rate what you can say is that now.
We have steadily improved through through the course of the pandemic such that the.
Immediate consumption volumes.
And now slightly ahead of 2019 levels as we exited.
The second quarter and June so and and as I've said in the and the opening or.
And the reflections on that first question from Dara on the U S that is not being followed by a mirror image decline and yes, clearly some of that home on a 2 year stack basis goes down because people are now out and about.
Work and.
And so you now see the 2 of them tracking you said you're at home tracking at the 2019 levels as well. So that's why we feel that the.
There is some sequential improvement coming in the downhill.
Moderate but some.
Our next question comes from the line of Rob <unk> with Evercore.
Great. Thank you very much.
<unk>.
Can you please talk maybe a little bit more about headline pricing and promo intensity.
I think I heard you say that and Q2 your pricing was sort of a historical levels of 2% to 3%.
I also heard you say that and the second half of the year.
You would look to address.
Initiatives, so maybe kind of talk about Europe.
Your thoughts on pricing and an environment, where we've seen more inflation than we have and many years and how and how.
You know April the consumer is and your key geographies.
To be able to take additional prices. Thank you.
Yes.
Clearly, obviously the comments I am out of our pricing and on the 2 year stack basis and the.
Let's see.
When 1 takes out the effects of channel and geography.
And what you would see if you if you had all the data, but what I'm, saying is that over the course of the pandemic, we have taken a steady approach to.
And the pricing to continue to price for our brand strength and our GM.
And then of course, we manage input cost increases of time, and we use our hedging strategies to non.
And what have you know to try and minimize the amount of Sultan and bumps.
Because our overall belief is that if.
If we focus on.
Creating the growth of the beverage category for our retail customers are ahead of their overall business then that will be good for them and that we will do and gained share within that overall strategy and that is best executed through steady investment in brands and steady investment and execution and the use of <unk> to meet the consumer.
And with the pack size and the price point that they want and.
And that includes then.
Managing through the increases in input costs.
And a rational and staged way and we obviously leverage hedging to make that easier.
For us to do and so we do believe that you know.
Categories, all those people who have brands that have strong consumer resumes, we will be able to pass through cost as we have done historically.
Whilst in the U S inflation has been very moderate for extended period of time as it has been in Europe, we have plenty of other countries and the world, which experienced some high double digit levels and inflation and solve the strategy on how to manage through that and stay engaged with the consumer to keep the momentum.
And the business and keep the margin structure.
Steady or improving ease of capabilities and focused.
Our next question comes from the line of Carlos Laboy with HSBC.
Yes, good morning, everyone.
James about 3 to 4 years ago, and you said you wanted more.
Robust experimentations and small experience become become big experiments drive collaboration revenues and.
And we see this driving and Latin America, but might you share with us.
Perhaps in Europe and.
And some developed markets, where we don't have as clear line of sight.
And how this is coming along and.
And maybe.
Are there some wins that really stand out and this area.
Sure so.
And we continue to drive that.
The collaborations.
Patients.
I just pick up.
A few of the ones that we've sort of politically connected to today.
<unk>.
And <unk>, which started in Latin America, both those b to C and B to B, we have to use the platform to work with our bottlers in other parts of the world.
And Europe will beyond.
And helping us work together to improve the digitization and the b to b capability beyond that so you'll you'll see expansions of those experiments out of Latin America Europe.
See expansions of experiments and the U S whether it be.
Ah Ha, which has continued to perform very well and the U S. So far this year.
Launched that in China.
Or if airlines, which has done very well in the U S. We're taking that.
To China as well.
And so there is some kind of moving from from the west to the East you got experiments that were taking place.
<unk>.
On top of Chico hard Seltzer, which we kind of started in a way is a global idea is now in each of the concept and we've continued.
2 expanded.
And there are some there are some things going on in Asia.
And in the front of non black tea segments, where we where we experimented in some of the ASEAN countries and and expanding round.
So there really are.
Great experiments out there you could even go to some of the packaging ones.
Like the use of <unk>, 100% recycled P T.
And which is really a key factor and driving a circular economy around packaging materials started really in Europe.
Coming coming to the U S.
Recently with the 13 ounce bottle.
And we put into the market and so.
And we would never.
Satisfied as a kind of a philosophical starting point.
But that's certainly starting to see.
More experiments happen out there and more discipline, and working on which aren't working and stopping them and which.
And have legs to be taken to the next place and interesting and you're starting to see those experiments moving all directions is not just developed.
Developed to developing or west to east or any 1.
Direction, it's actually really starting to be Baidu is coming from all around the world and really having to go through and work out which ones because of the shortage of expanding globally.
And if I may and James I think and the supply chain also theirs.
Over the last 12 to 18 months a tremendous amount of.
Partnership collaboration that is.
Delivering.
Results in.
And and the individuals and families across the world and I think we'll.
And you.
Our next question comes from the line of Kevin Grundy with Jefferies.
Great Thanks, and good morning.
A question for James just picking up on the on the last line of questioning around innovation and my question specifically for hard Seltzer is and some of the early success that you've had there.
So James you mentioned some of the early learnings and I was hoping you could perhaps share those with us, particularly as it pertains to the Seltzer category and then more broadly James whether the success that you've had in and the alcohol space Emboldens The company and bid for further exploration and.
And and alcohol and sort of outside non out your comments there would be helpful. Thank you.
Yes sure.
And we're still very much in the learning phase, it's not a category we are familiar with.
Particularly with you I'll close with a number of important characteristics and regulatory characteristics and.
Is this guy dresses and we need to learn about and so we have not dropped to the stage of concluding and think more.
More strategic or coming to the point of view that there is a.
A bigger vision for us out there and the flavored alcohol and beverage space, we want to learn and understand more before we decide and I think 1 direction or the other.
As as it relates to some of the learning so far.
And clearly.
What we've discovered is obviously it makes a difference.
<unk> exists or doesn't exist in any particular country and we're in 17 markets to date, we're on track to be in 28 markets around the world by the end of the year.
We're learning what it takes to compete where the where the category exists with learning what it takes to help grow the category, where it doesn't exist. So.
And so we were pleased for example, and Latin America.
Where for example, and Mexico with a number too hard seltzer and <unk>.
Getting some.
Good traction and good velocity.
And in Brazil, where it's more of an undeveloped category. It is more kind of development needed and so we'll try to work out how that happens similarly in Europe, it's the number 1 or 2 pro forma.
In terms of rights and and velocity.
Okay.
Europe, and so I think it's very interesting and what's happening there and honestly and the U S. It's got a lot of good traction while it's still of course relatively small.
Overall nationally it done, particularly well, where we have focused or where or what but.
But I'm also is focused and launch wishes and Texas.
And it's done very well and Texas looking good in and kind of the southern States, California and.
Florida to retail customers and we understand the very bullish lots of display activity.
And with you. So we're looking to see that continue to expand of course, we are conscious that the overall hard seltzer category has come down in terms of its overall growth rates.
In the U S. That's not.
Ultimately that big of a surprise to us because it is a category that has been predominantly and at home channel category and much less.
Bars, and restaurants category and so as people have.
Gone back out.
Clearly there is some of those occasions have moved from at home to away from home. So.
It's not too surprising that the some of the strong tailwind for the category.
And the Lockdowns have.
Lessons, but we still think it's very interesting.
Got some long term potential.
In the U S. It's very on trend for a lot of consumers.
And so we're continuing to.
Look at that and.
Push on that and invest to see where we can go.
Our next question comes from the line of Sean King with UBS.
Great. Thanks for the question.
How do you stand to benefit from the Olympics starting later this week.
Given and.
Pendant and occur and the disruption around the world can you shed any light on it and marketing activation plans.
Or just a general outlook on this opportunity given the pent up I sort of excitement for this type of event.
Yeah, I mean in terms of.
Kind of 2 ways of looking at it 1.
Those countries, where the Olympics and broadcast too and then the actual Activations and Japan itself I mean, clearly in Japan, given the restrictions we have throttled back on the physical activations.
And all supporting appropriately keeping supply and beverages.
Accolades.
But.
But the physical Activations is essentially not going to happen and then and so really it's as much as anything it's about.
Leveraging the air time that the Olympics are going to guests and places like the U S to market our programs with very specific marketing activation.
Last galleys and got a half a million part of it was by the uncertainty of whether they were going to happen and not led us to move away from having any large extra fixed cost investments.
And accelerating the market the Olympics for this year. So we will we will leverage their time to market our brands.
You can still note even today the deputy.
And 1 of the people are in Tokyo said this.
Who knows what's going to happen, whether it will actually start so we very much and taken the approach of.
Takeaway the physical activation.
Takeaway any fixed cost.
That can only be used in the event of the Olympics and use.
And any any rights and times, we have for the general marketing of our brands.
Our next question comes from the line of around Grande with Guggenheim.
Hey, good morning, everyone and thanks for squeezing me in.
Got a question on Coca Cola zero piece.
You highlight you accrue mark through relaunched shrunk Coca Cola zero with new packaging and risky boost growth now to Cook co cricket and so in countries, where it has already been launched is the video and upside you are you are seeing them coming from regular non maturity or day adds more competition so any corner.
Thanks.
Ah yes.
I mean, obviously the answer is it depends and Hawaii, because each country has a slightly different mix.
Starting from the starting point of zero, it depending and is Europe countries that still got diet or light and.
And the size of a.
Classic.
And so the starting point matters too clear.
Clearly, it's a mix of everything.
What we what we like most about driving Coke zero Sugar is you know we get a lot of business that is not self cannibalization.
And if it was all just coming from Coke and Coke light it would be it would be perhaps necessary, but not very exciting whats exciting about it is that we are helping expand the coke franchise and.
In other words, if you stopped standing back and looking out and globally. You can you can see both the.
The growth of polka original the very fast coke and growth of Coke zero, only some of which is coming from the cannibalization.
All of co blockade.
Don co depending on where you are and the world. So it's a net accretion to the Coke franchise.
Ladies and gentlemen, this concludes our question and answer session I would now like to turn the call back over to James Quincey for any closing remarks.
Thanks, very much everyone.
As we said at the beginning look with delivering on the priorities, we set out for ourselves to a much stronger hopefully you can see that in both the results and our guidance and we just want to take the opportunity to thank once again.
The extraordinary effort of our associates of our bottling partners and all our partners.
And that have allowed us to deliver these results and to raise our guidance for the outlook.
And just to be strong our bottling partners are strong we continue to invest behind momentum and the huge growth opportunity ahead of us. Thanks for your interest your investments.
And for joining us today.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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