Q3 2022 Coca-Cola Co Earnings Call
Macroeconomic cross currents continued to impact the operating environment the.
The conflict in Ukraine is ongoing which creates challenges in that country and beyond and we saw renewed pandemic related mobility restrictions in China.
Inflationary forces are driving costs pricing and interest rates higher resulting in currency volatility in many parts of the world.
Against this backdrop, our industry remains healthy and is growing both in value and volume which continues to include some benefit from cycling COVID-19 related impacts of the prior year.
In the third quarter, we delivered strong organic revenue growth across all operating segments.
This was driven by pricing actions and robust volume growth.
We had share gains overall and across most categories as well as within both at home and away from home channels.
We accomplished this by investing in our business and providing the right portfolio of brands and packages to retain consumers.
Notably we drove revenue growth ahead of transactions growth, which is also ahead of volume growth in the quarter, reflecting the strength of our revenue growth management capabilities.
Consumer elasticities in core categories have continued to hold up well.
We are leveraging our consumer centric marketing model and increasingly using digital engagement to link consumption occasions with passion points.
Our system has never been stronger and our global network model is allowing us to leverage the vast experiences of the systems leaders from various parts of the world.
We are increasingly sharing learnings and generating faster responses to a changing environment through the right mix of local relevance and scale.
Now recapping the third quarter performance across the world.
Starting with Asia Pacific.
In India, we continued the strength from the first half of the year as we gain share in sparkling soft drinks.
Trademark coke delivered strong growth through effective execution and occasion based marketing.
Year to date, we drove approximately two 5 billion transactions at affordable price points through the expansion of returnable glass bottles and single serve packages.
Sprite has grown to become a $1 billion brand in the market driven by the success of locally adapted occasion based global marketing campaigns.
Heat happens and screen time.
In Japan, we.
We continue to strengthen our business admits in inflationary environment in the country for the first time in many years, we took price increases in large PT packages.
Through intelligent innovation on smallpox, we gained value share transactions and household penetration year to date.
Additionally, we continued our strong share gains in vending in the quarter and we expanded our leadership position in E Commerce.
In China, we grew volume in the quarter and achieve strong growth in sparkling soft drinks during the summer selling season admits varying levels of pandemic related mobility restrictions.
We focused on digital to unlock new opportunities, we deployed fans festival, a drink scan wind pilot scale, which drove widespread brand exposure and connected consumer traffic to more than 30000 outlets.
We remain focused on executing our GM strategies to drive outlet expansion and increased key SKU availability.
In ASEAN and South Pacific, we saw strong volume and transaction growth across most markets.
Driven by new product launches and continued recovery in away from home channels.
We saw significant top line improvement in sparkling flavors for most markets driven by us, Brian Lemon, plus and Schweppes soda zero sugar innovations.
In EMEA.
European consumers continue to experience inflationary costs, we leveraged our GM strategies to drive away from home single serve mix and retain consumers and delivered value share gains across most categories.
Our system has delivered top tier incremental retail value for customers year to date, the second year in a row.
We accelerated digital engagement with more than 4 million connected consumers year to date.
In Africa, despite the macro environment remaining challenging regained volume and value share.
We focus relentlessly on excellence in execution and reduced retail out of stocks.
We've built sustainable customer engagement and more than 80000 points of sale year to date through our customer loyalty partnership program.
In Eurasia, and Middle East, we remained resilient amidst an unprecedented inflationary environment in many markets.
And some supply related disruptions.
Our cross market launch of fee for Activations and the fantasy Fest campaigns were key enablers of growth.
With strong focus on execution, we placed over 50000 coolers and have gained availability and 33000 new outlets year to date.
In North America, we drove volume and value share gains through strong core sparkling performance complemented by robust innovation, a music led experiential marketing despite intermittent supply chain challenges.
Smartwater growth was strong during the quarter and innovations like Coca Cola creations and minute maid, <unk> continued to expand and exceed expectations.
Coca Cola value bundle, a collection of core sparkling offerings, providing more choices to cost conscious consumers is helping to retain and recruit more consumers, while creating value for our customers.
In Latin America, we leveraged connected experiences and strong execution to drive top line growth and sequentially improve on our share losses.
We strengthened our connections with east through music, leveraging the Coca Cola marshmallow flavored to stream rock in Rio across the continent.
Through our Jem initiatives, we focused on single serve package growth to drive transaction growth.
Alignment with our bottling partners remains strong and our joint market initiatives are ensuring our focus on accelerating growth.
In global ventures, we witnessed robust volume growth.
However, overall cost performance was impacted by a dynamic operating environment in the UK along with investments in the marketplace as we expand internationally.
China ready to drink value share grew with the strong performance of innovations like Costa choppy and out coffee.
Ready to drink in Japan is also delivering strong performance supported by sampling in store execution and the launch of caramel Latte.
Finally, our bottling investments group delivered strong volume and top line performance driven by a focus on affordable entry pack expansion across all markets.
Additionally, we are driving availability and efficiencies and cost to serve.
As we look forward beyond this year, we continue to see great opportunity for our industry.
We are allocating resources in a disciplined way to gain share.
Success from our marketing model is based on two critical components linked.
Linking occasions, and passion points to drive engagement and leveraging experiments to optimize our marketing.
This drives deeper connections with consumers, reaching them in new and unique ways.
The launch of the believing his magic global campaign for the FIFA World Cup celebrates the passionate journey of soccer fans by unveiling a suite of digital experiences that capture the full extent of fans devotion to that love teams the.
The campaign includes the FIFA World Cup Trophy tool as well as a digital hub called Coca Cola, FEMSA, which creates impersonal opportunities for fans to come together to trade Panini stick is behind the Coca Cola labels.
This campaign has already led to a gain of more than $3 5 million consumers with direct engagement.
Building on our digital experiments, we also announced a strategic partnership in six countries with grab southeast Asia's leading connected app.
This builds new consumer connections and offers a new level of convenience.
Through a mix of offline advertising on the graph fleet online advertising and the grab app gamification and product sampling we are building more purchasing occasions to grow demand for at home consumption.
Our innovations have delivered strong results with more than 25% contribution to incremental gross profit year to date, our innovations span markets and categories with 55% of year to date innovations outside of the sparkling category.
Our pipeline is robust and we are excited about the unique consumer propositions.
For example, Coca Cola creations is providing bold on trend flavors designed to build buzz with younger consumers.
Ready to drink Costa offers new and exciting flavors with authentic rich coffee and milk taste.
We are also excited about the potential for Jack Daniels, and Coca Cola ready to drink, which will launch in Mexico in the fourth quarter and is coming to additional markets next year, including the U S. In the spring through our agreements with Brown Forman.
This will give consumers a convenient way to enjoy the world's most popular barco.
Our innovations are designed with scalability in mind to further support our growth portfolio.
We expect inflationary pressures to continue so we're leveraging all the levers of our GM at our disposal, including price promotional intelligence and proactive mixed management.
Our GM capability is mining insights such as consumer motivations, as well as category and customer opportunities, giving us a precise approach to package placement and promotional investments.
This drives trip conversion and value growth for customers for example.
In Japan, we are seeing strong results from our segmented approach instead of a key 500 MLP T. Pak for FEMSA, we now sell one smaller 350 MLP to APAC for on the go and one larger 700, MLP Deepak for home occasions.
This dual pack strategy has increased beverage incidents by 9%.
In Q3 retail value transactions and market share were all up for these packages.
Our system is investing to grow our execution footprint, adding to what was already pervasive distribution, resulting in availability of our products and nearly two thirds of all outlets globally.
Yeah.
These strong results are clear proof points of what is possible when our alliance system leans forward for growth.
Underpinning all of this work is our purpose to refresh the world and make a difference.
Sustainability remains an integral part of our business and strategy and is a key driver of future growth and business resilience.
While we have made progress towards our world without waste goals, we remain committed to do more and faster. So we can grow our business the right way.
We are continuing to partner with other businesses Civil Society and governments to support cooperative action on this critical issue.
During the quarter, we played a leadership role and helped launch the business coalition for a global plastics Treaty convened by key partners. The Ellen Macarthur Foundation and World Wildlife Fund alongside other private sector companies.
We are also continuing to take steps to help drive the circular economy by making apples more eco friendly.
In North America, and Latin America, Brian has shifted all of its <unk> packaging from green to clear improving the efficiency of recycling systems and increasing the availability of food grade RPT.
In Vietnam, We launched Coca Cola bottles made from 100% recycled plastic excluding the cap in the label. We now have more than 30 markets, where we offer at least one brand and 100% RPT package with similar launches planned in additional markets next year.
In an operating environment that increasingly towards more variables into the equation that we've seen in the past we are focused on delivering and executing for growth. We are encouraged by what we're seeing in the business. We are committed to expanding the circumference of what we can control by delivering world class marketing. This.
And innovation excellence and revenue growth management, and laser sharp execution in the marketplace with that goal of operating at a higher level through these challenging market conditions.
We are doing this with capable and align bottling partners around the world.
Combination of strong loved brands and a pervasive distribution system is a formula for resilience in times like these and we are pleased to be raising both our topline and bottom line guidance today with that I'll turn the call over to you Jonathan.
Thank you James and good morning, everyone today I'll comment on our third quarter performance.
And provide considerations for our updated guidance to this year.
I'll also provide some early commentary on 2023 and what actions, we're taking to drive top line led growth equation to navigate this dynamic environment.
We are encouraged with the continued momentum of our business.
And we delivered another set of strong results in the third quarter.
We grew organic revenue 16%.
Unit cases grew 4% with broad based growth across most operating segments and.
And targeted investments in the marketplace.
Concentrate sales were in line with unit cases for the quarter.
Our price mix of 12%.
Was driven primarily by pricing actions across the operating segments.
Along with 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 190 basis points versus the prior year.
The underlying margin compression was approximately 60 basis points.
With the rest of the impact coming from currency headwinds driven by the volatile macro backdrop.
And the mechanical effect of consolidating the body armor finished goods business.
We significantly stepped up our consumer and customer facing investments.
To support our robust marketing agenda and strong innovation pipeline.
Notwithstanding higher costs and continued investments in the marketplace, we expanded underlying operating margin by approximately 100 basis points driven by strong topline growth.
Comparable operating margin, however, compressed by approximately 50 basis points.
Due to the impact of the body armor acquisition and currency headwinds.
Below the line, we benefited from a lower than expected effective tax rate for the full year.
All in third quarter comparable EPS of <unk> 69.
Grew 7% year over year.
This was impacted by 11 points of currency headwinds.
On cash flow, we delivered free cash flow of seven $3 billion year to date, driven by our strong business performance.
This was 14% lower versus the prior year, primarily due to 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.
Additionally, our net debt leverage is one eight times EBITDA, which is slightly below our targeted range of two to two five times.
As we look to the operating environment. There are clearly many variables at play today as James mentioned.
We are spending our topline and bottomline flywheels faster to fortify our business.
And managed through many types of environments.
And we're investing in the marketplace.
To create value for.
For our customers and consumers.
Given our strong results and the visibility we have for the rest of the year, we are raising guidance for the full year.
We now expect to deliver organic revenue growth of 14% to 15% and comparable currency neutral.
<unk> growth of 15% to 16%.
Based on current rates on our hedge positions, we expect currency to be a seven point headwind to comparable net revenues.
And a nine point headwind to comparable earnings per share for full year 2022.
We now expect an underlying effective tax rate of 19% in 2022.
All in we expect comparable earnings per share growth of 6% to 7% versus 2021, we continue to expect to generate approximately $10 $5 billion of free cash flow for 2022 through.
Drew approximately $12 billion in cash from operations less about $1 5 billion in.
And capital investments.
There are some considerations to keep in mind for Q4 that we factored into our full year guidance.
There is an additional day in the fourth quarter. However, we expect concentrate sales.
To end the year in line with unit case sales.
We are investing in consumer facing marketing to get a fast start for next year.
Lastly, given the backdrop of rising interest rates, we expect to see an impact on our interest expense given our effective exposure to floating rate debt.
Environment remains volatile and while we are preparing for many futures in 2023, we did want to share. Some early considerations for next year based on what we know today.
We are encouraged by the momentum in our topline and we leverage our capabilities to sustain topline growth.
With the ongoing inflationary backdrop as.
As we look to our cost outlook, we expect global inflation to continue to impact our expenses across the board and commodities to remain volatile.
We benefited from hedges in our commodity exposure this year and even though some of the commodities have started to come off their highs. We expect another year of elevated inflation on a per case basis next year.
We estimate the underlying effective tax rate to be 19, 5% for 2023.
Regarding currency, if we were to assume current rates on our hedge positions there would be an approximate 5% to six point currency headwind to comparable net revenues.
And an approximate seven to eight point currency headwind to comparable earnings per share for full year 2023.
However, given the amount of volatility in the currency markets. This.
This initial view could change when we come back to you for the fourth quarter call in February .
Okay.
We are committed.
To delivering top line led growth.
And we remain focused and confident in our ability to achieve our three key objectives.
Investing for the long term health of the business.
Winning locally and.
And generating U S dollar EPS growth.
We are pleased with our results so far.
The visibility to deliver on our updated guidance.
Creating value for our shareowners through.
Through strong topline growth.
Cash flow generation and dividend growth.
Our strong system leadership and the tremendous ongoing commitment of our people around the world gives us confidence.
We will continue to deliver sustainable results and the year ahead.
With that operator, we are ready to take questions.
Ladies and gentlemen ask a question you will need to press star one on your telephone withdraw your question Press Star One again and test of time, we ask that you. Please limit yourself to one question.
If you have any additional questions you may reenter reenter the queue. Our first question comes from Bryan Spillane from Bank of America. Please go ahead. Your line is open.
Thanks, operator, good morning, everyone.
So I guess John wanted to just pick up on your commentary about 'twenty three we got this question a bunch this morning about.
Dollar earnings growth next year, So just want to clarify in your comments and those three objectives does that apply to next year kind of based on where you sit now and then maybe if you can just talk about some of the trade off.
With regards to delivering on dollar earnings growth given all of the dynamics that are going on in the marketplace.
Thanks, Brian .
Yes, those comments were very much related to next year.
We do see a path to generating.
U S dollar EPS growth next year.
Clearly theres a lot of variables in the equation.
And if anything is even more variability with some of those variables.
We've talked a lot about our strategy is to is to leader.
Our sustainable equation from the top line.
We continue to have confidence in the momentum that our business has to continue that momentum.
The cost outlook does remain more elevated than we are used to.
<unk> got a higher a higher revenue higher cost algorithm.
We are we're looking to to manage going into next year I think the work we've done over the last couple of years to build flexibility.
To be able to adapt quicker than perhaps we have done historically to to.
The changes in the markets around us.
We we take on board and will continue to drive and with that we have.
We've given the guidance are the considerations for next year.
Yes.
Very focused on finishing the year strong.
Starting fast and being able to deliver on those three objectives.
Our next question comes from Dara <unk> from Morgan Stanley . Please go ahead. Your line is open.
Hey, guys.
So obviously another set of strong top line results in the quarter. You also mentioned the underlying top line momentum in the release when thinking about 2023. So just wanted to get a bit of an update given the external environment. There's obviously a lot of concerns around weaker consumer spending in some of the pressure point.
<unk> out there.
See anything towards the end of the quarter or so far in October that will give you any cause for concern and as you think about these much higher than typical levels of pricing are you seeing any sort of changes in consumer volume demand elasticity that pricing.
<unk> affordability and therefore, the accessibility of our categories for those consumers that are under pressure on of course backed by excellence in execution.
On generating value for retailers by our system.
That will help us get through get through what is likely in all likelihood going to be a tighter situation for the next.
For the consumer is one of the core pieces of our GM, it's about extending the price rather than in a recessionary times about making sure the entry price point, whether it would be on the larger packs or on the smaller packs becomes.
As.
Low down in the price spectrum, the actual out of pocket as possible as I talked about in the last answer one of the recession behavior is tends to be to try and reduce the dollar outlay of the basket and therefore, the price point becomes even more important than the price.
Later, and so around the world that's absolutely what we're pursuing whether it's.
In the U S having.
Having smaller bottles.
Or smaller multi packs of less less less cans for multi pack or the example, I used.
In Japan, where we took the 500 ml and split it into $3 $50 and 700 of course around the world in a number of countries, we leverage our capabilities with returnable bottles, given the economics of returnable.
Particularly in the developing markets that is a way of generating a lower price point because of course in effects you don't pay for the packaging because it comes back again.
And so those returnable bottles.
We refill our way of bringing the price points down on keeping the consumer.
In the category and so it's a well developed scale around the world.
<unk> share a lot of learnings between themselves on how to think about.
The technology of our gem.
And that allows us to leverage it to its maximum particularly in times like these.
Our next question comes from Steve Powers from Deutsche Bank. Please go ahead. Your line is open.
Thank you very much.
I guess just to drill a little bit further into the path to dollar based EPS growth next year.
Clearly as we stand here today and there are a number of headwinds to overcome.
You've outlined it quantified some of them between FX and interest expense underlying inflation.
Higher year over year tax rate next year, I guess what I'm.
Trying to unravel as how dependent is the path to dollar based EPS growth next year on the continued topline momentum that you've been you've emphasized today.
<unk> are there other are there other levers that you can you can look to whether that's paring back a bit on marketing investments and the innovation.
Agenda investments or or just doubling down on productivity I guess.
Question I'm asking is underneath.
From an underlying perspective is it.
B, how dependent are you on that top of momentum continuing versus there being other levers that the company can.
Good luck to you.
The simple answer Steve is with.
Barry dependent on top line momentum.
In the sense that we are going to continue we believe barring something very unforeseen.
This site, we believe we're going to continue to invest for the long term health of the business.
And that's going to drive top line growth as it has.
Just for the sake of the argument if you take the five year CAGR of revenue through all the ups and downs of Covid and everything in round numbers, it's trending at 6% compound for the last five years.
Reserving and sustaining top line momentum.
Is actually the key starting point of course, if there are parts of the world where circumstances do not merit.
Continued high levels of marketing investment and there's reasons to pay it back then as John mentioned earlier, we absolutely will lean on our increased.
<unk> of agility and adaptability to make those adjustments.
In the moment.
And similarly with any SG&A.
The predominant drivers again is going to be the top line, we will manage.
The other elements of the P&L based on the local markets I don't think its our expectation that this is going to be like the second quarter of 2020, where everything stopped everywhere at the same time.
<unk> also be pressures.
Likely that they are spread out over time.
So the predominant modus operandi will be leaning to growth invest for top line growth and then yes, we expect at times different markets.
<unk> kind of have to yes.
Optimize the marketing, but on an overall basis its topline momentum driven.
Our next question comes from Nik Modi from RBC capital markets. Please go ahead. Your line is open.
Yes. Thank you good morning, everyone.
So James I was wondering if you could just comment I saw some of the organizational priorities that came out of the U S Bottler meeting.
I was hoping just linked to the <unk>.
Topline momentum comment if you can provide some context on other markets in terms of organizational priorities, whether it be some of your larger markets like in Japan, or Western Europe , or Latin America, maybe you could just share some thoughts on how.
Are you thinking about key initiatives in those in those regions.
Oh sure.
<unk>.
Let's start with let's start with Japan.
Clearly in Japan, we're very focused on the marketing and innovation it tends to be a market is very driven by.
Engagement with the consumer.
Also important in Japan.
Perhaps multiple decades.
<unk> not taking price we have taken price on large packs.
In Japan in the third quarter actually in the fourth quarter, we have been taking pricing on immediate consumption packaging in Japan. So I think we're going to see.
An opportunity to lean a little more on the <unk> lever.
In Japan as we as we continue to engage with the consumer there.
In Western Europe .
Clearly the basic strategy of.
Investing in marketing investing in innovation, leveraging our GM and driving in store execution and value for our retailers has been working western Europe as we go into.
The winter and going into next year, that's still going to be the push we make.
The bottle has a great momentum and execution of course Europe is wet.
That's more of the developed world inflation.
Think commodities plus the devaluation of the euro so that's feeding through and so we're likely to have to lean heavier on all GM in Europe in the next.
12 months backed up by the marketing innovation and execution.
And then Latin America.
A lot of work over the last number of years with.
The long term relationship model.
Bottlers there have have good momentum clearly, it's one of our strongest regions, we lost a little share in the bit in the beginning of the year. They are very focused on getting that back obviously, starting from a high bar.
And I think perhaps overall it would be worth commenting that obviously in Covid. We took a number of what were difficult decisions at the time slimming down the portfolio changing the marketing models changing.
The organizational model the company, we got that done and stood up and I think now we are reaping the benefits of.
Both being able to drive growth with a more agile organization ourselves combined with.
No really strong and aligned bottling partners, we've driven growth this year and we're well set up for next year I mean, just to capital we have a global system top talk with a number of the bottlers a few weeks ago on I think everyone is ready and energized for what's ahead.
Our next question comes from <unk> <unk> from Credit Suisse. Please go ahead. Your line is open.
Hi, guys. Good morning can you talk a bit about fixed versus floating debt and how that might.
Impact both your cash balance and your interest expense.
The coming year.
Sure.
Thanks for the question, Yes, we are.
Manage our funding.
With an eye towards liquidity risk and.
Yes, with a multiyear lens and have done that for for many years with through Covid I think we've talked about.
We've pushed our.
Edge of our debt out number of years.
<unk>.
And we do have a mix of fixed and floating most of the floating is in is in euro.
And so we will we will wait and see.
What are the ECB does over the coming months to have.
The clearer picture on on the impact for 2023.
But I think it's it's an area that will provide more detail on in February are subject to.
Yeah.
Development.
By the fed here and by ECB over the coming months.
Our next question comes from Bonnie Herzog from Goldman Sachs. Please go ahead. Your line is open alright. Thank you good morning.
I can have a question on your commodity inflation, John you touched on this but hoping you could help frame the commodity inflation expectation next year, you mentioned another year of expected growth.
Is it realistic to expect this growth might be more modest versus this year, possibly in the mid single digit range given some of your commodities, peaking as well as hedges you have in place and then I guess I'm asking in the context of the pricing environment and whether you think it's likely that ongoing price increases maybe you wont need.
To be as aggressive and when you might actually see a step up in promotional spend to ensure.
Price points for consumers are affordable and then if so is it realistic to expect a better balance between price mix and volume growth next year. Thanks.
A lot of questions on it.
Let me, let me start with the with the commodity point.
<unk>.
Our outlook for for the year ahead as I said at the I think in answer to the first question. There are a lot of variables in that equation and.
And data the variability with some of them is.
Maybe even broader.
When I think about the cost environment, not just the commodity environment I think about both our commodities the commodity pressures that we have with within our business.
And the non commodity pressures that we have.
And so.
As we as we look at 'twenty three on the commodities front.
We are rolling off some some fairly favorable hedges that we were fortunate to have this year.
And it.
It's still in our mind is still unclear as to.
Commodities will trend over the next six to 12 months. So we'll have more visibility on that when we get to the call in February with regards to the non commodity items.
Within that you've got a.
A bucket of different stuff.
Trace logistics.
Transportation and our finished goods models.
Overall wage environment.
You have to take into account that the wage environment is is not the same everywhere.
Indirect impact.
Impacts on supply chain pressures as we think about the supply chain. It's important to not just have efficiency as a metric. We also need to make sure that we have.
Continuity, we have for the short and longer term and I'm going to have to manage many of the pressures that I think we've talked about on previous calls manage those effectively so.
There's a lot going on inside of the cost of goods line and hence I think it's better for us to just provide you with how we're seeing is overall and we'll come back in February with with more specifics and to your second question.
Ongoing price increases I think it links back to some of James's comments earlier.
Yes.
Name of the game is to optimize our revenue equation over the next 12 to 18 months.
That's going to be a combination of smart pricing.
Understanding the mix.
From a channel and package perspective.
<unk> been able to utilize the many levers that we have inside of the.
<unk>.
<unk>.
Toolkit.
Authors have so.
Again, I think at this stage.
It's still early to say what the exact numbers will be for each of those topics.
But I think the broader point is the.
The topline momentum that we have we've enjoyed here today is that we see continuing to hold through the rest of the year is something that we expect to be able to generate into 2023.
Alright, thank you.
Our next question comes from Chris Carey from Wells Fargo. Please go ahead. Your line is open.
Okay.
Hi, good morning.
So just following up on that I think it's pretty well established.
Price mix.
Volume algorithm.
<unk> be more skewed to price mix next year again.
This can be for James or John but is it fair to assume that the rates of pricing is likely to be a bigger percentage of the price mix equation going forward as we.
The recovery in the away from home channel and some other channel mix dynamics and then just connected James it's been it's been harder to see the underlying rate of pricing this year.
Relative to the price of eggs can you just remind us your philosophy for the rate of pricing to track inflation and whether you believe your business is close to satisfying that objective today and perhaps how much room you have so thanks for that.
Yes, Chris.
I think yes, clearly it's likely that next year prices price mix will run ahead of volume.
In a similar way it has this year I mean, if our long term growth algorithm as assume a relative balance between price and mix.
<unk> clearly at the moment, we're in a period, where there's more price mix. In there is there is volume and that seems that seems likely to continue into.
Into next year.
It is also true that this year there has been some benefit from the channel mix on the reopening.
The reopening benefit that was obviously a reopening cost in the previous year.
Price mix is now largely largely done.
And so that kind of tailwind won't be the last next year.
Are all the channels away from home completely reopened no.
But the remaining kind of sliver is either a function of closed outlets or something that's going to take a while to come back and of course some of the mobility restrictions.
In places like China, which I think also won't snap back.
Back.
Certainly in the first half of next year, so the away from home component of price mix won't be the tailwind.
Next year and so in that sense, yes, we will be very much back to it's all about what the right and what's the benefit from all the <unk> strategies.
<unk>.
Whether to drive affordability or to offer premium.
<unk> or package sizes.
That's what will be the primary driver going into next year.
The next question comes from Andrea Teixeira from Jpmorgan Chase. Please go ahead. Your line is open.
Thank you. Good morning, So I was I wanted to go back to John's comment ongoing EPS in dollar terms next year.
And along with that James you mentioned that you were looking at pricing above algorithm, which makes sense, but given the volume elasticity I was just hoping if you can comment.
In general as we stand right now that operating income would probably grow faster than any PFS in order to absorb some of the.
Unfavorable hedges and then in the financial expenses is that the way we should be thinking of next year to a more muted to EPS growth for you still think you can grow.
Buffalo single next year and EPS.
So Andrea Thanks, I'll take that.
As we said on the earlier I think it's too early to get into and to those specifics for next year.
I think the way to think about the year ahead as is I think it's going to be another year.
Out of our typical algorithm.
We continue to to build greater visibility around.
We expect them to predict in the first half of the year when we'd be looking for that first start.
What each line item of the income statement looks like.
It's just too early we'll we'll come back in February .
With that detail.
I think the key takeaway is that as we sit here, we do see a path.
Generating U S dollar.
Growth in 2023.
As I said earlier, there's many variables to.
Bring that Pat.
To fruition.
Yes.
We know that the.
It really top line driven.
Smart investments.
And.
Effective management of our cost structure those three wells.
We'll deliver.
And below the operating income line.
Is that does that still needs to play out in the next few months to give you.
A clearer picture on what to expect and would come back in February with that data.
Thank you.
Our next question comes from Carlos Laboy from HSBC. Please go ahead. Your line is open.
Yes, good morning.
Some of the benefits of the new law.
And American <unk>.
Our obvious like faster revenue growth higher ROIC.
For the bottlers consistent really.
Clarity of profits.
But can you expand on some of the less obvious but important benefits.
Okay.
That are important regions.
Sure.
Thanks.
I mean, clearly this is a.
A feature of particularly the Latin American system.
We're using a similar models.
Conversations around the world.
Builds on many years of working together collaboratively collaboratively in Latin America, and then other than some of the features that you mentioned.
I think what's really.
<unk>.
Less visible perhaps it's.
<unk> is its ability to speed up the rate at which actions or decisions and actions are taken by that by the system.
So it has provided a stimulus.
To really focusing in on getting to grips with some of the nausea problems and to moving with speed.
Simplifying the decision, making progress on a whole series of areas.
Particularly those that have been kind of slow historically some of the stills business models come to mind.
Secondly, as it relates to Latin America, and that will ultimately feed through.
Two as I said speed of decision, making which then is better marketplace actions, whether that be marketing innovation, our GMO or execution.
And I think the system in Latin America is very energized.
And building on the historic great position.
And set for further momentum going forward.
Our next question comes from Rob <unk> from Evercore ISI. Please go ahead. Your line is open.
Great. Thank you very much and terrific results.
I was wondering James if you could drill down a little bit more on what's going on in emerging markets and the emerging market consumer.
We were a little surprised by the results of China looking to be maybe a little bit more do a little better than we had modeled given given the lockdowns.
Some of the other emerging markets a little bit weaker than we would've thought so I guess the question is is our is.
Local competition a problem is it demand.
Is it too much pricing and obviously it depends market by market, but if you could give us some <unk>.
Or what is going on in the major emerging markets that would be helpful. Thank you.
Sure I am not sure ones, which ones youre, putting in the buckets of Waco, but let me do a little walk around some of the emerging markets.
We had we had good results we feel.
In China for the quarter I mean, we.
We had.
Good growth overall.
For China, notwithstanding some of the mobility restrictions that came into a whole raft of of <unk>.
Cities.
China remains a good long term opportunity we have a good business that good bottling partners.
And there was some resilience to the business.
<unk>.
In the quarter.
Just keeping with the in the Asia, <unk>, India had a knockout quarter.
Clearly they are having a very strong run this year lots of growth.
In India really powering forward very very pleased with that.
Looking of course to extend that into the future probably won't be a straight line.
Certainly looking to continue to invest strongly.
In India.
Rest of ASEAN, there were some pluses and minuses, but generally positive.
If I switch to Africa.
Africa.
You've heard me talk in the past that it's always it's always a rollercoaster there was a little bit of a roller coaster.
In the quarter.
But overall, we had good growth in those markets we were focused on.
There was growth.
It was ultimately pretty broad based whether that was south Africa or elsewhere.
It would be worth noting that this quarter remember we made a switch in our franchise partner in a number of territories across Africa.
So we brought to a close our relationship with Pgi, the cast El group and a whole raft of our African markets.
And some of them we had partner is ready to go and some of them. We're still working on it. So there is a transition loss of volume in those ex BG.
Territories, where we see that that partnership and so that weighs on the Africa number.
And then as you as you keep going around the world obviously.
Latin America had a good quarter.
And then I think the last one I'm I'm really missing is is a bit of Eurasia and there we had a pretty decent quarter, we had growth.
In Turkey, which is an important market to us on a number of the central Asian markets in the middle Eastern markets.
Obviously, those those ones that are tend to have.
Tend.
<unk> tend to have resources or oil exporting countries tend to have done better than the heavily oil importing countries.
The middle East is better than Egypt.
Of course remember that the EMEA numbers have the dropout of the Russia business.
Our next question comes from Charlie Higgs from Redburn. Please go ahead. Your line is open.
Hi, Jamie Jon Thank you thanks, Rob.
Where are you in now into the <unk> formulation of.
<unk> zero sugar and to cap it off.
Volume growth and double digit growth in developed markets Jamie.
James I was wondering in your opinion.
Zero.
Since the relaunch and then also just looking into 2023 is your approach to innovations changes. So we think we can and so if we can make the consumer environment. Thank you.
Yes, sure looks Super happy with Coke zero sugar.
We have been investing behind it for.
A good number of years and have been driving double digit.
Coke zero sugar volumes for many years in a row, and obviously, that's getting really material, including <unk>.
Strong double digit growth in the U S. So very pleased with the reformulation update of.
Of course, we continue to bring new marketing and new innovation to Coke zero sugar is.
To be a big focus of what we drive going forward.
Innovation as it relates to 2023.
Yes, there will be a kind of a bias shift in the mix of the innovation for 2023.
One of the imperatives remains affordability and to kind of anchor price points.
At the low end of the actual dollar outlay, then clearly package innovation takes a bigger role in that sort of environment, whether it be smaller packages, whether it be the returnable packaging big investments going in by the bottling system in returnable packaging to help the affordability strategy.
So.
In a kind of purchasing.
Purchasing power pressured year for the consumer.
Expect expect innovation to be slightly heavier on the packaging side, particularly to drive affordability, but of course that will also have other sides of the coin which is to try and ensure they're awesome, perhaps more premium options for those that still have.
Plenty of disposable income not everyone will have exactly the same effect.
In this period.
Likely to say continued push for example in the U S on small cans or sleek cans, so really stretching out the pricing ladder not just putting all the beds on the affordable end.
And we will continue with the with the brand and the product innovation and I don't know if you went to the Max there was a lot of innovation on show the.
Because of the convenience store comp.
Conference for the North America.
There was a lot of innovation on display that both package and product.
And so that we will be approached.
Approaching 23, with a broad innovation agenda with some slight weighting to packaging to stretch on the price level.
Our next question comes from Peter Grom from UBS. Please go ahead. Your line is open.
Hey, good morning, everyone hope you're doing well, so I guess I wanted to circle back to 'twenty three guidance and I guess, what I'm trying to understand is the companys long term algorithm is largely embedded some operating leverage over time and maybe im just reading too much into this but there was just a lot of emphasis throughout the call today that next year will be top line driven year.
So I guess based on where things stand today should we expect underlying growth from a top line and operating profit perspective to be more in line versus what's embedded in your long term algorithm.
Long term algorithm again, I could be misinterpreting the emphasis but if that's correct it would be.
Imply very strong topline growth in order to deliver U S dollar EPS growth. Thanks.
Thanks for the question.
Just maybe to reiterate.
<unk>.
So the difference I think between the long term growth algorithm on and what may be coming at us over the next year or so I think it's going to be somewhat out of algorithm given the.
The various factors that we have discussed on the call and the data have discussed throughout the year or so.
At this point in time.
I think it is too soon to give you a line by line guidance.
But we continue to see a path to.
To generate.
S dollar EPS growth in 2023.
It will be will need to be driven by.
From the top line.
Cost pressures are there.
We're very aware of them.
We talked about the.
The currency outlook.
So we still think when you put all the pieces together that we have we have that path but.
Well, we'll have a lot more coming at us over the next three to four months.
And in February can give you.
More granular.
Breakdown of how we how we expect to get there.
Okay.
Our last question will come from Bill Chappell from <unk> Securities. Please go ahead. Your line is open.
Hi, good morning, and thanks for squeezing me in.
<unk>.
I guess a question on some of the competitive response or individual markets I mean, everything we've talked about today, it's certainly been positive and I guess any of the the <unk>.
Setbacks have been kind of attributed to macro issues are there any areas, where you're worried about where theres been a competitive response, where you need to step up be it on a product or an individual country or is it really just there's just so much momentum and anything else is just macro related.
It would be a particularly delusional positioned to take say I'm not worried about anything that way.
Barry with but clearly we have it's a competitive industry that a lot of good competitors big and small so we absolutely are.
Worried what theyre up to.
We always take it from satisfying the consumer and the retailer point of view, we're not chasing the competitors with chasing the consumers and the retailers.
And certainly we could point to a set of things with competitors have done well in that kohl's attention to us.
Whether we are really doing everything we can to satisfy the consumer or the retailer I think one obvious example.
As in sports drinks advanced hydration in the U S.
Where this year our.
Our competitors coming off having a whole series of supply chain challenges last year.
And that's we had a great year last year and without a not so great year. This year and we're also obviously in the transition of taking out of a body armor, but the U S bottlers.
Arianna jazzed about the body armor and power rate plans going forward a lot of innovation on the brand on the product on the packaging setup. So.
So we will be back I mean, but it is what guides us as always satisfying the consumer and the retailer.
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, so just in summary third quarter results I think exemplify, how we're executing and winning in the marketplace.
It's been driven by the what we've done as a system on the transformation we've gone undergone over the last few years.
We are a more resilient business and we're committed to delivering long term value for our shareholders and stakeholders. 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.
Hum.
Yeah.