Q4 2022 Coca-Cola Co Earnings Call
Speaker 2: Let's call.
Speaker 3: Today's call is being recorded. If you have any objections, please disconnect at this time.
Speaker 3: All participants will be on listen only mode until the formal question and answer portion of the call.
Speaker 3: I would like to remind everyone that the purpose of this conference is to talk with investors and therefore questions from the media will not be addressed.
Speaker 3: Media participants should contact Coca-Cola's Media Relations Department if they have any questions.
Speaker 4: I would now like to introduce Mr. Tim Leverage, Vice President of IR and FBNA. Mr. Leverage, you may now begin. Good morning and thank you for joining us. I'm here with James Quincy, our Chairman and Chief Executive Officer and John Murphy, our President and Chief Financial Officer. We post this schedule under financial information in the Investor section of our company website at Coca Cola.
Speaker 4: provide an analysis of our growth and operating margins.
Speaker 4: In addition, this call may contain board looking statements, including statements concerning long-term earnings objectives, which should be considered in conjunction with cautionary statements contained in our earnings release and in the company's periodic SEC reports.
Speaker 4: Following prepared remarks, we will turn the call over for questions.
Speaker 4: Please limit yourself to one question. If you have more than one, please ask your most pressing first and then reenter the queue. Now, let me turn the call over to James.
Speaker 5: Thanks Tim and good morning everyone.
Speaker 5: 2022 was a strong year for us.
Speaker 5: We executed well and grew amidst a challenging macro-environment.
Speaker 5: We did this in part by focusing on expanding the sphere of what we can control.
Speaker 5: We delivered on our top line and bottom line guidance and we continued to create value by investing in our loved brands even as we faced a very dynamic backdrop.
Speaker 5: Today, I'll reflect on our fourth quarter and the year's performance and set the stage with 2023. I'll also share how we're operating differently today, which makes us confident in our ability to deliver our 2023 guidance, and well equipped for a future that continues to be volatile and uncertain.
Speaker 5: John will then discuss our results in our 2023 Outro Kim Moti Hotel.
Speaker 5: During the fourth quarter, the EVAR remained dynamic as inflation, to your political tensions, pandemic-related medibility restrictions and currency volatility persisted.
Speaker 5: Despite this range of factors, consumer demand held up relatively well and our industry remains strong. In the fourth quarter, we remain focused on our growth strategy and continue to create value for our consumers and customers.
Speaker 5: We maintain the jealousy to navigate this challenging environment and deliver 15% organic revenue growth in the quarter with strong growth across operating segments.
Speaker 5: This was driven by pricing actions across markets and revenue growth management initiatives to retain and add consumers.
Speaker 5: While we saw robust volume growth across many markets, this was more than offset by the suspension of our business in Russia, and the impact on consumption, driven by varying levels of pandemic-related mobility restrictions and the surge in COVID cases in China.
Speaker 5: Overall, throughout 2022, we have maintained consistent volume growth relative to 2019.
Speaker 5: We've gained both volume and value share for the consolidated business for both the quarter and the year.
Speaker 5: So far in 2023, the volume growth trends versus 2019 are in line with last year, and we are laser focused on executing on our growth plans.
Speaker 5: Our streamlined portfolio of global and local brands and stepped up consumer facing investments continue to fuel the competitive edge of the Coca-Cola system to deliver value in any environment.
Speaker 5: Our networked organizational structure enables this strategy. We've connected our operating units, our functions, and our platform services organization for strong end-to-end coordination.
Speaker 5: which helps us identify key opportunities for meaningful long-term growth.
Speaker 5: And on top of this, we remain well aligned with our bonding partners which further build on our strength as a network system.
Speaker 5: As we look to 2023, many uncertainties remain in the macro economy, whether from economic policies, consumer demand, inflation, supply chain, war and geopolitics.
Speaker 5: Instead of trying to forecast and predict the many directions then could move.
Speaker 5: We are focused on delivering on our key objectives.
Speaker 5: Firstly, pursuing excellence globally and winning locally through relentless consumer centricity to continue the top line momentum.
Speaker 5: Secondly, investing for the long-term health of the business and raising the bar across all elements of our strategic flywheel.
Speaker 5: Thirdly, generating US dollar EPS growth to deliver value for our shareholders.
Speaker 5: We continue to build the right capabilities and strengthen the system alignment delivering a dynamic world and we continue to invest, raise the bar.
Speaker 5: We are executing more efficiently and effectively on a local level while maintaining flexibility on a global level.
Speaker 5: Throughout 2022, we saw many examples of harnessing our enhanced capabilities to win locally.
Speaker 5: and new marketing model is working. We've linked occasions and passion points to drive engagement.
Speaker 5: We're experimenting to optimize marketing.
Speaker 5: This is driving deeper connections with consumers reaching them in unique and new ways.
Speaker 5: We are tying our beverages to consumption occasions and engaging consumers through local experiences.
Speaker 5: For example, in Vietnam, to support the reopening of away from home accounts, we launched a pilot of Koky's cooking campaign in October . In this month-long campaign to help drive traffic back to stores, we part with more than 700 food shops.
Speaker 5: We created thousands of food and coke combo deals that consumers purchased at these food shops along with coke is cooking merchandising and digital support by local influencers.
Speaker 5: This was the first time we used an on-ground event as a commercial asset, creating a social and digital content generator.
Speaker 5: The campaign resulted in more than 1 million combo transactions and 20% uplift for participating merchants.
Speaker 5: We're leveraging passion points locally to create immersive experiences and drive consumption.
Speaker 5: For example, in Latin America, our live music strategy created memorable, impersonal and digital experiences elevating consumer engagement.
Speaker 5: We partnered with Rockin' Rio, one of the biggest music festivals in the world, and created new opportunities for consumers to access content through live streams and in the meta-births.
Speaker 5: As a result, we boosted our reach from approximately 700,000 attendees to more than 45 million consumers across the region, and our sales inside the festival increased 23% versus the last festival.
Speaker 5: In India, the thumbs up stump camp was a never-before-seen activation for cricket fans, where consumers could scan a QR code on product label and get access to exclusive match moments of the ICC T20 cricket world cup through a camera installed on one of the wickets.
Speaker 5: Throughout the 45 day tournament, we use first-party data and artificial intelligence to send personalized content to consumers based on their favourite matches and we amplify the experience through sports influences. This campaign should strong results with thumbs up growing volume ahead of our total sparking portfolio in India during the activation period.
Speaker 5: contributing to strong volume growth for thumbs up for the full year.
Speaker 5: This drove about one quarter of India's total volume growth of the year.
Speaker 5: Thumbs Up also experienced its highest monthly market share jump during the activation period.
Speaker 5: We are driving consumer interest at action through digital experiences using the power of partnerships across platforms.
Speaker 5: For example, in Germany we partnered with our key online customer and created voice-based branded experiences with its voice assistant to drive engagement and grow positive brand perception.
Speaker 5: This allows consumers to learn more about cover color products and shop on voice assistant enabled devices using only their voice.
Speaker 5: The campaign delivered strong results with a reach of 11 million impressions.
Speaker 5: Additionally, consumer's engage with this voice-based experience out of 25% add to car
Speaker 5: And lastly, we're delivering you an unexpected innovation by leveraging Gen Z insights. In the US, we launched MinuteMade Agro's Frescas.
Speaker 5: The product is made with real fruit juices, is non-carbonated and comes in three exciting flavors.
Speaker 5: It was originally available as a limited launch is 16 hours ready to drink cans
Speaker 5: A disruptive end-to-end digital media marketing campaign created early momentum.
Speaker 5: which led us to quickly scale this experiment to have freestyle platform and other fountain offerings.
Speaker 5: In 2022, the product had a 60% repeat rate and won the Best New Product award from Convenience Store News.
Speaker 5: We have been building our revenue growth management and execution capabilities for many years and we've made good progress as shown by our ability to offset much of the inflation we saw in 2022 and deliver strong volume and transaction growth.
Speaker 5: There is still much work to be done to maximize revenue but further segmenting our markets and consumers based on additional variables.
Speaker 5: We're leveraging digital and data back in science to better understand that consumers.
Speaker 5: This will help drive affordable propositions for basket incidence growth and recruit new drinkers.
Speaker 5: It will also lead to premiumization to drive price and mix.
Speaker 5: For example, in Europe we grew both volume and value share for the last year.
Speaker 5: We partnered with key customers to drive growth through affordability and premiumisation initiatives that tapped into the key consumption occasions of meals and breaks.
Speaker 5: This end-to-end execution resulted in higher basket incidents and buying households across all key channels in Europe .
Speaker 5: Globally, this strong system execution focus generated 80 million additional shopping trips for our products and added 17 million households to our base.
Speaker 5: Through our step-up capabilities, we are getting better at synchronizing demand creation and demand fulfillment, driving top-tier value creation for our customers.
Speaker 5: We measure success by the value we create for our stakeholders and by how we are creating a better shared future for people, communities and the planet.
Speaker 5: During 2022 we made progress across these sustainability priorities.
Speaker 5: We leverage our marketing path to drive growth of our low and no calorie beverages.
Speaker 5: and continue to provide smaller package choices to enable consumers to manage sugar intake. Approximately two thirds of the products in Apple volume have less than a hundred calories per 12 ounce serving.
Speaker 5: On packaging, we've set a new industry leading gold at 25% of our volume globally, being refillable or reusable packaging by 2030.
Speaker 5: Additionally, we are continuing to increase cooler energy efficiency and the use of HFC-free coolers to make progress on our science-based targets while creating a clear roadmap with our system and suppliers to achieve our carbon emissions reduction ambition.
Speaker 5: On water as part of our 2030 water security strategy, we stepped up investments in nature-based water solutions, exemplified by the work we're doing with the nature, concern, and other partners.
Speaker 5: Globally, we are working to strengthen the links between replenishment projects and nature-based solutions.
Speaker 5: We further embedded sustainability into our strategy by linking diversity equity inclusion performance measures to our Executive Annual Incentive Programme by linking water and our pet packaging measures to our executive long term incentive program.
Speaker 5: Overall, we continue to focus on using our leadership and scale to drive change while delivering results and building resilience.
Speaker 5: Finally, before I hand it over to John , I want to acknowledge that our strong results in 2022 reflect the collective efforts of our system partners and the growth mindset of our system employees.
Speaker 5: Guided by our purpose, we are investing behind our capabilities and further cultivating our growth mindset to be well positioned to create value and deliver on our objectives.
Speaker 5: While we have momentum in our business, we know uncertainty remains as we turn the page to a new year.
Speaker 5: We will continue to focus on expanding the sphere of what we can control to drive growth in 2023 and beyond. We will talk about this in more detail when we return to Cagney in person next Tuesday and we will encourage all of you to listen in.
Speaker 5: With that, I'll turn the call over to John .
Speaker 5: Thank you James and good morning everyone. In the fourth quarter we continue to drive strong top line lead results as we execute us for growth.
Speaker 5: and good morning everyone. In the fourth quarter, we continue to drive strong top-line lead results as we execute this for growth in a dynamic operating environment.
Speaker 6: We grew organic revenues 15 percent.
Speaker 6: Unit cases declined 1% as broad-based growth across most markets and investments in the marketplace.
Speaker 6: We're more than off-set by the suspension of business in Russia and a decline in China.
Speaker 6: Concentrate sales were three points ahead of unit cases for the quarter, primarily driven by one additional day and the timing of concentrate shipments. Our price mix growth of 12% was driven by pricing actions.
Speaker 6: across operating segments along with revenue growth management initiatives and favorable channel and package mix.
Speaker 6: Comparable growth margin for the quarter was down approximately 90 basis points versus the prior year, mainly driven by currency headwinds in a volatile macro backdrop and the mechanical effect of consolidating the body armor finished goods business.
Speaker 6: Underline growth margin was inline with the prior year driven by strong organic revenue growth offset by higher commodity costs.
Speaker 6: We continued to significantly accelerate our marketing investments.
Speaker 6: to engage and retain existing consumers as well as again new consumers.
Speaker 6: despite higher costs across the P&L increased marketing and currency headwinds.
Speaker 6: Comparable operating margin expanded 65 basis points for the quaver. This was primarily driven by underlying operating margin expansion due to robust top line growth across operating segments.
Speaker 6: Importantly, this resulted in a fully comparable operating margin, being in line with the prior year, despite significant currency acquisition and cost headwinds.
Speaker 6: Below the line we were impacted by higher net interest expense along with lower other income due to cycling higher pension income from the prior year.
Speaker 6: Therefore, fourth quarter comparable EPS of 45 cents was in line with last year, despite higher than expected currency headwinds. This resulted in full year comparable EPS of $2.48, an increase of 7% versus the prior year.
Speaker 6: driven by strong underlying business performance.
Speaker 6: partially offset by 10 points of currency headwinds.
Speaker 6: For the year, we delivered free cash show of $9.5 billion at the time of 15% versus the prior year.
Speaker 6: Much of the decline versus our expectations occurred due to the deliberate buildup of inventory in the face of a volatile commodity environment and higher than anticipated tax payments.
Speaker 6: Additionally, cash flow was impacted by cycling working capital benefits from the prior year and higher incentive payments in 2022.
Speaker 6: Even with these items, our underlying cash flow generation remains strong and we continue to make progress on our cash flow agenda.
Speaker 6: Our three-year average free cash flow conversion ratio is above 100% ahead of our long-term targets.
Speaker 6: Our balance should remain strong with our net debt leverage of 1.8 times a meter as of the end of 2022.
Speaker 6: which is below our target range of 2 to 2.5 times.
Speaker 6: Our capital allocation priorities remain the same.
Speaker 6: and we continue to prioritize investing in the business to drive long-term growth, as well as delivering dividend growth for our shareholders.
Speaker 6: At the same time, we remain mindful of maintaining our financial flexibility amidst the ongoing tax disputes with the IRS and our learning from the last few years of how important it is to build resilience in all of our plans.
Speaker 6: As James mentioned in 2023, we expect the operating environment to remain dynamic.
Speaker 6: We have the right portfolio, a very focused strategy, a flexible and adaptable structure, and a system with the ability to reinvest in the business.
Speaker 6: This gives us a confidence that we will continue to deliver on our three key objectives.
Speaker 6: pursuing excellence globally and winning locally. Investing for the long term health of the business.
Speaker 6: Generating US dollar EPS growth.
Speaker 6: With that in mind this morning we provided guidance for 2023 that bill is on our strong results in 2022
Speaker 6: We expect organic revenue growth of 7 to 8 percent, primarily led by price mix amidst the ongoing inflation environment.
Speaker 6: And we expect comparable currency neutral earnings per share growth of 79% versus 2022.
Speaker 6: Since we provided our initial outlook on currency in October , the currency environment has improved but remains volatile.
Speaker 6: Based on current rates and our hedge positions, we anticipate an approximate two to three-point currency headwind to comparable net revenues and an approximate three to four-point currency headwind to comparable earnings per share for full year 2023.
Speaker 6: Based on current rates and hedge positions.
Speaker 6: We expect per case commodity price inflation in the range of a mid-single digit impact on comparable costs of good souls in 2023.
Speaker 6: We continue to expect our underlying effective tax rate to be 19.5% for 2023.
Speaker 6: And all in, we expect comparable earnings per share growth of 4 to 5% versus $2.48 in 2022.
Speaker 6: We expect to generate approximately $9.5 billion of free cash flow in 2023 through approximately $11.4 billion in cash from operations.
Speaker 6: less approximately 1.9 billion in capital investments.
Speaker 6: I would like to highlight that included in the 11.4 billion of cash from operations.
Speaker 6: are two discrete items.
Speaker 6: Transition tax payments of approximately 720 million, a schedule increase of 335 million versus 2022.
Speaker 6: Payments, Associate was various M&A transactions.
Speaker 6: of approximately 350 million.
Speaker 6: excluding these are implied free cash flow conversion would be within our long-term guidance.
Speaker 6: This guidance does not include any payments related to our ongoing US income tax disputes with the IRS.
Speaker 6: Recently, the tax court issued an opinion on a case involving a separate company.
Speaker 6: The text code will now apply this opinion to our case.
Speaker 6: and ultimately render the final decision in our case, allowing us to move forward with the appeals process.
Speaker 6: As previously discussed, we intend to assert our claims on appeal, vigorously defend our position, and believe we will ultimately prevail.
Speaker 6: Overall, we don't expect this to have a bearing and our ability to deliver our capital allocation agenda and drive long-term business growth.
Speaker 6: some considerations to keep in mind for 2023.
Speaker 6: We expect price mix to moderate through the year as we cycle our pricing initiatives from the prior year.
Speaker 6: while the inflection environment appears to be cooling.
Speaker 6: We are still expecting to see elevated inflation across our operating costs.
Speaker 6: We have set up our marketing investments.
Speaker 6: Over the last few years, I will continue to invest to support momentum.
Speaker 6: Given the ongoing backdrop of rising interest rates, we expect to see higher net interest expense.
Speaker 6: given our effective exposure to floating rate death.
Speaker 6: Finally, due to our reporting calendar, there will be one less day in the first quarter and one additional day in the fourth quarter.
Speaker 6: Having delivered strong results in 2022, we are focused on driving a top-line lead growth equation in many types of environments.
Speaker 6: We are well positioned to deliver on guidance for 2023. Thanks to the incredible people we have around the world.
Speaker 6: The strong alignment we have with our bottling partners.
Speaker 6: and the great plans we have for the coming year.
Speaker 6: With that operator, we are ready to take questions.
Speaker 3: Ladies and gentlemen, to ask a question, you'll need to press star one on your telephone. To withdraw your question, press star one again. In the interest of time, we ask that you please limit yourself to one question.
Speaker 3: If you have any additional questions, you may rejoin the queue.
Speaker 3: Our first question comes from Lauren Lieberman from Barkley's. Please go ahead, your line is open.
Speaker 7: Great, thanks. Good morning. I guess in light of John's comment, just have a, you know, a top line like growth equation. I was hoping you could talk a little bit through the outlook for 23 on top line. Just kind of puts in takes, how you think about that, that's seven to eight relative to the, you know, midteens put up in the fourth quarter.
Speaker 7: and just kind of more color overall on that revenue outlook for this year would be great.
Speaker 8: Yeah, sure. Morning, Lauren.
Speaker 5: First, John said we feel confident about our outlook to drive the year from the top line. Let me connect that perhaps starting to 2022. As we commented, we saw steady volume growth through the year, including the fourth quarter. I know we reported a headline number of months.
Speaker 9: renewed.
Speaker 5: into the beginning of 2023. So we see strong underlying volume momentum or ongoing volume momentum that we have been able to achieve by our focus on the marketing, the innovation, the RGM and the execution to accommodate the need for affordability and premiumisation in the face inflation.
Speaker 5: And as John commented, we do see both inflation moderating as we go through 2023. And of course, our own life pricing PMO will be beginning to moderate as we go through 2023, in part because the input costs inflation is moderating, but also because we begin to cycle some of the pricing increases.
Speaker 5: from 2022. And what that's likely to net out as, obviously we've given a 7 to 8 for the full year, and what we're likely to see is the beginning, the Q1, we're likely to see revenue growth more close to what the sorts of levels we were achieving coming out of last year.
Speaker 5: And that then logically the organic growth rate moderates as we get towards the end of the year Looking looking to close out on a more normalized level
Speaker 5: of revenue growth and then when you average that out, you get to the 7 to 8. So I think we're going to see good momentum through the year, moderating revenue growth rate as a function of moderating inflation ultimately and what will remain is a good, strong, underlying momentum of our business.
Speaker 5: that has been powering the last five years and we are confident we'll continue to power the years ahead at the sort of level of top line relative to the long term growth model that we have. Previously talked about.
Speaker 10: Great, and I like it.
Speaker 7: Sorry, can I, I don't know if there's my lines of it. Okay, just a quick, just clarifying point on that I called it. It was just to think about.
Speaker 7: and whether you want to talk about this in real concentrate sales or unit case volume.
Speaker 11: You still expect?
Speaker 7: growth in the second half of the year from a volume standpoint.
Speaker 12: Or do you expect not still? Do you expect?
Speaker 13: Yeah, so...
Speaker 5: So the long term out, firstly we had good growth last year and we started the year we growth in unit case growth obviously with good PMO.
Speaker 5: As we look forward, what's normal on our revenue growth rate, we have called out, we expect to get a balance of the growth between the unit cases and price mix on a longer basis.
Speaker 5: Exactly how that turns out in the second half will depend on the environment, the dynamics and where the inflation does moderate how much from pressure the consumer does come under. Our central view is we will continue to see unit case growth in the second half combined with price mix moderating as I talked about.
Speaker 5: consumers within our franchise by leveraging our pricing and packaging strategies to support affordability around the world to keep the lower income consumers in the franchise, which of course is to some extent an underpinning on volume. We prefer that as a strategy.
Speaker 5: than to have more price on less volume. So again, our central view is to see continued level of unit case growth in the second half with obviously a moderating price mix to get to the overall revenue. But we're going to manage the business. In the end.
Speaker 5: We don't know exactly what's going to happen. There are lots of scenarios as to how this all might play out, but we're confident we can drive them momentum of the business.
Speaker 3: Our next question comes from Dara Mohsenian from Morgan Stanley . Please go ahead. Your line is open.
Speaker 4: Hey, good morning guys. So just to follow up on that, James, can you give us a little bit of detail regionally on expectations for 2023? I know you're not going to quantify it, but just how you're thinking about the business conceptually.
Speaker 14: relative to the results you delivered in Q4 here and take us around the world regionally. And then I guess just secondly if I can flip a clarification in, you're obviously starting off the year with top-lying guidance.
Speaker 14: higher than you typically do, higher than long-term algorithm, higher than you started 2022 at, despite delivering great results in 2022.
Speaker 14: It's a less visible world in theory externally. So I guess it sounded more like a good start so far this year. You have a lot of visibility given that and that's what's driving some of that confidence.
Speaker 14: But I'd love to hear from your vantage point what sort of gives you the confidence there. Thanks.
Speaker 5: Sure, I'll take that in reverse order, we'll count that as two halves of a question rather than two questions. Sorry.
Speaker 5: Let me give you another way of thinking about...
Speaker 5: 2023 because I agree there is a good deal of uncertainty as to how this might play out. But there's been a tremendous amount of volatility and uncertainty over the last five years.
Speaker 5: Because I agree, there is a good deal of uncertainty as to how this might play out. But there's been a tremendous amount of volatility and uncertainty over the last five years, or four years. If you were to take...
Speaker 5: A compound annual growth rate of unicases and price mix over the last had not four or five years.
Speaker 5: and look at that number, I think you'd end up with something around 2 on volume and 4 or 5 on price. So you could look back and say, wow, we were on a crazy ride there, but in the end...
Speaker 5: We got a good number. So I look at 2023 and say yes, something unexpected is bound to happen.
Speaker 5: But as we have expanded our ability to influence our own business.
Speaker 5: we have been adaptable in the face of all sorts of circumstances and being able to deliver the results we want, which is winning locally and turning that into a US dollar EPS growth.
Speaker 5: And so that's what gives us the confidence. We don't know what's going to happen, but we do know we've generated a lot of momentum, a lot of flexibility and a lot of agility to be able to manage through what's going to come at us. And so that's really the source of the confidence rather than being able to say we know what the future holds entirely.
Speaker 5: And as we walk around the world, um...
Speaker 5: around the world. You know.
Speaker 5: taking the various different pieces.
Speaker 5: starting in Europe perhaps or in India. Clearly Europe's under some more pressure, the impacts of the conflict drove a much greater spike in short term spike in inflation. That's playing itself through.
Speaker 5: It looks like the European economies are going to avoid a technical recession, but clearly consumer demand is softening. And I think that's likely to continue into the rest of the year. Looking at the other markets in America, if you're...
Speaker 5: If you're a resource seller, you're doing well. If you're a resource buyer, you're under more pressure. Obviously Turkey, tragic situation with the earthquake, but also the economy has been under pressure already. So the emerging markets there are a full range.
Speaker 5: Similarly, in Africa, South Africa is important to us. They've got a very big problem in terms of energy, which is hampering the economic growth. So there's more pressure in EMEA. The US continues to be strong. We've got momentum in the business on the top line. south
Speaker 5: doing well. The situation seems to be moderating without causing a hard landing. As of yet, we expect to see the pressure to continue to moderate the economy and the consumption, at least of beverages, continues to be good. Lasted America, similarly.
Speaker 5: There's been obviously this, some places which continues to have very high inflation and economic problems like the Argentina of the world, but Latin America is doing well. And then out to Asia, obviously the reopening of China is going to be a positive for the business.
Speaker 5: certainly on a cycle basis India is flying as the end will I we expect come back up as those two large economies do well and we think that will also do well for Japan. So we see both a continued acceleration or continued growth in a number of markets.
Speaker 5: I'm doing really well, but the general context being a moderation of the inflation and the zillion dollar question always comes back to is the process of bringing inflation down going to be hard soft or a perfect landing and that we will see.
Speaker 4: Our next question comes from Brian Spillane from Bank of America. Please go ahead. Your line is open. Hey, thanks, operator. Good morning. Just a question for John . I guess too, just related to cash flow and interest expense. I know you talked about net interest expense being up.
Speaker 14: for the year in 23. Can you just give us a little bit more detail in terms of, I think consensus is sitting at like $600 million for net interest. So just if you could give us a little more help in terms of where we should be on net interest expense. And then on free cash flow, you talked about the drivers that knock it down in 23. Would we expect a
Speaker 14: as we kind of go into 24, 25, like that should normalize. So is this more of kind of contained within this year and then you expect to normalize going forward? Thank you.
Speaker 6: Thanks, Brian . Let me start with the second question.
Speaker 6: The key drivers for 23, we have...
Speaker 6: On top of underlying strong underlying performance, we'll have two significant buckets. One is we are stepping up our capital investments to support the growth agenda in a number of our operations around the world. So that's $400 million increase in 23. And then we have approximately $700 million.
Speaker 6: related to an uptick in the transition text and some
Speaker 6: MNA related initiative. So for 24.
Speaker 6: We will continue to invest in the business as the business needs, especially when it comes to providing.
Speaker 6: The capital is for our growth.
Speaker 6: for growth plans.
Speaker 6: The transition tax goes up a couple of hundred million in 24. That will be the second last year of the transition tax that ends in 25. So you can do the math on the variances going in from 23 to 24. We expect the underlying performance to continue.
Speaker 6: We'll invest as we need to in the business to support the growth agenda. We do have a couple hundred million extra in 24 under transition tax.
Speaker 6: And then with regard to interest, yeah, as we've highlighted, we...
Speaker 6: With our current debt portfolio, we will see an uptake in 23 in interest charges and our interest expense and I'm not going to go into the specific numbers, but you can expect
Speaker 6: a couple of points of delivery primarily driven by interest expense as we as we navigate through this year.
Speaker 3: Our next question comes from Steve Powers from Deutsche Bank. Please go ahead, your line is open.
Speaker 15: Yes, hey, good morning. Thank you. James, maybe go back to the top line. For a while, you've been making simultaneous efforts to drive both affordability in the one hand and then the premiumization of the other hand. And I think doing a good job along the way balancing those in some ways competing efforts to...
Speaker 15: You know, net out in a way that ends up in both positive volume and positive price mix territory. I guess the question is as you as you look at 23
Speaker 15: Do you see more opportunity in your efforts to?
Speaker 15: optimize revenue growth on the value side, on the affordability side, or is it on the premiumization side? And to the extent that there's a leaning, how does that impact where you prioritize incremental investment?
Speaker 16: Yeah.
Speaker 5: Thanks, Steve. Absolutely we see opportunities in 23 and frankly beyond to continue to leverage the capability around RGM to both use affordability to keep typically lower income consumers.
Speaker 5: connected and engaged with our brown franchises while also pursuing premaritalization. And that needs to be a dynamic implementation as we go forward. We're going to see continuations into 2023.
Speaker 5: of different sorts of packaging options, whether they be drives around returnables, whether they be drives which obviously tend given the economics of returnables to have lower price points, whether you see, for example, in emerging markets.
Speaker 5: the greater use of one-liter packaging, instead of larger packaging for at-home occasions. We're going to continue to see a lot of opportunity to push forward right across the world with affordability options. And given that they tend to be...
Speaker 5: dilutive tom margins, we also look for all those consumer opportunities for premiumisation. Whether it be directly a brand launch, I mean things like the Jack and Coke will be creative to revenue.
Speaker 5: or directly within some of our brands, how to use the sleek cans and the smaller cans to produce.
Speaker 5: to kind of put more premium packaging into the marketplace. It will be an ongoing effort and we don't see the runway of that running out anytime soon.
Speaker 3: Our next question comes from Nick Modi from RBC Capital Markets. Please go ahead, your line is open.
Speaker 17: Thanks. Good morning everyone. I just the James I just wanted to follow up on on the last question regarding all the affordability packaging.
Speaker 17: You know just based on the historical kind of observation across the world How does it work with retail? I mean are these incremental? Facings you're getting or is it with placing older pack sizes that you know might have a lot more price sensitivity?
Speaker 5: It can be both Nick and obviously depends whether we're talking about supermarkets, convenience stores or small mama puffs. The more we're talking about smaller stores or convenience or the mama puffs, the more it is.
Speaker 5: replacement. Obviously we make a big focus even in those smaller formats to gain incremental face whether it be in the coal vaults or on the floor with our own coolers and our own racks and that absolutely does increase beverage category facings. But there's nothing wrong in any given store with looking at
Speaker 5: the SKU layout and saying look I'm going to take some of these SKUs and make them replace them with more affordable SKUs and I'm going to take some of them and put more premium options in such that the TotalMix works not just for us but also for the customer ultimately
Speaker 5: for the consumer. It's got to work for the consumer otherwise it's not going to rotate faster than the setup that's already in there because in the end the customer is going to support the strategies because it works for them because it works for the consumer and everyone's better off with the implementation.
Speaker 5: Yes, a mix of incremental versus cannibalized facings.
Speaker 5: Ultimately, by focusing on the consumer, you get a better answer for them. It creates a better answer for the customer. It creates a better answer for the Coke system.
Speaker 3: Our next question comes from Bonnie Herzog from Goldman Tax. Please go ahead to line is open.
Speaker 18: Thank you. Good morning, everyone. I was hoping you could provide a little more color on your plans for reinvestments this year. And then, you know, maybe frame for us whether it will be stepped up versus last year. You know, also, how are you thinking about your marketing spend this year? You know, do you also have plans for that to accelerate? I guess I'm...
Speaker 5: We're clearly going to, as we have in 2021 and 2022, have a bias to invest for growth. That's our starting point. And as we...
Speaker 5: As we demonstrated in the early years of the pandemic, if we see overall or in any specific countries that that allocation towards driving growth is inappropriate at some sort of level, we've demonstrated the ability to act quickly to redirect the money either somewhere else.
Speaker 5: or to let it go to the bottom line.
Speaker 5: So we're going to use all the data we get in from the field to be very dynamic in our resource allocation. We largely feel we have achieved an appropriate level of marketing. Yes, that's going to increase in 2023 because we're growing the business in the same way as John mentioned. We're going to increase our capex.
Speaker 5: to support the bits of the business where Capix needs to flow. But we are going to manage all of this with an agile hand, depending on the circumstances. We talked in the answer to the other questions that we don't know what the year will hold. We have a central view that is growth orientated, the balances.
Speaker 5: volume and price that accommodates different pressures around the world and different speeds of moderation and inflation. But it's a virus towards growth and we will be fast and adaptable in the face of anything different.
Speaker 3: Our next question comes from Camille Gajour-Walla from Credit Police. Please go ahead. Your line is open.
Speaker 14: Hey, good morning, everybody. Can you maybe touch on briefly what you're seeing from the retail environment? We're seeing more and more articles on retailers pushing back on price increases across really all of CPG. If you could maybe just give us a sense of what you're seeing in your categories. This hard coin is a very similar. It's of very similar. It was ?? ?????? , but rather than just him, I think you can hear
Speaker 5: Sure. I mean.
Speaker 5: First and one has to kind of break down the global dynamic because each major, regional, each country is a different place. But let me start with the central idea that we pursue, which is we need to turn the right to take price.
Speaker 5: It's not our strategy to think of our businesses commoditized where prices just flow up and down in a kind of mechanical way. We need to own our pricing by delivering for the consumers values that they appreciate through the marketing, through the innovation.
Speaker 5: through the RGM, the pricing and packaging work, through the execution, such that they see value in our brands that can sustain the pricing that the input costs are driving us towards. And that ultimately then has to work for the customers.
Speaker 5: And because it has to work for the consumers, it then flows down the customers. So if we've earned the right surprise for the consumers, then we can go to our custom apartments and say, look, we think that we can lead the beverage category to grow faster than your business. Yes, we believe we're going to be more competitive because we understand the consumers and we're going to gain share, but we can lead the beverage category.
Speaker 5: Europe last year. And that is the platform on which we then fold in the conversations around pricing and packaging for any given year. So yes, of course, there's pressure in the marketplace, but in the end we have an approach we believe is.
Speaker 5: consumer centric and that drives growth for the customers because they also want to keep the consumer's too.
Speaker 3: Our next question comes from Chris Carey from Wells Fargo Securities. Please go ahead and your line is open.
Speaker 19: Hi. Good morning.
Speaker 4: So clearly, the past several years have had big variability in your channel and package mix within the overall price mix equation with mobility constraints and sharper discoveries thereafter.
Speaker 4: You know, just taking John's commentary on a price mix driven year for next year. James talking about, you know, still volume will still be a factor. I guess what I'm wondering is just underlying within that price mix, whether you think channel and package mix have normalized.
Right? We're not really talking about recoveries in those line items and what's going forward will be more offensive or growing from a normalized base. So do you think you're back to that normalized base from a channel and package mix from which to grow? And then in 2023, do you have any thoughts on what the contribution is from price relative to...
other countries and when I say largely normalized if you take something like the US clearly there are a number of away from home outlets that have dropped out of the marketplace. So there's a tale or there's a last piece of the recovery channel that is not going to happen overnight and may not happen for some.
to the pandemic being a major drive for a price mix going forward.
Yes, package mix will continue to be a factor as it has been in previous years and prior to pandemic. Clearly, as we pursue a dual strategy of keeping consumers in this franchise with affordability and looking for pre-memization opportunities, the two can somewhat offset each other.
one diluted ones are creative, but they're both valuable strategies that need to be taken forward. So I think predominantly what you're going to see in 23 is the ongoing moderation of rate pricing. Both as we cycle, rate increases or price increases.
from 22 and as inflation in general and inflation specifically to us whether it be in S-GNA or in commodities begins to moderate. Our next question comes from Carlos Leboi from HSBC. Please go ahead, your line is open. Thank you.
Yes, good morning everyone. The Latin American bottlers keep guiding for stepped up investments in...
traditional trade DSD capabilities to fully exploit this new cooperation framework. They have a dear firm. Do you think this is already kicking in to the business, business, financial performance?
traditional trade DSD capabilities to fully exploit this new cooperation framework to have with your firm. Do you think this is already kicking in to the business financial performance and is the model in your view?
adaptable to other parts of the world where the promise of maybe higher ROIC and stepped up bottling capex can drive system growth.
other parts of the world where the promise of maybe higher ROYC and stepped up bottling capex can drive system growth.
Yeah, let me take that in part. The features that we have in the long-term relationship model in Latin America, we're rolling those out in a number of other places. And clearly, the more we can intensify whatever the framework gets called.
The degree of alignment towards investing to capture the opportunities in the marketplace, the better off we're going to be us and our modeling partners in any given geography. So absolutely, we continue to see opportunities to work even closer together to capture opportunities.
in the marketplace, the nature of those investments, the nature of the opportunity, and not exactly the same as Latin America, clearly the trade structure differs around the world. Latin America has a number of particular features that are necessarily replicated in the US or Europe or Japan, for example, but the overall concept of...
a tighter, longer term investment focus on the opportunities is really going to continue to drive performance into the future years. And I think in Latin America.
We've got a great business there collectively as a system because we focused on investing into the marketplace and into the traditional trade for a very long time along with all the other customers in Latin America. But there are still plenty of opportunities to go for, both from the top line and from the point of view of improving returns. So I think you'll find or everyone will find that...
The Latin American bottleers as bottles around the world are that we see a lot of collectively we see a lot of opportunities ahead of us.
to drive the top line and to continue to improve returns on the bottling assets.
Next question comes from Andrea Teixeira from JPMorgan. Please go ahead, your line is open. Thank you, operator and good morning. James, as we think about this seven to eight percent organic serious growth guidance, what is the price and mix carry over into 2023? You said it obviously will moderate, but what is are you bad in any additional pricing? Thank you.
to become more normalised, sort of reopening, allure, the US and Europe , and so we will see a more normal level of volume in China and recover to the 2019 or growth on the 2019 numbers time to come through when we go through the year in China.
And then in terms of the carryover, clearly there's some carryover, particularly in the first half from 2022, but we will be taking pricing in 23. Check that out.
How we say we will be taking pricing, the world is very different. I mean there are countries where inflation is well over 50%. So pricing has taken multiple times a year. Argentina is an obvious example. So in the developed markets, it's likely we'll trend more back towards...
kind of more standard cycles of pricing but there will be
pricing increases across the world in 2020 to reflect both the continuing inflation in import and SG&A costs. Obviously we need to, as I talked about in the previous answer, earn the right for that pricing, but there will be pricing in 2023.
Our next question comes from Rob Ottensdene from Evercore. Please go ahead, your line is open.
Great, thank you very much and congratulations on a terrific year. So over the last few years, James, you and your team have made significant cultural changes, organizational changes to the product portfolio. As you look at 2023,
What are the key initiatives that you're looking to drive to set up for continued strong growth over the next?
you know, decade or so, you know, longer term. And perhaps, you know, we've been to that answer, you know, where things are on costa, on body armor, and on any other new initiatives that you think would be helpful to discuss. Thank you.
Yeah, great, thanks Rod. And certainly we will unpack a little more this, the CAGNY presentation and the CAGNY conversation, so I'm sure I won't do full justice to the question in this session. In terms of the...
initiatives in the marketplace. We have an aspiration of being a total beverage company everywhere. That's not going to happen overnight. So we need to make progress in a disciplined way in different category country combinations as we've talked about.
established leadership positions, preferably quality leadership positions, in the next set of country category combinations on that journey to the total aspirations. And within that, there are ones that are off to the races and flying away.
And there are ones where we still need to demonstrate to ourselves we can execute against the vision. If I take the two you call out cost of body armor to start with, the essential thesis behind coffee remains the same. It's a huge market, it's growing.
There's lots of money in it. If we can find a path, there's a tremendous growth opportunity for the Koch's system there. We've got a vision. The reality is timing was very unfortunate of getting it just before the pandemic.
in strategic terms, despite all the experimentation, despite all the learning, despite all the initial steps, in big strategic terms, we haven't advanced because essentially COVID put it on hold for three years. We now need to get the execution ramped up for cost against the vision, and in the coming years demonstrate that that holds water. Body armoured, great job.
we obviously incorporated that into the company last year and I think we you know whilst we always expect some level of disruption as we move a business that has been grown quickly and prepared for sale by the founders into the Koch system there's often some disruption in the short term but there will
Frankly, I think there was more in 2022 than we expected or would have liked, but we have a good plan going forward in 23 that will kind of reset body armor on a good path and in a complimentary way to powerate. Other initiatives which we're looking...
very interested in the degree of traction. Some of the alcohol experiments particularly looking to see Jack and Coke do well. Early data in Mexico launched at the end of last year was encouraging ahead of expectations. The U.S. launch will be very interesting at the end.
end of March. And all of that will be backed up by the continued work on the cultural organization, whilst it will never, you know, nothing ever settles, it never ends. But I think really it's about continuing to stand up and execute against it.
the internal initiatives we've already launched. The organization is coming together, we made a few tweaks in North America coming into this year, but the organization is getting up and running and starting to hum the marketing model change. It's starting to show good results and promise. I think it's a question of seeing through
The things we've launched to really up our game in the coming years. Our last question today will come from Charlie Higgs from Redburn. Please go ahead, your line is open.
Hi James, John , hope you're both well. My final question is just on India. Well, it looks like it's had just a record year. Could you maybe just expand a little bit more on India? Is it still being driven by the affordable price point strategy? Are you adding distribution that means maybe the volume growth is actually sustainable over the long term? And then James, maybe you could just give some cut on your long-term view on India. Thanks.
Yeah, India had a cracking year last year and it's off to a strong start this year. I think the overall backdrop to this is firstly...
that the Indian economy and the Indian consumer base is approaching in
highest level terms, a level of GDP per head, at which historically the beverage industry has tended to accelerate its development.
And so we are
And so we are very
encouraged by the potential in India to develop a fantastic beverage industry and beverage opportunity. Ultimately, the development industry is very nascent in India and there's a huge potential to build the industry over many decades.
And so that's been driven not just by the affordable entry price points, although they are growing. But really it's a question of actually everything. It's growing on all dimensions. It's growing in terms of the depth of the different brands. It's growing in distribution. It's growing in a number of packages. And so I think there's a huge long potential in India. It won't in all likelihood.
to actually, they themselves have 80% of the world's population and the development of the beverage industry is a third of what it is in the developed market. They only pay for about, I think, 3 and 10 of the commercial beverages, which is two-internet, but commercial beverage, where it's 7 and 10 in the development. So...
India typifies a long-term potential of the benefit industry to keep growing. And I think it's a market that is set to take off.
Ladies and gentlemen, this concludes our question-and-answer session. I would now like to turn the call over to James Quincy for any closing remarks.
Thank you, thank you operator. So to summarize, we have momentum in our business, we're winning in the marketplace, sustainability embedded in our strategies and strong alignment with our boiling partners.
We are pursuing excellence in brand building, innovation, revenue growth management and execution.
to add and retain consumers and drive long-term value for our stakeholders. Thank you for your interest, your investment in our company, and for joining us this morning. Thank you. Gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.