Q1 2022 Coca-Cola Co Earnings Call
If you have more than one please ask your most pressing one first and then reenter the queue now I'll turn the call over to James Thanks, Tim and good morning, everyone.
First and foremost on behalf of our company and our entire system I'd like to share our deepest sympathies to all those who've been affected by what's happening in Ukraine.
The safety of our people and their families continues to be our top priority and as we highlighted in our release. This morning, we're taking actions to provide that support.
This morning, I will discuss how we drove strong results in the quarter and that we are reiterating that guidance even in the face of incremental challenges.
Then John will discuss the financial details for the quarter and how our work is prepared us whatever may be around the corner.
We all know that much has happened in the world since we last talked with you in February leading for sure to an operating environment that is fast changing and increasingly complex. However.
We remain confident about the future and are well equipped to manage external factors worldwide through a strengthened leadership position with the right portfolio, the right strategy and the right execution in the marketplace.
Promising start the year the operating environment soon changed with very significant geopolitical conflict.
Resurgence of Covid in various places were record high inflation and continued challenges on the supply chain front.
Nonetheless, we've consistently sustain our momentum from last year, moving with agility, if conditions changed to generate strong top and bottom line growth in the quarter.
We delivered 8% unit case volume growth, primarily driven by strong recovery in away from home channels and continued growth in FM channels.
Volume growth was strong across all operating segments, driven by marketing investments and aided by an increase in consumer mobility as the impact of the pandemic abated in most regions.
Our enhanced capabilities helped us gain value share overall in both at home and away from home channels globally and across most of our geographic operating segments, a clear indicator of the power of our new approach.
Amidst the dynamic macro conditions and inflationary cost backdrop, we focused on delivering growth.
The key competitive edge of the Coca Cola system continues to be the ability to deliver value for our consumers and our customers in any environment.
Our accelerated agenda in marketing and innovation is tying our beverages to daily consumption occasions, adding and creating value for our brands.
Additionally, we continue to work with our bottling partners to expand package offerings and strengthen distribution to capture growth opportunities using all of the available revenue growth management levers, including price to win in the marketplace.
These scaled global initiatives are coming to life at a local level or around the world.
So, let's start with Asia Pacific and.
In India, we drove excellent and integrated execution as consumer mobility of improved across channels by stepping up product availability, adding.
Adding approximately 240000 outlets and over 50000 coolers.
We also continued to build relevance through innovation by launching mazza on panel to leverage our equity and mango and farm to Apple to expand our footprint in the fast growing fruit flavored sparkling subcategories.
Japan is emerging from the extended state of emergency and we've increased our consumer base and driven market share gains in key categories.
The Coke on App reached 35 million App downloads, continuing the direct engagement with consumers to create and capture value.
We also continued our focus on ESG initiatives with 100% recycled bottles now available in Japan are five key brands, including Coke and Georgia coffee.
In China, our strong start in January led by an excellent Chinese new year brand activation with Coke was followed by strict Covid Lockdowns and this resulted in reduced consumer mobility.
Momentum reversed in February and March and led to a decline in unit case volume during the quarter.
We're moving fast to focus on core Skus and ensure product availability we are.
Adapting how we engage with consumers depending upon local market conditions, and we're working close collaboration with our bottling partners to focus on execution basics like increasing multi pack availability and maximizing share of visible inventory in channels and regions that are open.
In ASEAN and South Pacific, we gained share in key countries and across most categories, while consumer mobility was mixed and supply chain headwinds remained.
<unk> was led by trademark coke in sparkling flavors driven by strong aimed duane the execution of the zero words sprite heat happens and the fans colorful people brand campaigns.
EMEA.
Notwithstanding the conflict in Ukraine, and an uptick in inflation, we delivered a strong performance in Europe in the quarter.
The continued rollout of new and improved Coca Cola zero sugar across key markets helped drive five percentage points of sparkling single serve mix growth, which is ahead of pre pandemic levels.
Topo Chico hard Seltzer is closing the gap with the number one hard seltzer brand in Europe , and the <unk> business with <unk> Dot com accounted for low double digit contribution to total revenue.
We are keeping a close watch on the spillover reflects of the conflict in Ukraine on the health of the consumer and we remain ready to pivot and adapt.
In Africa macroeconomic recovery is underway, although conditions remain challenging due to inflationary pressure.
In South Africa, we accelerated refillable PT expansion and the execution of in store sampling to retain consumers.
We are connecting with our existing customers in the digital space and have surpassed 65000 outlets on the Huawei EEP to be platform significantly ahead of plan.
Despite macro volatility and intense inflation in the region Eurasia and middle East drove top line growth through a strong suite of marketing programs across categories led by sparkling and ready to drink tea.
In Turkey, Coca Cola Zero sugar became the number two immediate consumption player in value share behind brand Coke.
And Pakistan Coke studio a platform that unites diverse cultures through the power of music drove social engagement that reached an all time high in terms of impressions viewings.
In North America, we are seeing more inflation continuing to navigate supply chain dynamics. We're closely monitoring further pressure in some inputs such as high fructose corn syrup.
And metals, along with wages and transportation as they impact us as well as our bottling partners.
Despite these challenges we continued to gain share in both at home and away from home channels and across most categories.
The strong rollout of real magic platform and the successful launch of Costar light resulted in coke trademark being the fastest growing trademark and measured retail driving household penetration up a full point.
Alright, pauses power launched during NCAA March madness generating more than 1 billion impressions. We also continue to learn from the returnable glass bottle pilot that has been implemented in the southwest.
In Latin America, we delivered strong performance, despite challenging macro conditions and the investments we made to sustain momentum are paying off.
We remain focused on integrated execution and drove revenue growth faster than transaction growth both of which grew faster than unit case volume growth.
Our work to strengthen the traditional trade is paying off as the channel showed the best underlying performance across all channels.
The prosperity loyalty program added nearly 50000 retailers in the quarter, while continuing to advance our customer focused digital expansion.
Notably we have digitized nearly 2 million customers in the region.
And we are leveraging the strong system alignment with our bottling partners and our <unk>.
Continuing to execute for growth.
Within global ventures, despite an inflationary backdrop in the U K Costa continued to recover driven by retail and strong like for like sales with Costa Express.
In China, while retail sales were impacted by store closures due to the pandemic Costa ready to drink coffee sustained its number two position and continue to innovate with Costa chalk.
Finally, our bottling investments group delivered strong Q1 performance driven by the expansion of affordable immediate consumption entry packs in key markets and this resulted in share gains in sparkling.
We also continued to make progress towards optimizing trade promotions and cost to serve in our key markets and raise the bar on operational excellence.
Clearly the operating environment is proving to be more challenging, but we're pleased with the results. We delivered in the first quarter. We continue to believe the recovery in 2022 will be asynchronous, we anticipate many new chapters and challenges, including but not limited to ongoing geopolitical conflicts.
Uncertain consumer sentiment amidst the increasingly inflationary environment accelerating cost pressures and ongoing supply challenges and of course continued evolution of the pandemic.
That said the changes we have made during the pandemic have left us better positioned than ever to capture growth increasing our confidence in the future.
The multiple levers of revenue growth management have never been more important and our investments in building. This capability over the past few years are giving us a clear advantage.
Further actions on pricing will depend on the consumer and inflation rate environment as the year progresses, but we will continue to rely on a mix of price package differentiation an ever sharper promotional strategies.
Through integrated our GM and execution capabilities, we adapt to local market conditions and give consumers what they want where they want it and at the right price.
By extending package offerings to keep transaction driving price points imply we retain consumers through affordability, while also driving premium amortization with innovation and targeted pricing for example.
In Latin America, we're continuing the expansion of renewables to sparkling flavors in juices and this remains a compelling consumer proposition to address the need for affordability.
In North America, we're maximizing value by initiatives like the one expanding the availability of mini cans for consumption across occasions, such as brakes, and meals and by offering six packs tampax and 30 tax driving an approximate 45% increase in retail dollars in measured channels, and then near 20% increase in total distributions.
Points.
Our networked organization structure extends to our system.
Our bottling partners complement our progress against our capabilities by continuing to invest in the marketplace and to help put our purpose into action.
We have strong partners with highly capable and experienced leadership and we continue to build on <unk> business and economic relationship that drive system health and long term growth opportunities.
With our purpose to refresh the world and make a difference we continue to focus our ESG work on issues, where we can have a measurable positive impact on communities as well as create opportunities for our business to grow we release, our fourth combined business, an ESG report tomorrow and integrated approach to.
Reporting that is a strong demonstration of how sustainability is linked to our business builds resilience and demonstrate transparency.
We have a long history of assuring select sustainability metrics, while also providing key public disclosures against the TC FD recommendations as well as other reporting frameworks, such as SaaS be Gi and the UN global compact in the report we highlight how we and our bottling partners are driving biz.
This growth through our interconnected ESG goals and how we continue to seek an exponentially greater impact by fostering collective action partnering across industry government and society to address shared challenges.
In conclusion, while there is no doubt the world is more uncertain and the operating environment remains highly dynamic our strategy remains the same.
To execute for sustainable growth through strengthened capabilities in innovation marketing our GM in execution now I'll turn the call over to John .
Thank you James and good morning, everyone. Today, I will highlight our first quarter performance and discuss our full year 2022 earnings guidance.
Then I'll provide commentary on the overall operating environment.
And how our organization is navigating effectively to drive results.
Let me first start by saying how pleased we are with our results in the first quarter.
We delivered strong organic revenue growth of 18%.
Cases grew 8% with strong growth across all operating segments.
Concentrate sales were ahead of unit cases by three points in the quarter, primarily due to the timing of shipments in Latin America and EMEA.
Our price mix of 7% was driven by strategic pricing revenue growth management initiatives.
Further improvement in away from home channels in most markets and positive segment mix.
Comparable gross margin for the quarter was down approximately 90 basis points versus the prior year, primarily due to the impact of two items, one consolidate I think the body of our business and to currency headwinds.
Underlying gross margin expanded despite continued pressure from commodity costs due to pricing actions in the market.
The benefits from the timing of concentrate shipments.
We continue to prioritize consumer facing marketing to maximize returns while driving productivity in our operating costs leading to leverage in the P&L.
Comparable operating margin expanded by approximately 50 basis points, despite acquisition and currency headwinds.
First quarter comparable EPS of <unk> 64 grew 16% year over year.
This was driven by strong.
Top line growth, which benefited from the timing of concentrate shipments and operating margin improvements.
Partially offset by currency and cost headwinds.
On the cash flow front, we delivered free cash flow of approximately $400 million in the first quarter.
As our strong business performance was more than offset primarily by two items.
One cycling the timing of working capital benefits in the prior year.
And to higher 2021 annual incentives paid in the first quarter.
We remain confident of our ability to deliver on our cash flow goals for the full year.
Our balance sheet continues to be strong with net debt leverage within our targeted range of two to two five times.
As James mentioned much has happened since we last gave guidance in February .
The conflict in Ukraine has created further volatility in the world as.
As well as added to the inflationary backdrop and impacted the currency markets.
The resurgence of Covid in China, and some other geographies around the world is a clear indication that the pandemic is still very much a part of the conversation.
And a reminder, that the recovery path has been and will continue to be a synchronous.
Obviously, there are lots of puts and takes that play and we see a number of potential futures coming at us.
But notwithstanding this backdrop, we believe our organization is better prepared today and more confidence and the flexibility we have built.
And our ability to manage what's around the corner.
We continue to spend the growth flywheel faster and our local businesses are adapting and executing for growth.
With that in mind. This morning, we are reiterating our guidance for 2022.
We continue to expect organic revenue growth of approximately 7% to 8%.
And comparable currency neutral earnings per share guidance of.
8% to 10% growth versus 2021.
Based on current rates and our hedge positions, we are reiterating our currency outlook of a 2% to three point currency headwind to comparable net revenues and a 3% to four point currency headwind to comparable earnings per share for full year 2022.
Additionally, taking into account our current understanding of recently issued regulations. We now expect an effective tax rate of 19, 5% in 2022 versus the 20% that we had guided to previously.
All in we continue to expect comparable earnings per share growth of 5% to 6% versus 2021.
And we continue to expect to generate approximately $10 $5 billion of free cash flow for 2022.
Through approximately $12 billion.
And cash from operations less approximately $1 5 billion.
And capital investments.
To put this guidance in context, there are some considerations to keep in mind for 2022.
The direct impact of the Ukraine conflict and the resulting suspension of business in Russia is estimated to be approximately <unk> to.
Comparable EPS.
The recent increases in commodity costs are having an incremental effect.
Thus based on current rates and hedged positions, we expect commodity price inflation to remain in the range of mid single digit impact on comparable cost of goods sold.
In 2022.
Additionally, we see incremental cost pressure coming from areas like wages and transportation.
The consolidation of the body of our finished goods business will continue to have a mechanical effect on margins.
When it comes to capital allocation, our priorities remain the same and we continue to balance financial flexibility with efficient capital structure.
For 2022, we announced a dividend increase of 5% or.
The higher rate than in recent years.
And we also announced the resumption of share repurchases with approximately $500 million and net share repurchases expected this year.
Despite uncertainties around the world our strategic transformation has fortified the organization to weather the storm.
And we are extremely proud of how our people are responding and delivering.
We are keeping consumers at the center operating more effectively and efficiently and unlocking the immense potential of our growth portfolio of brands.
This gives us confidence that we can deliver on our guidance for 2022.
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. Please press star one again.
The interest of time, we ask that you. Please limit yourself to one question. If you have any additional questions you may rejoin the queue.
Our first question comes from Lauren Lieberman from Barclays. Please go ahead. Your line is open.
Great. Thanks, so much and good morning.
I was hoping we could talk a little bit more about Latin America.
An area like you called out it outperformance in particular, Mexico, and Brazil, this quarter and sort of two sets of questions. One is this is a region where your partnership with bottling has been particularly strong certainly versus the past.
Talk a little bit about how that may be enabling your ability to be performing as well as you are in this challenging times, that's kind of one and then two was there wasn't mentioned in the release about shares being down.
Look I'm guessing it might be in queue, because I think you talked about sparkling being up but anything in particular that youre doing or the degree to which the market can't performance as an area of watch point for you and how youre balancing that versus thinking about recovering cost inflation. Thanks.
Yes, there was.
We'll call that several questions I never do it does help I'm sorry. This is the first time.
Okay.
In the spirit of generosity will try them because they're very related.
We have a great partnership with our bottlers in Latin America from.
Two very big ones Coke FEMSA Arca continental through Andina and some of the more country based.
Our bottlers.
We have developed collectively as a system many capabilities on many fronts, whether it be marketing on innovation, but particularly the levers of revenue growth management and execution in volatile times. It escapes no one's attention, but Latin America is a place that is at a rollercoaster of economic growth in <unk>.
<unk> and difficulties.
And we have a very deep partnership with these bottlers to work through these times and that I think you see reflected in this quarter.
We are as we had as we had a lot of good growth.
Sure It did come in <unk>.
<unk> overall, I think there's a couple of things going on there.
As you saw we did a lot better in sparkling a lot of good execution in sparkling.
While some pressure as much.
<unk> juice or some of the juice drink.
Categories, but also category mix.
We are very much focused on as we've talked about previously that when you are in the cost environment.
Those those cost increases, whether it be commodities or wages or logistics or marketing costs need to go through over time, we have to earn the right for the brands they need to go through.
Sometimes when you are in a very high share market like Latin America, and you lead on pricing.
Not all competitors necessarily follow immediately.
That can have temporary.
Impacts on share, but we with the bottlers will be very focused on not only continuing to carry on growing but to regain.
And our share position.
Our next question comes from Dara <unk> from Morgan Stanley . Please go ahead. Your line is open.
Okay.
Hey, good morning.
So I just wanted to focus on top line visibility here you, obviously kept the full year topline guidance. Despite the Russia impact so underlying sales are moving to Opex, Russia. In Q1 was another strong quarter, but clearly there's risk consumer spending might weaken with unprecedented inflation, we're seeing so firstly.
But just looking backwards can you give us an update on if youre seeing any signs of consumer stress in terms of impact on your business or pushback to higher pricing around the world.
Late in Q1 or in April and then also on a go forward basis.
Can you juxtapose pose the positive impact of normalization of Covid behavior on your business as away from home recovers maybe versus any potential macro pressure you could see your consumer spending weakness and how that impacts your visibility in terms of full year topline view.
Yes.
Well clearly my act of generosity Laura.
Unleashed a tolerance of multi question questions.
But it would be hard to cut it off of this data.
A couple of a couple of things.
We did come in.
With strong momentum out of 2021 and come into this year.
No.
And John and we've talked about previously on calls.
We believe the pricing for our business has to be earned for the brands.
We have to give the consumer and the retailer reason.
For the price increase in the value of our brands, whether it's the marketing the innovation the execution or the packaging options. We do that it's not it's not a cost plus business. Although we do seek of course to protect the margin structure.
Moving through changes in commodities and all the other costs, but.
But we very much full say <expletive> experience on history, what was it Mark Twain said history doesn't repeat itself with just <unk>.
When you go into high inflation consumers come under pressure there's clearly.
Reductions in real purchasing power going on for some segments of the population if not everyone around the world.
So our focus is very much defined.
<unk> packaging and price options by channel, where we can stay connected to people who are coming on the purchasing power pressure very much affordability just building on the Latin America example for the last question a lot of focus on our returnable refillable bottles, because the economics of those packages work to the extent that you can.
Have a lower price point.
For the package.
Reductions in purchasing power, we very much see the actual out of pocket price point and keeping a low entry point into the category is very important also pushing the expansion of renewables in places like South Africa, So very much.
<unk> on the.
The signs of consumer purchasing power pressure, but very much also anticipating.
It will increase it would be great. If that were a perfect landing out of this inflationary environment.
The <unk> of history would tell you that at some point either inflation or reduction in purchasing power or supply constraints eventually create a bump.
And at that point, we will want to both be.
Access in the premium opportunities the wrap up very much with our anchor in the affordability and entry price point opportunities in necessities as consumers come under pressure.
Our next question comes from Steve Powers from Deutsche Bank. Please go ahead. Your line is open.
Hey, good morning.
Yeah.
When I think about just the approach to capital allocation and business reinvestment as you talked about it in the prepared remarks, you framed it is essentially unchanged as a framework, but with all the variability you called out.
The operating environment.
I guess.
I am curious as to where there are areas of your going in plans, where maybe you pulled back a bit versus other areas, where you found yourself now, leaving and more maybe James to your answer the last question maybe.
Affordability or something like that but.
Just again overall spending as you framed it and does the guidance implies seems intact, but my sense is it's moving around a lot under the covers so just I'm curious how that kind of agility is manifesting in terms of reallocations of spend thanks.
Thanks, Dave It's John .
Let me first.
Just.
Later the picture of.
Total capital allocation.
Priority is to invest in the business.
Yes.
As we as Jim just said when you think about the environment that were we have been dealing.
And we will be dealing with.
The rest of the year.
The name of the game right now is to do exactly that is to continue to invest in our brands. So that we have.
We have the wherewithal to manage through whatever comes at us.
I think at a local level.
The mix of investments.
Something that we continue to be very flexible with.
And.
And we are leveraging the work that we have been doing over the last couple of years to the.
Even more effective in how we're spending our marketing dollars whether it's.
Building, our brands or whether it's on <unk>.
<unk>, our <unk> effort in the marketplace.
The other areas of our capital allocation framework.
Supporting the dividend.
Looking at opportunistic M&A.
And on share repurchase we covered in the script with the dividends and share repurchase.
We continue to be very open as to what opportunities may be out there.
But in the here and now.
Top priority is <unk>.
First thing appropriately in the business and as I say the mix of that investments is something thats.
There is and will continue to vary depending on what we need to do locally.
Our next question comes from Bonnie Herzog from Goldman Sachs. Please go ahead. Your line is open.
Alright. Thank you good morning, everyone.
<unk>.
Just a big picture question about how you're working with your bottlers, who are experiencing pretty sharp cost pressures.
To essentially help them navigate through this tough environment. If you guys could talk about that and you're also looking at equity income in the quarter remained relatively strong but.
Expectations going forward that there will be a greater impact in the next couple of quarters given some of these pressures. Thank you.
Yes sure Bonnie.
I'm not sure it will be appropriate to comment on equity income into the future for our bottling partners.
As we go into a tough environment.
As we always do historically.
We make sure that we intensify our collaboration and partnership with our bottlers both too.
Work on what all of the marketing programs and the innovation programs that are going on.
Work in the consumer and the retailer environment that we face wherever we are in the world.
Also the execution.
Initiatives and focus areas the bottlers could drive up.
Because.
Firstly.
The environment is not the same.
In every country around the world some are opening up exuberant Li.
And actually chasing on keeping up with demand.
Kind of.
The reopening euphoria all the way.
Across the spectrum to parts of China, Shanghai, which is in full lockdown.
Though.
For 2020, so the environment is absolutely not the same in every country and we have to work where on the curve of all the change and be very clear and in terms of.
The pressures you talked about the pressure the.
The pressure is both headwind and tailwind clearly there are headwinds in terms of.
Cost.
Whether it be commodities logistics wages.
And as I said earlier in one of the questions we work with our system.
Our bottling partners to make sure we protect and sustain the margin structure over time, that's not necessarily true every single quarter, but that is our own our overall objective, earning the right.
The brands so the Sis.
Has the sort of margin structure and stability of that.
Over the course of time, if not every single.
Every single quarter, but there are there are headwinds.
Balancing those headwinds there are tailwind out there as I said the reopening.
<unk> fuel not just for overall demand.
<unk> and channels are away from home channels, where we're strong and leaning in with investment produces great results. So this is there's a lot of variables at play.
The down as the year and really just the.
Key is the intense partnership with our bottlers to make the most of the opportunity ahead of us and to prepare ourselves for step two and step three further down the road.
Our next question comes from Bryan Spillane from Bank of America. Please go ahead. Your line is open.
Operator, good morning, everyone.
James I wanted to just circle back to the comments you made in the prepared remarks about ESG and I guess tying it to comp.
If I understood the proxy correctly theres been two changes one is the ESG component now being a portion of both the annually.
Annual and long annual and long term comp I think it moves to 10% and then also for your annual long term incentive comp the amount that is paid out in stock options.
It was up from like a third to a half.
Just wanted to sort of get your perspective on why make those changes now.
Just what it signals about your focus going forward.
Yes, Thanks Ron.
Firstly would refer everyone, who wants greater depth to the proxy is out there on our website.
And we've tried to lay out.
Some of the mechanics, and our thinking behind that we have made some changes as you point out Brian So the way the long term incentives or more specifically the performance share units, which are kind of a three year program. We got a 10% element in that linked to our ESG goals.
We are laying out some very specific.
Targets that will drive a portion of those payouts and because some of those.
ESG objectives take some time to execute against we felt like were better embedded into the into the three year stock Stock Award programs and then secondly, as you point out.
With the with the board and with the compensation Committee, we felt to increase greater alignment with shareowners.
We would readjust the balance of the salt performance share units versus options for myself.
And push that up.
The 50% I mean, you could you can take that as a as a <unk>.
Confidence in the future.
But thats one very small stone on the large pilot stones.
Things, we do to demonstrate that we believe is a great company with a great future.
Our next question comes from Nik Modi from RBC capital markets. Please go ahead. Your line is open.
Hi, Good morning, this is Felipe <unk> for Nick.
My question is on pricing.
Clearly price realization has been very strong.
Carbonated soft drink category and.
Particularly in North America, with a very rational environment in the industry.
And pretty lineup.
So far so can you comment how you balance the need to take pricing.
While ensuring affordability using price pack architecture or your revenue growth management.
Given this inflationary environment and the impact on consumer wallets.
In North America.
The parts of the world.
And then secondly, if you think.
We see more promotional activity in the industry and the balance of the year. Thank you.
Okay.
Our.
Our approach to pricing.
I've commented a little bit on it.
Already.
Firstly, the highest level principle as the brand has to earn the right for pricing.
And that is.
The combination of its activities and marketing and innovation.
In execution and the investments in the store and of course in our GM to make the <unk>.
<unk> and pricing architecture fit the consumers' need.
Obviously, what goes into a piece of that puzzle is also the cost environment, whether that be commodities marketing logistics et cetera et cetera.
And we seek to balance the various challenges using <unk> as I said earlier clearly as we go into.
Reducing consumer purchasing power, we need to have affordability.
And center, depending on where you are in the world can take the shape of different packaging, but it all becomes about the entry price points the category not the kind of the higher end price plus the carry but you balance that out by having moving up the price points on other package combinations.
It all has to go in the mix.
And it is all done.
With the perspective that.
Not necessarily every single day, but in a reasonable timeframe the margin structure of the system needs to be sustained you definitely don't want to get to a point, where there's been a substantial cost push through and that has not yet been passed on.
Into the marketplace when any recessionary impact appears trying to catch up on pricing in a recessionary environment is very hard.
And so we have a bias to action in the same way, we have a bias to invest behind our brands and marketing innovation, we have a bias to keep up with cost pressures as they occur.
Of course leads us to take pricing.
More or less frequently depending on where you are in the world.
And I expect to see more of that in the rest of the year.
Our next question comes from <unk>.
Gotcha Waller from Credit Suisse. Please go ahead your line is open.
Hi, there should be a quick one in a single question is there any update on the tax litigation matter perhaps.
Maybe not just on your end, but some of the other moving parts I suppose on what needs to happen there.
Beforehand.
Quick answer no update no.
Developments during the quarter.
We will keep you pulses.
As they happen.
Our next question comes from Carlos Laboy from HSBC. Please go ahead. Your line is open.
Yes. Good morning, I was hoping you could give us an update on some of the stepped up efforts on for renewable for refillable packages.
And in Latin America, and how that's going please thanks.
Yes sure. Thanks.
Thanks Carlos.
Clearly.
As part of.
Both are all GM.
Initiatives, because the refillable reusable packages tend to give you the opportunity.
Especially in larger sizes have a lower entry price point, which is particularly useful in developing and emerging markets and so you have an intersection of.
A very important business imperative on affordability and the fact that ultimately a refillable package is.
Is less likely to go to waste and has a lower carbon footprint and so it really complements our world without waste ESG strategy, where we're looking to create a circular economy around our packaging materials to the to intersect and give us.
Two imperatives of both pointed in the same direction.
And so we're very much looking to invest behind refillable packaging, making progress in gaining and mix.
Latin America also been.
Driving that in parts of Africa.
Even taken to experimenting with returnable glass in the southwest.
The U S.
And so we are very focused on this because it does work for both of these both of these imperatives.
And so expect to see kind of more focused on more investment behind <unk>.
Keeping that up.
I'm working with retailers to make it simple for the consumers.
To get the get the credits when they return these reusable bottles, so very much an investment focus.
Our next question comes from Andrea Teixeira from Jpmorgan. Please go ahead. Your line is open.
Thank you and congrats for this quarter James you just to conclude on pricing you mentioned that you continue to monitor further completion inflation pressures and also alluded to potentially further pricing.
<unk> seen that im assuming youre seeing better than anticipated price elasticity do you see room for additional pricing, perhaps in developed markets any particularly in certain clusters in the U S and if not any flexibility to protect the bottom line with SG&A efficiencies that you can highlight at this point.
Well clearly I mean.
I've talked about our approach to pricing.
Several times and that is going to lead to more of them theyre going to be more price increases depending on where you are I mean, there are countries with inflation well into double digits.
And you do see multiple price increases during the year as a matter of course when you are in those sorts of circumstances with cost pressures to push through as you as you seek to sustain our sustained margins all the time.
Let me just address the elasticity question.
It has been apparent in other people have commented on.
Less elasticity in recent times.
Price increases have gone through.
Do not expect elasticity to be elastic.
Forward.
There is a reason to Gulf of nameless visit and so I fully expect as I commented earlier on.
Inflation generally ends with some pressure somewhere I expect elasticities to increase at some point in future. We will not be next quarter will that be next year I can't give you the answer that because it's very dependent on some macros on it's probably going to vary by country, but.
But we are very attuned to it which is why I talked about how we are leaning into investing behind our brands. So that we earn the right for the price increases so that we can minimize the elasticity and that we keep a sharp eye on affordability, which again tends to minimize elasticity, if we use our GM.
Well.
But as I say, if the choice comes down to.
And we think the Alaska, the elasticity is going up or going to have to not.
Pass through some costs were going to air towards taking the price increase rather than not taking the price increase as I said earlier not seeing the costs go through.
On arriving in a recession being behind the curve is less desirable than a.
Backing and having to take the hit from a greater elasticity in the short term and so thats kind of modus operandi.
And we will certainly seek to earn the right to take the price increases we certainly aren't looking to take price increases just because we can we want to own them.
As a brand and we want to make sure we recover.
Service on.
Our next question comes from Rob <unk> from Evercore. Please go ahead. Your line is open.
Great. Thank you very much James in the opening comments you mentioned that you had digitally connected I believe with 2 million customers in Latin America can you elaborate on.
What that allows you to do what what that means the upside there.
What youre seeing in the market from that.
And how you.
We expect to or how you plan to roll that out globally. Thank you.
Yes, Thanks Robert.
<unk> is a very important area for us.
Our bottling partners.
Simply put the idea of connecting these customers.
Is essentially that the our retailers, particularly the traditional trade and the fragmented right remembering that on a global basis about half of our sales go to the fragmented.
Trade, whether that's from grocery side, all fragmented in terms of being away from home and <unk> III type of about half of the global sales go to us is being able to they can order the coax they need all the rest of the portfolio that they need they don't have to necessarily wait for the salesperson to turn up this isn't about replacing the sale.
Person very far from it this is about enabling the selling system to be even more effective in being able to connect with the retailers generate orders.
And so very much it's about salesforce, enabling system such that.
In the same way that consumers in the developed world can just use their phones to.
With whatever system without whatever is appropriate.
Order order things and they don't have to go to the store to get them, we see the bottling system will be able to sell more.
I am very much in the where we've implemented these systems, whereas as a complement to the sales force. It has driven extra sales and driven retailer loyalty and so we think we can see obviously, we are very much engaged with our bottling partners to drive.
The connectivity, particularly for the fragmented tried.
So that they can order whatever they want whenever they want.
From the co portfolio.
True and the Rollouts as you called out in Latin America, <unk> Dot Com is the same basic.
Basic idea is all about.
Technologically, enabling the selling system.
More.
Our effective for the retailers.
Your next question comes from Johan <unk> from Guggenheim. Please go ahead. Your line is open.
Hey, good morning, everyone.
I'd like to to come back to the progress of of course the cafe.
It was mentioned and Youre prone rock coming coffee was up 27%, but some of it was all of that growth was coming from cycling the costar store closures.
Could you expand maybe more on the non store.
This progress hot and cold, where you're expanding the brand which countries.
What are you seeing in terms of consumer reaction. Thank you.
Yes, Hi, Laura.
Yes, looking at the non retail bits of cost.
The express machines that kind of vending digital barista machines.
Had a very strong quarter with transactions growing strongly and we're starting we're seeing now that reopening have occurred we're starting to see the focus on placement of new machines across Europe .
In the Middle East.
<unk> in China, Although Thats got a little harder in the last couple of months, but the express machine is still doing very well, obviously they need the opening of the world to have but.
And then on the proud to serve front, which is kind of providing the beans and machines to independent outlets.
Starting to ramp that up more in the Europe .
Europe environment again early days.
We did launch some tests in at Hull.
That's too early to kind of call and then costa ready to drink.
It's done pretty well in China.
Sustained its number two position is.
<unk> to grow and we've launched it also in some of the European market. So.
Starting to see those innovations rollout and.
We will see how they do in the coming quarters.
Our next question comes from Kevin Grundy from Jefferies. Please go ahead. Your line is open.
Great. Thanks, Good morning, everyone. James I wanted to pivot to your business in China, given the uptick in Covid cases, there and related lockdown measures.
Perhaps you could just comment on what Youre seeing from a demand perspective to perhaps the exit rate for March and what you're seeing in April and then three maybe just more broadly the company's ability to better execute in your view despite lower levels of consumer mobility number two years into the pandemic. So thanks for that.
Yes, sure I mean, clearly China is an important market to us as I've said in the script, we had a strong start to the year going into Chinese new year, but the lockdowns, particularly Shanghai.
The steam out of things and we ended the quarter negative.
<unk>.
The key factor will be the degree of mobility.
And we had and depending on how big that is it will make a huge difference.
The level up to the level of results.
I don't think there's anything to call from the early days of April is different to what was happening at the back end of March.
The Lockdowns as you can read in the newspapers are still.
Yeah.
And full full.
Full force so to speak in those cities, where they are locking down and I think that's going to remain the biggest factor of course, we're going to focus on what we can control.
We saw we certainly had two years of trying to look at what that looked like over the last couple of years.
And we will continue to build on those learnings on the playbook that we had.
Adapt as necessary.
A little difficult to predict exactly what it's going to look like but we feel.
Said, a different way, we feel better prepared and more resilient.
For the Covid.
<unk> of 2022 in China than we did in 2020.
Our next question comes from Chris Carey from Wells Fargo Securities. Please go ahead. Your line is open.
Yeah.
Hi, good morning.
Actually following up a bit on the prior question, but more globally.
As John said in the prepared remarks.
Improvement away from home channel and most market.
But not all I appreciate the Asia Pacific.
Specific impacts in the quarter as just noted.
Wondering if you could just give us a sense of.
Regression.
The away from home channel recovery globally, perhaps relative to 2019, and if you have any context on total company a key region that would be helpful.
Really underlying the question here is just a sense of the current state of the channel as we all contemplate prospects of slowing global growth.
The company will manage through any reversal back would be away from home with levers at its disposal. So thanks for that.
Sure.
Okay.
I mean, firstly on.
Firstly, let me step back both the away from home channels.
Whilst we have recovered to our 2019 levels.
The away from home channels have not yet fully recovered and then part of that.
I think I've talked about this on previous calls.
We've lost outlets in the course of the pandemic.
True of the away from home and that's also true of the fragmented grocery traits.
And so there has been an impact on the number of outlets is not fully but of course there is a distinction.
Sure.
By sub channel with away from home.
Particularly <unk> done well, particularly those with digital and drive thru if done well so the away from home channel even in a country can't be considered as a thing you need to break it down into the different.
Subcategories.
And really look at it by that but again globally, it's not quite back at the 2019, they're all big distinctions, depending on what sort of sub channel.
We're looking at.
In terms of.
In terms of the current global status, yes, China very much impacted by Covid lockdown to the auto the parts.
Asia Pacific Southeast Asia, where there were pressures on the away from home channel.
I mean, let me include Japan, which only just.
Lifted the state of emergency and we should start to see that improve.
So.
As you think about the rest of the year. There are places where there is recovery yet to come.
And of course, if theyre all recessionary impacts.
Either because of recession or loss of purchasing power in the face of inflation in certain parts of the world that will be an offsetting factor.
As we go into it.
Our next question comes from Brett Cooper from consumer Edge Research. Please go ahead. Your line is open.
Hey, good morning can you address your thoughts on adding non owned products to your or your systems offerings to win and Digitization of your customer relationships and then maybe an alcohol specifically to help scale. The system in what is a new area for the company on an aligned basis across market. Thanks.
Okay.
Yes.
We have a whole series.
All different situations around the world I think the starting point is does not one universal laws.
To this question.
And part of that is because the nature of the retail landscape the nature.
The distribution systems and the nature of the alcohol regulation is is different in different parts of the world.
We certainly start from the principal.
Primary interest is in.
The brands of the Coca Cola Company.
To the extent you've heard me talk about like never say never in a kind of a probabilistic view of things to the extent that a case can be made for all the products being on the trucks.
Probably other beverage products.
Including alcohol and that that is somehow going to make the system.
Volatile is that it is going to sell more of our brands than that is that is the question. We're going to look at and there are certainly parts of the world. We're going down that road has been successful in selling more.
More co products chill.
Chile would be an example of that where they're all.
All of the beverage brands are typically alcoholic ones.
Whether that would be aerospace on the truck and in the selling system, which has allowed us to have more salespeople with a digital overlay as we talked about on the previous question. So retailers can order things, but ultimately a successful not because we can get more things on the truck is successful because we can sell more and more of the coke brands and that was demonstrably June Chile.
The parts of the world and not necessarily the same initial starting point.
It might not make.
More sense, but the question will always come back to.
I'm always open to any ideas that are going to drive more business results on better business results and my starting point for more and better business results selling more cokes and co products.
Our next question comes from Bill Chappell from <unk> Securities. Please go ahead. Your line is open.
Hey, good morning, everyone. This is evenly angle on for Bill Chappell.
Yeah.
Can you help us understand the ultimate goal of the marketing campaign, comparing regular coke and Coke zero is there.
The expectation that Coke zero, maybe bigger than regular coke in North America within the next five years. Thank you.
That's a simple no.
Yes.
Hum.
Im not sure Theres anywhere in the world that Coke zero.
Is bigger than.
The code there are certainly some countries in the world, where the combination of diet Coke.
Coke zero sell approximately the same as Coke classic.
Indiana Coke is a great franchise.
Make available the classic version that Coke zero sugar version.
And we invite consumers during the one that best suits them, we are not trying to.
Pre determine the mix structure, we're trying to offer the alternatives to get the invite the consumers into the franchise, but but no specifically I don't expect Coke zero is my oversight.
Classic in North America.
In the short term.
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.
Thank you operator, well just to summarize obviously, we're very pleased with our first quarter results.
And while that clearly more clouds on the horizon.
Strategy is intact, and we are well equipped to execute and invest for sustained growth.
Thank you for your interest your investment in our company and for joining US This morning.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
Okay.
Okay.
Yes.
Okay.
Yes.