Q4 2023 The Coca-Cola Co Earnings Call
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Speaker Change: At this time I'd like to welcome everyone to the Coca Cola Company's fourth quarter 2023 earnings results Conference call today's.
Speaker Change: Today's call is being recorded if you have any objections. Please disconnect at this time.
Speaker Change: All participants will be on listen only mode until the formal question and answer portion of the call.
Unnamed Speaker: I would like to remind everyone that the purpose of this conference is to talk with investors, and therefore, questions from the media will not be addressed. Media participants should contact Coca-Cola's Media Relations Department if they have any questions. I would now like to introduce Mrs. Robin Halpern, Vice President and Head of Investor Relations. Mrs. Halpern, you may now begin.
Speaker Change: 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 Change: Media participants should contact Coca Cola's Media Relations Department, if they have any questions.
Speaker Change: I would now like to introduce this is robin how pardon Vice President and head of Investor Relations. Mrs. Halperin, you may now begin.
Robin Halperin: Good morning, and thank you for joining us I'm here with James Quincey, Our chairman and Chief Executive Officer, and John Murphy, Our President and Chief Financial Officer.
Robin Halpern: 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've posted schedules under Financial Information in the Investors section of our company website. These reconcile certain non-GAAP financial measures that may be referred to this morning to results as reported under Generally Accepted Accounting Principles. You can also find schedules in the same section of our website that provide an analysis of our growth and operating margins. This call may contain forward-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. Following prepared remarks, we will take your questions. Please limit yourself to one question.
Robin Halperin: We've posted schedules under financial information in the investors section of our company website. These reconcile certain non-GAAP financial measures that may be referred to this morning to results as reported under generally accepted accounting principles.
Robin Halperin: You can also find schedules in the same section of our website that provide an analysis of our growth in operating margins.
Robin Halperin: This call may contain forward 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 report.
Robin Halperin: Following prepared remarks, we will take your questions. Please limit yourself to one question reenter the queue to ask any follow ups now I will turn the call over to James.
Unnamed Speaker: You can re-enter the queue to ask any follow-ups. Now, I will turn the call over to James. Thanks, Robin. And good morning, everyone.
James Quincey: Thanks, Robin and good morning, everyone.
James Quincey: In 2023, we achieved our near-term goals while also positioning our business for the long term. Our all-weather strategy delivers 8% comparable earnings-per-share growth despite greater-than-expected 7% currency headwinds. Today, we are leveraging our scale globally and winning locally, giving us confidence that we can deliver on our 2024 guidance. This morning, I'll talk about the global consumer landscape, then I'll highlight how our strategy and enhanced capabilities are making us a more agile and effective organization. And finally, John will discuss our financial results and our 2024 guidance. During the quarter, we benefited from strong performance across many of our markets. However, some were impacted by elevated inflation, and others by geopolitical tensions and conflicts.
James Quincey: In 2023, we achieved our near term goals, while also positioning our business for the long term.
James Quincey: Our all weather strategy delivered 8% comparable earnings per share growth, despite greater than expected, 7% currency headwinds.
James Quincey: Today, we are leveraging our scale globally and winning locally.
Speaker Change: Which gives us confidence we can deliver on our 2020 full guidance.
Speaker Change: This morning, I'll talk about the global consumer landscape, then I'll highlight how our strategy and enhanced capabilities are making us more agile and effective organization.
Speaker Change: And finally, John will discuss our financial results and our 2020 for guidance.
John Murphy: During the quarter.
John Murphy: We benefited from strong performance across many of our markets.
Some were impacted by elevated inflation of those by geopolitical tensions and conflict.
James Quincey: We delivered 12% organic revenue growth, which included two points of volume growth, continuing a positive volume trend for the year. Throughout, we continue to invest in our business to provide the right portfolio of brands and packages to retain and attract more drinkers. We drove industry growth and delivered value share gains in the quarter and for the full year. We achieved these results by effectively navigating a number of headwinds and capitalizing on tailwinds across our markets. During the quarter, we saw strong consumer demand across Australia, India, Latin America, Japan, and South Korea. In North America, consumer spending in aggregate is holding up well, and in Europe, consumers remain cost conscious.
We delivered 12% organic revenue growth, which included two points of volume growth continuing a positive volume trend for the year.
John Murphy: Throughout <unk>, we continued to invest in our business to provide the right portfolio of brands and packages to retain and attract more drinkers.
We drove industry growth and deliver value share gains in the quarter and for the full year.
John Murphy: We achieved these results by effectively navigating a number of headwinds and capitalizing on tailwind across our markets.
John Murphy: During the quarter, we saw strong consumer demand across Australia, India, Latin America, Japan, and South Korea.
John Murphy: In North America consumer spending in aggregate is holding up well and in Europe consumers remain cost conscious.
John Murphy: In Africa, and China, the macro environment remains uncertain and in the Middle East tensions have resulted in some shifts in consumer behavior that have had an impact on our business.
James Quincey: In Africa and China, the macro environment remains uncertain, and in the Middle East, tensions have resulted in some shifts in consumer behavior that have had an impact on our business. Another important factor to highlight is inflationary pressures, which are moderating or stabilizing across most of our markets. To keep consumers in our franchise, we are leveraging our revenue growth management capabilities to tailor our offerings and price pack architecture to meet consumers' evolving needs. In North America and Europe, while inflation is moderating, the cumulative impact of inflation is pressuring certain consumer segments who are seeking value.
John Murphy: Another important fact that the highlight is the inflationary pressures, which are moderating or stabilizing across most of our markets.
John Murphy: To keep consumers in our franchise, we are leveraging our revenue growth management capabilities to tailor our offerings and price pack architecture to meet consumers' evolving needs and <unk>.
John Murphy: North America, and Europe, while inflation is moderating the cumulative impact of inflation is pressuring certain consumer segments were seeking value.
John Murphy: 2023, we increased our affordability offerings on one volume and value share in both regions.
James Quincey: Throughout 2023, we increased our affordability offerings and won volume and value share in both regions. In Latin America, despite double-digit inflation during the fourth quarter, we grew volume 4% and increased household penetration and basketing. There are a few pockets of the world that are experiencing hyperinflation.
In Latin America, despite double digit inflation during the fourth quarter, we grew volume, 4% and increased household penetration of basket incidence.
John Murphy: There are a few pockets of the world that are experiencing hyperinflation.
James Quincey: John will later speak to how this dynamic is impacting our business. However, I did want to mention that our local franchise operating model allows us to navigate through hyperinflationary environments and then gain an advantage over the long term. Across our business, we continue to prioritize agility and focus on improving every aspect of how we operate. An important part of this is our marketing transformation. To recruit the next generation of drinkers, our marketing has shifted from a TV-centric model to a digital-first organization that balances local intimacy, scale, and flexibility. Our digital mix has gone from less than 30% in 2019 to approximately 60% of our total media spend. In 2023, we set up Studio X, the digital ecosystem that brings this all together. We've created physical hubs in each of our operating units to integrate disciplines, standardize data and technology, and step change our capability. Creative, media, social, and production capabilities are now operating at scale, connected by a global network structure. In our previous model, it took several months to create a TV ad.
John Murphy: John will latest speak to how this dynamic is impacting our business. However, I did want to mention that our LOE pool franchise operating model allows us to navigate through hyper inflationary environments and gain an advantage over the long term.
John Murphy: Across our business, we continue to prioritize agility and focus on improving every aspect of how we operate and important part of this is our marketing transformation.
To recruit the next generation of drinkers marketing has shifted from a TV centric model to a digital first organization that balances local intimacy scale and flexibility.
John Murphy: Our digital mix has gone from less than 30% in 2019 to approximately 60% of our total media spend.
John Murphy: In 2023, we stood up studio X the digital ecosystem that brings this all together with.
John Murphy: We created physical hubs in each of our operating units to integrate disciplines standardized data and technology and step change our capabilities.
John Murphy: Creative media, social and production capabilities are now operating at scale connected by a global network structure.
John Murphy: In our previous model. It took several months to create the TV AD now we're producing thousands of pieces of digital content that are contextually relevant in measuring these results in real time.
James Quincey: Now we're producing thousands of pieces of digital content that are contextually relevant and measuring these results in real time. G2X is driving tangible results. For example, Coke Studio, which originated in Pakistan and taps into consumers' passion for music, has been scaled to our top 40 market. The campaign uses packaging as digital portals to access real magic experiences, which have generated more than 1.2 billion YouTube views and 100 million music streams this year, resulting in strong recruitment of Gen Z drinkers.
John Murphy: <unk> is driving tangible results.
John Murphy: For example, Coke studio, which originated in Pakistan and taps into consumers' passion for music has been scaled to our top 40 markets.
John Murphy: The campaign uses packaging as digital portals to access real magic experiences, which has generated more than $1 2 billion Youtube views at 100 million music streams. This year, resulting in strong recruitment of Gen Z drinkers.
John Murphy: We're engaging differently, we consume and is delivering results in 2023, According to Kantar Coca Cola brand value increased 8 billion cookies.
James Quincey: We're engaging differently with consumers, and it's delivering results. In 2023, according to Kantar, Coca-Cola's brand value increased $8 billion. Coke is now the 10th most valuable brand in the world, up seven spots from the prior year. In the US, Sprite was named by Morning Consult as the number one beverage brand for Gen Z drinkers.
John Murphy: <unk> is now the 10th most valuable brand in the world up seven spots from the prior year.
John Murphy: In the U S. Brian was named by morning, consult as the number one beverage brand for Gen Z drinkers.
James Quincey: We were also named one of the top 10 innovative companies in augmented and virtual reality by Fast Company. Our innovation agenda is increasing our competitive advantage across our products, packaging, and equipment. Taste is the starting point.
John Murphy: We were also named one of the top tier innovative companies and augmented and virtual reality by fast company.
John Murphy: Our innovation agenda is increasing our competitive advantage across our products packaging and equivalent.
Speaker Change: That's a solid point <unk>.
James Quincey: Simply put, people want drinks that taste great. To drive superiority across our total beverage portfolio, we're continuing to build capabilities to tap into unique insights in taste and aromascience. We're applying digital tools, ingredient processing technology, and AI to create bolder and more successful innovation. Coca-Cola Zero Sugar is an ongoing example of how superior taste drives demand, with volume that grew 5% in 2023, leading to continued volume and value share gains. We're applying learnings from this multi-year success and driving taste superiority elsewhere in our Sparkling portfolio. In 2023, we launch Sprite and Fanta reformulations in 25 markets, delivering mid single-digit volume growth in those markets and driving overall sparkling flavors value share gains. Outside of our Sparking portfolio, we're dialing up flavor profiles, adding functional benefits, and expanding into new categories. In Japan, we relaunched Georgia Coffee, which generated broader customer interest and led to value-share gains. In the U.S., Fairlife's core power and nutrition plan offers high-protein dairy without compromising taste.
Speaker Change: Simply put people while drinks that taste great.
Speaker Change: To drive superiority across our total beverage portfolio.
Speaker Change: Continuing to build capabilities to tap into unique insights and taste and aroma styles.
Speaker Change: We're applying digital tools ingredient processing technology, and AI to create bolder and more successful innovations Coca Cola zero sugar as an ongoing example of how superior taste drives demand.
Speaker Change: With volume that grew 5% in 2023, leading to continued volume and value share gains.
Speaker Change: We are applying learnings from this multiyear success in driving <unk> superiority elsewhere in our sparkling portfolio.
Speaker Change: In 2023, we launched sprite and Fanta re formulations in 25 markets delay.
Speaker Change: Delivering mid single digit volume growth in those markets and driving overall sparkling flavors value share gains.
Speaker Change: Outside of our sparkling portfolio with dialing up flavor profiles, adding functional benefits and expanding into new categories.
Speaker Change: In Japan, we relaunched, Georgia, coffee, which generated broader customer interest and lead to value share gains.
Speaker Change: In the U S. They're large coal power and nutrition plan off of high protein dairy without compromising taste.
Speaker Change: In 2023 satellite grew volume, 15% its ninth consecutive year of double digit volume growth.
Speaker Change: We're also seeing continued promising results from fuze tea across Europe, Jack and Coke in the Philippines flashlight in Mexico. Among many others in 2023 innovation contributed to approximately 30% of gross profit growth and our success rates of nearly tripled compared to 2019 levels.
James Quincey: In 2023, Fairlife grew volume 15%, its ninth consecutive year of double-digit volume growth. We're also seeing continued promising results from Fuse Tea across Europe, Jack & Coke in the Philippines, and Flashlight in Mexico, among many others. In 2023, innovation contributed to approximately 30% of gross profit growth, and our success rates have nearly tripled compared to 2019 levels. Our revenue growth management execution capabilities continue to be distinct advantages, as demonstrated by our ability to deliver volume and transaction growth despite ongoing inflationary pressure. We're working with our bottling partners to capture every opportunity available to create significant value for consumers and customers. By offering a total beverage portfolio in the right packages and at the right price points, we're driving category expansion and becoming more relevant to more consumers and customers.
Our revenue growth management execution capabilities continue to be distinct advantages.
Speaker Change: As demonstrated by our ability to deliver volume and transaction growth despite ongoing inflationary pressures.
Speaker Change: We are working with our bottling polymers to capture every opportunity available to create significant value for consumers and customers.
Speaker Change: By offering a total beverage portfolio in the right packages in the right price points, we're driving category expansion and becoming more relevant to more consumers and customers.
Speaker Change: In North America, our evolving packaging options across more distribution points to drive affordability and premium amortization on.
Speaker Change: On the affordability side, a 125 liter PT bottles are now available in 80% of the supermarket.
Speaker Change: And our 16 ounce can distribution increased by 14 points in convenience stores during 2023.
Speaker Change: We're also focused on premium amortization through the expansion of our <unk> offerings.
James Quincey: In North America, we're evolving packaging options across more distribution points to drive affordability and premiumization. On the affordability side, our 1.25 liter PET bottles are now available in 80% of supermarkets, and our 16-hour can distribution increased by 14 points in convenience stores during 2023. We're also focused on pre-immunization through the expansion of our mini-can offering. During the quarter, we launched 15-pack mini-cans in grocery and club. In Europe, we're leveraging the same playbook, but adapting it to local needs. In Spain, our 1.25 liter PET package is offered at a compelling price point, and it drove 16% volume growth and increased household penetration in 2023. In Italy, Great Britain, and Ireland, we drove premium single-serve mini-cans and smaller package offerings to generate positive mix and incremental retail sales.
Speaker Change: During the quarter, we launched 15 pack mini cans in grocery and club channels.
Speaker Change: In Europe, we're leveraging the same playbook, but adapting it to local needs in Spain at 125 liter PDT package is offered at a compelling price point and it drove 16% volume growth and increased household penetration in 2023.
Speaker Change: In Italy, Great Britain, and Ireland, we drove premium single serve mini cans, a smaller package offerings to generate positive mix and incremental retail sales.
Speaker Change: Our franchise system uniquely combines the benefits of scale and knowledge sharing with the know how and needed to execute for customers and win locally a many different operating environments.
For example, approximately 70% of purchase decisions are influenced at point of sale system stepped up in store displays during the quarter, which drove incremental retail sales and cross selling opportunities putting it all together, we created $15 billion in incremental retail sales for our customers in 2023 more than.
Speaker Change: Any other beverage company.
James Quincey: Our franchise system uniquely combines the benefits of scale and knowledge sharing with the know-how needed to execute for customers and win locally in many different operating environments. For example, approximately 70% of purchase decisions are influenced at the point-of-sale. Our system stepped up in-store displays during the quarter, which drove incremental retail sales and cross-selling opportunities. Putting it all together, we've created $15 billion in incremental retail sales for our customers in 2023, more than any other beverage company. This was our sixth year in a row as the leader in value creation. While we're pleased with our progress, we recognize there's still much work to be done to capture the vast opportunities available. Our system is galvanized to move further and faster.
Speaker Change: This was a six year in a row as the leader in value creation.
Speaker Change: While we're pleased with that progress we recognize there's still much work to be done to capture the vast opportunities available.
Speaker Change: Our system is galvanized to move further and faster.
Speaker Change: Before I hand over to John I want to acknowledge that none of this could happen without the unwavering dedication of our employees.
John Murphy: And so as we turn to 2024, we expect the year will bring new challenges and opportunities.
John Murphy: We remain ready to respond through continuing to improve execution of our strategy across our total beverage portfolio.
John Murphy: I look forward to sharing more next Jews, Nick Cagny, and I encourage everyone to listen in.
John Murphy: With that I'll turn the call over to John.
John Murphy: Thank you James and good morning, everyone.
John Murphy: In the fourth quarter and throughout 2023, we delivered strong results.
John Murphy: During the quarter, we grew organic revenues, 12%, which.
James Quincey: Before I hand over to John, I want to acknowledge that none of this could have happened without the unwavering dedication of our employees. And so, as we turn to 2024, we expect the year will bring new challenges and opportunities. And we remain ready to respond by continuing to improve the execution of our strategy across our total beverage portfolio. I look forward to sharing more next Tuesday at CACNI, and I encourage everyone to listen in. With that, I'll turn the call over to John. Thank you, James. And good morning, everyone.
John Murphy: Which was in line with our full year organic revenue growth.
John Murphy: Unit case growth was 2%.
John Murphy: And it was positive in each quarter of 2023.
John Murphy: Concentrate sales grew one point ahead of unit cases.
John Murphy: Driven primarily by one additional day in the quarter.
John Murphy: Our price mix growth of 9% in the quarter.
John Murphy: It was driven by three factors, one 2023 pricing actions across most of our markets.
John Murphy: To hyper inflationary pricing.
Speaker Change: That I'll speak to in just a moment.
Speaker Change: And three some mix, which is mostly timing related.
Speaker Change: Comparable gross margin for the quarter.
John Murphy: In the fourth quarter and throughout 2023, we delivered strong results. During the quarter, we grew organic revenues 12%, which was in line with our full-year organic revenue growth. Unit case growth was 2% and was positive in each quarter of 2023. Concentrate sales group one point, head of unit cases, driven primarily by one additional day in the quarter.
Speaker Change: It was up approximately 140 basis points.
Driven by underlying expansion.
Speaker Change: And a slight benefit from Boston Refranchising.
Speaker Change: Partially offset by the impact of currency headwinds.
Speaker Change: Comparable operating margin expanded approximately 40 basis points for the quarter.
Speaker Change: This was primarily driven by strong topline growth.
John Murphy: Our price growth of 9% in the quarter was driven by three factors. One, 2023 pricing actions across most of our markets. Two hyperinflationary pricing that I'll speak to in just a moment, and three, some mix, which is mostly timing-related. Comparable Gross Margin for the Quarter was up approximately 140 basis points, driven by underlying expansion and a slight benefit from Bottler re-franchizing, partially offset by the impact of currency headwinds. Comparable operating margin expanded by approximately 40 basis points for the quarter.
Speaker Change: Partially offset by currency headwinds.
And an increase in marketing investments.
Speaker Change: The positive volume and topline growth that we're realizing today demonstrates.
Speaker Change: The effectiveness of our marketing spend.
Speaker Change: Below the line comparable other income declined primarily due to the operating environment in Argentina.
Speaker Change: Putting it altogether fourth quarter comparable EPS of.
Speaker Change: <unk> 49 was up 10% year over year.
Despite higher than expected, 13% currency headwinds.
Before moving on I wanted to discuss the impact of a few hyperinflationary markets on our fourth quarter results.
John Murphy: This was primarily driven by strong top-line growth, partially offset by currency headwinds and an increase in marketing investment. The positive volume and top-line growth that we're realizing today demonstrates the effectiveness of our marketing spend. Below the line, comparable other income declined primarily due to the operating environment in Argentina. Putting it all together, fourth quarter comparable EPS of 49 cents was up 10% year over year, despite a higher than expected 13% currency headwind. Before moving on, I want to discuss the impact of a few hyperinflationary markets on our fourth quarter results. During the quarter, inflation intensified and exceeded 60% across these markets.
Speaker Change: During the quarter inflation intensified and exceeded 60% across these markets.
Speaker Change: In aggregate, while they represent less than 5% of our total volume.
Speaker Change: This degree of inflation creates a cosmetic distortion to our underlying results.
Speaker Change: In the fourth quarter. These markets contributed more than three points of price mix and most of our currency headwinds.
Speaker Change: Including an outsized impact to comparable other income from balance sheet re measurement in Argentina.
Speaker Change: They did not however have a material impact on our earnings per share results.
Speaker Change: In Hyperinflationary markets, it's either impractical or impossible to hedge our currency exposure.
Speaker Change: And to manage it we use our full suite.
Speaker Change: Our revenue growth management tools.
Speaker Change: Including pricing actions to keep pace with local market inflation.
Speaker Change: We have been operating a long time in these markets.
John Murphy: In aggregate, while they represent less than 5% of our total volume, this degree of inflation creates a cosmetic distortion of our underlying results. In the fourth quarter, these markets contributed more than three points to our price mix and most of our currency headwinds, including an outsized impact on comparable other income from balance sheet re-measurements in Argentina. They did not, however, have a material impact on our earnings per share result. In hyperinflationary markets, it's either impractical or impossible to hedge our currency exposure.
Speaker Change: And we expect to be in them for a long time to come.
Speaker Change: We work hand in hand.
Speaker Change: Our local bottling partners.
Speaker Change: And our focus will be to continue to nurture the strong relationships, we have with our consumers and customers.
Speaker Change: And to ultimately prevail longer term.
Speaker Change: While we will continue to experience volatility of this nature in a few markets. It's important to keep in mind. They are operated locally.
Speaker Change: They are typically self funding and they have not impeded our overall ability to grow earnings per share.
Speaker Change: As we move forward, we are confident our business model and the many levers within it will allow us to deliver on our overall objectives.
John Murphy: And to manage it, we use our full suite of Revenue Growth Management Tools, including pricing actions to keep pace with local market inflation. We have been operating for a long time in these markets, and we expect to be in them for a long time to come. We work hand-in-hand with our local bottling partners.
Speaker Change: In 2023 free cash flow was $9 7 billion.
Speaker Change: Which increased from the prior year.
Speaker Change: 2023 free cash flow included.
Speaker Change: A transition tax payment of approximately $720 million.
John Murphy: And our focus will be to continue to nurture the strong relationships we have with our consumers and customers and to ultimately prevail longer term. So while we will continue to experience volatility of this nature in a few markets, it's important to keep in mind they are operated locally.
Speaker Change: Which was approximately $340 million.
Speaker Change: Higher than the prior year.
Speaker Change: And included approximately $230 million.
Speaker Change: And M&A related payments.
Speaker Change: Our underlying free cash flow growth was largely attributable to strong operational performance.
Speaker Change: And working capital benefits.
Speaker Change: Okay.
Speaker Change: If you exclude the full impact of the transition tax and M&A related payments.
John Murphy: They are typically self-funding, and they have not impeded our overall ability to grow earnings per share. As we move forward, we are confident our business model and the many levers within it will allow us to deliver on our overall objective. In 2023, free cash flow was $9.7 billion, which increased from the prior year. 2023 free cash flow included a transition tax payment of approximately 720 million dollars. Our underlying free cash flow growth was largely attributed to strong operational performance and Working Capital Benefits. If you exclude the full impact of the transition tax and M&A-related payments, our Adjusted Free Cash Flow Conversion Ratio would be within our target range of 90 to 95%. Meanwhile, our balance sheet remains strong. During the fourth quarter, in addition to offsetting dilution from the exercise of stock options by employees, we repurchased additional shares in anticipation of expected proceeds from Butler's re-franchising. As James mentioned, we anticipate, However, Through our all-weather strategy, we've proven we can deliver in many different operating environments.
Speaker Change: Our adjusted free cash flow conversion ratio would.
It would be within our target range of 90% to 95%.
Speaker Change: Our balance sheet remains strong.
Speaker Change: And our net debt leverage of one seven times Davita is.
Is below our targeted range of two to two five times.
Speaker Change: During the fourth quarter. In addition to offsetting dilution from the exercise of stock options by employees.
Speaker Change: We repurchased additional shares.
Speaker Change: In anticipation of expected proceeds from Buster Refranchising.
Speaker Change: As James mentioned, we anticipate.
Speaker Change: 2024 will bring new challenges and opportunities.
Speaker Change: However.
Speaker Change: Through our all weather strategy, we've proven we can deliver in many different operating environments.
Speaker Change: Our 2020 for guidance.
Speaker Change: <unk> on the underlying momentum of our business.
Speaker Change: We expect organic revenue growth of 6% to 7%.
And comparable currency neutral earnings per share growth of 8% to 10%, we anticipate hyper inflationary pricing will continue to play a role in 2024.
Speaker Change: But it will moderate throughout the year.
Speaker Change: We continue to make significant progress.
Speaker Change: Towards Refranchising company owned bottling operations. After Refranchising is expected to be a four to five point headwind to comparable net revenues.
John Murphy: Our 2024 guidance builds on the underlying momentum of our business. We expect organic revenue growth of six to seven percent, but we'll moderate throughout the year, but it will have a positive impact on both our margins and the return profile of our business. Based on current rates and our hedge positions, we anticipate an approximate two to three point currency headwind and an approximate four to five point currency headwind. Notably, much of our anticipated 2024 currency headwinds are attributed to hyperinflationary markets, with a meaningful impact in the first quarter. Our underlying effective tax rate is expected to be 19.2% in 2024.
Speaker Change: And a two point headwind to comparable earnings per share.
But we'll have a positive impact on both our margins and the return profile of our business.
Speaker Change: Based on current rates on our hedge positions.
Speaker Change: We anticipate an approximate 2% to three points of currency headwind to.
Speaker Change: Comparable net revenues.
And an approximate 4% to five point currency headwind.
Speaker Change: The comparable earnings per share for full year 2024.
Speaker Change: Notably much of our anticipated 2020 for currency headwinds are attributed to HIFU inflationary markets.
Speaker Change: With a meaningful impact in the first quarter.
Speaker Change: Our underlying effective tax rates for 2024.
Speaker Change: Expected to be 19, 2%.
Speaker Change: All in we expect comparable earnings per share growth of 4% to 5%.
John Murphy: All in, we expect comparable earnings per share growth of four to five percent, versus $2.69, in 2023. We expect to generate approximately $9.2 billion of free cash flow in 2024, through approximately $11.4 billion in cash from operations. Let's, approximately $2.2 billion in capital investment. The $11.4 billion of cash from operations includes two items to highlight, transition tax payments of approximately $960 million, an increase of approximately $240 million versus 2023. Payments associated with various M&A transactions of approximately $560 million, an increase of approximately $330 million versus 2023. Driven by our underlying cash flow generation and current balance sheet strength, we have ample flexibility to both reinvest in our business to drive growth and return capital to our shareholders. A significant portion of our expected capital investment increase is to build capacity for Fair Life and for our India business, both of which experienced robust growth in 2023. As related to capital return, we have an unwavering priority.
Speaker Change: $2 69.
Speaker Change: In 2023.
Speaker Change: We expect to generate approximately $9 2 billion of free cash flow in 2024.
Speaker Change: Through approximately 11 $4 billion in cash from operations.
Speaker Change: Yes.
Speaker Change: Approximately $2 2 billion.
Speaker Change: And capital investments.
Speaker Change: The $11 $4 billion of cash from operations includes two items to highlight transition tax payments of approximately $960 million, an increase of approximately $240 million versus 2023.
Speaker Change: Payments associated with various M&A transactions of approximately $560 million.
Speaker Change: An increase of approximately three.
Speaker Change: $330 million versus 2023.
Speaker Change: Driven by our underlying cash flow generation and current balance sheet strength.
Speaker Change: We have ample flexibility to.
Speaker Change: To both reinvest in our business to drive growth and.
And returned capital to our shareowners.
Speaker Change: A significant portion of our expected capital investment increase.
Speaker Change: Is to build capacity for fair life.
Speaker Change: And for our India business.
Speaker Change: Both of which experienced robust growth in 2023.
Speaker Change: Related to capital return, we have an unwavering priority to.
John Murphy: We will continue to grow our dividend, as we've done with 61 consecutive years of dividend increases. With respect to share repurchases, we will be flexible in our approach. Typically, we've repurchased shares to offset any dilution from the exercise of stock options by employees in the given year.
Speaker Change: To grow our dividend as we've done with 61 consecutive years of dividend increases.
Speaker Change: With respect to share repurchases will.
Speaker Change: We'll be flexible in our approach.
Speaker Change: Typically we've repurchased shares to offset any dilution from.
Speaker Change: From the exercise of stock options.
Speaker Change: By employees in the given year.
John Murphy: Our capital allocation policy prioritizes agility. We're committed to taking the right actions needed to drive the long-term health of our business and create value for our stakeholders. There are some considerations to keep in mind for 2024. The first quarter of 2024 will be impacted by the timing of concentrate shipments in the fourth quarter of 2023 in some markets and by Cycling, our strongest volume growth quarter from the prior year. We estimate the ongoing conflict in the Middle East will have approximately one point of impact on volume growth during the fourth quarter of 2023. However, it's unclear how long this impact will last. In November 2023, the US Tax Court rendered its supplemental opinion related to our ongoing dispute with the Internal Revenue Service. We intend to move forward on appeal and vigorously defend our position. We have ample balance sheet flexibility to fund any payment related to the appeal.
Speaker Change: Our capital allocation policy prioritize agility, we're committed to taking the right actions needed to drive the long term health of our business and create value for our stakeholders.
Speaker Change: There are some considerations to keep in mind for 2024.
Speaker Change: The first quarter of 2024 will be impacted by the timing of concentrate shipments in the fourth quarter of 2023 in some markets.
Speaker Change: In cycling, our strongest volume growth quarter from the prior year.
Speaker Change: We estimate the ongoing conflict in the middle East.
Speaker Change: At approximately one point of impact on volume growth during the fourth quarter of 2023.
Speaker Change: It's unclear how long this impact will last.
Speaker Change: In November 2023.
Speaker Change: S tax court rendered its supplemental opinion related to our ongoing disputes with the internal revenue service, we intend to move forward on appeal.
Speaker Change: And vigorously defend our position.
Speaker Change: We have ample balance sheet flexibility to fund any payment related to the appeal.
Speaker Change: Finally, due to our reporting calendar there will be one less day in the first quarter and two additional days in the fourth quarter.
John Murphy: Finally, due to our reporting calendar, there will be one less day in the first quarter and two additional days in the fourth quarter. So, in summary... We're pleased with what we accomplished in 2023. We're building on our capabilities and continuing the underlying momentum across our markets. We're progressing on our refranchising agenda, and we're reinvesting in our system to drive long-term growth. We have great confidence we can deliver on our 2024 guidance and Long Term Commitment. With that operator, we're ready to take questions. Ladies and gentlemen, to ask a question, you'll need to press star 1 on your telephone.
Speaker Change: So in summary.
Speaker Change: We're pleased with what we accomplished in 2023.
Speaker Change: We're building on our capabilities to continue the underlying momentum across our markets. We're progressing on our Refranchising agenda, and we're reinvesting in our system to drive long term growth.
Speaker Change: Have great confidence, we can deliver on our 2020 for guidance.
And long term commitments.
Speaker Change: With that operator, we're ready to take questions.
Speaker Change: Ladies and gentlemen to ask a question you will need to press star one on your telephone to withdraw your question Press Star one again.
Unnamed Speaker: To withdraw your question, press star one again. In the interest of time, we ask that you please limit yourself to one question. If you have any additional questions, you may rejoin the discussion. Our first question comes from Lauren Lieberman from Barclays. Please go ahead. Your line is open. Great, thanks. Good morning, everyone.
Speaker Change: Interest of time, we ask that you please limit yourself to one question.
Speaker Change: If you have any additional questions you may rejoin the queue.
Speaker Change: Our first question comes from Lauren Lieberman from Barclays. Please go ahead. Your line is open.
Lauren R. Lieberman: Great. Thanks, good morning, everyone.
Lauren R. Lieberman: And I know John just went through a lot of details on that.
Unnamed Speaker: I know John just went through a lot of details on the guide, but I did just want to step back and maybe go to a higher level conversation on this, because for 23, you ended up with high single-digit earnings growth, even with that seven point currency headwind. And the initial guide for 24 for mid single-digit earnings growth feels like a reasonable starting point. But can you just contextualize a bit how you're thinking about the impact of hyperinflation? Like John mentioned, the Middle East tensions, the consumer backdrop, etc. So you're able to kind of come through with that U.S. dollar-based earnings growth outlook for the year. Thanks. Yeah, yeah, morning.
Lauren R. Lieberman: But I did just wanted to step back and maybe go to a higher level conversation on this because for 'twenty three.
Lauren Lieberman: <unk>.
Lauren R. Lieberman: Ended up with high single digit earnings growth, even with that seven point currency headwind.
Lauren R. Lieberman: The initial guide for 'twenty four for mid single digit earnings growth feels like a reasonable starting point, but can you just contextualize it bit how youre thinking about the impact of hyperinflation like John mentioned, the middle East tensions that consumer backdrop et cetera.
Lauren R. Lieberman: So youre able to kind of come through with that U.
Lauren R. Lieberman: U S dollar based earnings growth outlook for the year. Thanks.
Speaker Change: Yeah, Hey, good morning.
James Quincey: A couple of things. Firstly, the mid-single-digit growth in 2024 is after the impact of the re-franchising that we've called out. So in other words, pre-structural change, that's really six to seven. Second, what I think 2024 represents is ultimately a continuation of the underlying strength and momentum in the business that's being created. If you look at 23, or you look all the way back to 2019, take five years if you like, what is captured within that is the kernel of the core business running at the top end of the growth algorithm. Yes, there's been inflation and distractions and ups and downs, but in the end, running through that is a continuous amount of volume growth as we focus on our consumer franchise and keeping people in and growing the weekly plus consumers in our franchise, managing the And so what you see in this guidance is really the core business, and the 90 plus percent of the countries really love taking that combination of headwinds and tailwinds that we've experienced. There'll be a different set in 24, and there are bound to be some new surprises.
Speaker Change: A couple of things.
Speaker Change: Firstly, the mid single digit growth in 'twenty four is after the impact of Refranchising that we pulled out so and then in.
Speaker Change: In other words pre structural change that's really six to seven.
Speaker Change: Second.
Speaker Change: I think 24 represents is ultimately a continuation of the underlying strength and momentum in the business is being guided if you look at 'twenty three or you look all the way back to.
Speaker Change: 2019, and take five years, if you like what is what is captured within that is the kernel of the coal business running at the top end of the growth algorithm yes.
Speaker Change: Yes, there's been inflation and distractions and up and downs, but EMEA and running through that is a continuous.
Speaker Change: Mount of volume growth as we focus on our consumer franchise and keeping people in and growing the weekly plus consumers in our franchise managing the cycle of inflation that is now distinct depending on where you are in the world, but managing that cycle of inflation such that we now have in the majority of.
Speaker Change: The countries 90 plus percent of the countries nor.
Speaker Change: Normalized levels of kind of pricing more or less coming out of 2023, and so what you're seeing this guidance is really the core business and the 90 plus percent of the countries really low taking that combination of headwinds and <unk> that we've experienced there'll be a different setting 24.
Speaker Change: Bound to be some new surprises, but.
James Quincey: But we will manage through them with our all-weather strategy and deliver volume growth, growth in the consumer base with weekly plus. We'll earn our right to take an appropriate level of pricing and deliver at the top end of the growth algorithm. And then there's the overlay of inflationary markets and the selling of the bottling investment groups that we've done. And that hyperinflation overlay is, as John said, a few points on the top and obviously some on the bottom, and largely offset by the devaluation. So those two things go together.
Speaker Change: But we will manage through them with our all weather strategy and deliver volume growth growth in the consumer base with weekly plus we will earn our right to take an appropriate level of pricing and deliver at the top end of the growth algorithm and then there's the overlay of the inflationary markets.
And the selling of the ball.
Speaker Change: The bottling investment groups that we've done and that that hyperinflation out rate is.
Speaker Change: As John said.
A few points.
Speaker Change: On the top and obviously some on the bottom and largely offset by the devaluation. So they to those two things go together, but captured within that is a strong coal.
James Quincey: But captured within that is a strong call for growing top and bottom in line with the growth algorithm. Our next question comes from Dara Mohsenian from Morgan Stanley. Please go ahead, your line is open. Hey, good morning.
Speaker Change: Growing top and bottom in line with the growth algorithm.
Speaker Change: Our next question comes from Dara <unk> from Morgan Stanley. Please go ahead. Your line is open.
Dara: Hey, good morning, So maybe just a quick follow up there.
James Quincey: So maybe just a quick follow-up there. You know, as you think about that six to 7% organic sales growth guidance for 24, could you just give us a bit more detail on volume versus pricing on the underlying business, maybe x the hyperinflationary markets, just as we think about that balance between volume and pricing? And then James, just more importantly, longer term, perhaps you can just take a step back and review your confidence in, you know, delivering that long-term top line algorithm and the higher end of that algorithm, just as you look out over the next few years. Looking back at the last few years, there's obviously been a lot of volatility, hard for us to judge from an external perspective, given all the volatility with COVID. But how do you think And what level of confidence does that give you in the long term, looking out a few years? Thanks. Sure. Look, I'll try to do justice to the various angles there.
Dara: As you think about that 6% to 7% organic sales growth guidance for 'twenty. Four can you just give us a bit more detail on volume versus pricing on the underlying business, maybe extra hyperinflationary markets.
Dara: Just as we think about that balance between volume and pricing and then James just more importantly longer term.
Dara: You can just take a step back and review your confidence in delivering that long term top line algorithm in the higher end of that algorithm just as you look out over the next few years, taking a look back at the last few years Theres, obviously been a lot of volatility hard for us to judge from an external perspective, given all the volatility with <unk>.
Dara: Covid, but how do you think about sort of the success of the strategic initiatives you've put in place the last few years.
Dara: What level of confidence that gives you in the long term looking out a few years. Thanks.
Dara: Sure.
Speaker Change: Look I'll try to adjust as the various angles that let me, let me unpack a little bit 20 through the end of 'twenty three as a way of coming into 'twenty four.
James Quincey: Let me unpack a little bit 23 and the end of 23 as a way of coming into 24. In 2023, we had 2% volume growth, and that was true in the fourth quarter, and it was true through the year. And actually, if you take a five-year CAGR, we've been running at 2% volume growth for the last five years.
Speaker Change: 'twenty three we had 2% volume growth so that was true in the fourth quarter and it was true through the year and actually if you take a five year CAGR, we've been running at 2% volume growth over the last five years. So let's start with the volume that they've been strong underlying volume growth in the last quarter in the last year in the last five years. So that's there and we'd be that's true because we focused on.
James Quincey: There's been strong underlying volume growth in the last quarter, in the last year, in the last five years. That's right. That's true because we focused on building momentum in the system around building the consumer franchise. When you look at how that's gone along with pricing, obviously, there's the pandemic, the ups and downs in inflation. Let's just break apart 2023 and how that then flows into 2024. If you look at the fourth quarter of 2023, it says 9%. Yeah, it says 9%. As John pointed out, there's a couple of points there that are related to intra-year quarter to quarter deduction timing. Take off the two, and you get a seven.
Speaker Change: Building momentum in the system around building the consumer franchise. When you look at how that's come along with pricing. Obviously, there is the pandemic the ups and downs in inflation, let's just break apart 2023, and how that then flows into 'twenty four.
Speaker Change: If you look at the fourth quarter 'twenty three it says 9% yes.
Speaker Change: It sometimes and as John pointed out there's a couple of points that is related to intra year quarter to quarter deduction timings. So take off the two and you've got a seven of the remaining seven half of it is normal pricing in the 95% of the business does not hyper inflation rate.
James Quincey: Of the remaining seven, half of it is normal pricing in the 95% of the business that's not hyperinflationary, and the other 3.5% is in hyperinflationary countries because the inflation is so high. Really, what have you got in the fourth quarter? You've got 2% volume. You've got 3.5%, a bit more than 3.5% price. Price Mix, and that's the core. There you've got something that's running bang in the center of the long-term growth algorithm of five to six on the top line. It was true in the fourth quarter,
Speaker Change: And the other three in office and is in the Hyperinflationary countries.
Speaker Change: Because the inflation is so high so really what have you got in the fourth quarter, you've got 2% volume you got three and a half will be more of a three 5% price.
Speaker Change: Price mix and Thats the call that <unk> got something Thats running Bang in the center of our long term growth algorithm of five to six on the top line was during the fourth quarter, it's true as a colonel in the whole of 2023 actually it's really true across the whole of the last five years. Once you take out some of these inflationary distortions in the selling of the volumes.
James Quincey: It's true as the kernel for the whole of 2023. Actually, it's really true across the whole of the last five years once you take out some of these inflationary distortions and the selling of the bottom income. So there it is running for the last quarter, the last year, the last five years. Think about 24.
Speaker Change: Severity is running the last quarter that last year. The last five years think about 'twenty four we can our goal as we've always had a balance of volume and price.
James Quincey: We're going to go, as we've always said, for a balance of volume and price. In that 95% of the business, we're going to see volume growth, and we're going to see normalized pricing growth. Our aim is for the net of the two to be in that top end of the long-term growth algorithm for revenue growth. Yes, there's going to be an overlay of hyperinflation, but probably more like a couple of points as we think about 2024 on the top line, and that's why you get what we've called out in terms of top line growth. Well, hopefully that unpacks a bit of how, you know, price mix has got this hyperinflation distortion in it. Actually, it's also got the selling of the bottlers, if you don't do it on a comparable basis.
Speaker Change: In that 95% of the business, we're going to see volume growth.
Speaker Change: We're going to see normalized pricing growth.
Speaker Change: Our aim is to the net of the two to be in that top end of the long term growth algorithm for revenue growth. Yes, there is going to be an overlay of hyperinflation, that's probably more like a couple of points as we think about 2024 on the top line and Thats why you get what we called out in terms of the topline growth.
Speaker Change: So hopefully that will impact us a bit of how price mix is up this is the highest reflationary distortion. It actually it's also got the selling of the <unk>. If you don't do it on comparable.
Speaker Change: But really embedded in that 6% to seven is I keep hating the long term gross <unk> on revenue for the six year and we feel the momentum we've built with our bottling partners investing in the marketing the innovation the in store execution the execution the marketplace with Dr. GM strategy.
James Quincey: But really embedded in that six to seven is keeping hitting the long-term growth at Goldman on revenue for the kind of sixth year, and we feel the momentum we've built with our bottling partners investing in marketing, innovation, in-store execution, and the marketplace with the RGM strategies across the global portfolio geographies gives us strong confidence we will continue with our momentum. Our next question comes from Bonnie Herzog of Goldman Sachs. Please go ahead. Your line is open.
Speaker Change: <unk> across the global portfolio of geographies gives us strong confidence we will continue with our momentum.
Speaker Change: Our next question comes from Bonnie Herzog from Goldman Sachs. Please go ahead. Your line is open.
Bonnie Herzog: Alright. Thank you good morning, I actually had a question on smart.
Bonnie Herzog: Margin I was hoping for a little bit more color on the drivers of your expansion in Q4, which came in better than expected and then could you highlight.
Bonnie Herzog: The key puts and takes on margin this year curious yes.
Unnamed Speaker: All right. Thank you. Good morning.
Unnamed Speaker: I actually had a question on gross margins. I was hoping for a little bit more color on the drivers of your expansion in Q4, which, you know, came in better than expected. And then could you highlight some?
Bonnie Herzog: How much do you expect Cogs inflation, maybe to moderate our well higher sugar costs continue to be a big headwind.
Speaker Change: Thanks, Bonnie let me start if I just pick up from her Jim's left often.
John Murphy: You know, maybe the key puts and takes on margins this year. Curious. How much do you expect COGS inflation maybe to moderate, or will, you know, higher sugar costs continue to be a big headwind? Thanks. Thanks, Bonnie.
Speaker Change: Step out at both the quarter and the year. If you look over the last four years are.
Speaker Change: We've been able to sustain.
Speaker Change: A pretty resilient gross margin line as.
Speaker Change: As we go into 2024.
Speaker Change: To be able to continue to do so there is.
John Murphy: Let me start by just picking up where James left off and, You know, a step out of about the quarter in the year, if you look over the last four years, we've been able to sustain a pretty resilient growth margin line. As we go into 2024, expect to be able to continue to do so. There's some expansion embedded in the long-term growth model, and we're confident that we can continue to drive that. With respect to 2023, the key ingredients, so to speak, were the impact of the various pricing actions. We've had inflation somewhat offset by higher than normal inflation on some of our commodity items and indeed some of our non-commodity costs around the world. But overall, for 2023, that's the key story.
Some expansion embedded in the long term growth model.
Speaker Change: We're confident that we can continue to drive that with respect to 2023.
Speaker Change: The key ingredients so to speak.
Speaker Change: Where the impact of the various pricing actions.
Speaker Change: We've had around the world.
Speaker Change: Somewhat offset by higher.
Speaker Change: Normal inflation with some of our commodity items on Andy somewhere non commodity costs.
Speaker Change: But but overall for 2023, that's that's the key story.
Speaker Change: In 2024, I think you need to take into account the <unk>.
Speaker Change: Mechanical impact of the Refranchising.
All of those markets that we talked about in the release.
John Murphy: In 2024, I think you need to take into account the mechanical impact of the refranchising of those markets that we talked about in the release that will layer in throughout 2024. Keep in mind, too, the impact of foreign currency headwinds, and against that, then, we will continue to drive the levers that we have. I've talked about this in the past, but maybe it's worth just highlighting that we start, really, with that suite of revenue growth management tools and the many actions that we can take with that. We have a very resilient supply chain.
Speaker Change: I will layer in throughout 2024.
Speaker Change: Keep in mind to the impact of foreign currency headwinds.
Speaker Change: And against that then we will we will continue to drive.
Speaker Change: The levers that we have.
Speaker Change: <unk> talked about this in the past but.
Speaker Change: Maybe worth just.
Speaker Change: Highlighting.
Speaker Change: We start really with the with that suite of revenue growth management tools and the many actions that we can take with us.
Speaker Change: Okay.
Speaker Change: We have a very resilient supply chain.
Speaker Change: Tremendous partners across the supply chain.
Unnamed Speaker: Tremendous partners across the supply chain. We source mostly locally, and we continue to drive innovation at our scale. A lot of productivity in almost each line item of what comprises the supply chain. So going into 2024, I think it's worth just reiterating that we expect to see margin expansion, some of it driven by that mechanical effect of The Bottle Refranchising, and with some more normalized. Inflation relative to the last couple of years, plus. By continuing to deploy those levers I talked about, we see the opportunity to continue to drive our long-term growth model expansion. Our next question comes from Bryan Spillane from Bank of America. Please go ahead. Your line is open. Hey, thanks, operator. Good morning, everyone.
Speaker Change: We source mostly locally.
Speaker Change: And we continue to drive.
Speaker Change: Through our scale.
Speaker Change: Sort of productivity and in almost each line item of plus comprises the supply chain. So.
Speaker Change: Going into 2024, I think it's worth just reiterating.
Speaker Change: We expect to see margin expansion some of it's driven by that mechanical effect of the bottler refranchising.
And with some more normalized.
Speaker Change: Cost inflation relative to the last couple of years, plus continuing to deploy those levers I talked to us.
Speaker Change: We see the opportunity to continue.
Speaker Change: Continuing to drive our long term growth model.
Speaker Change: Expansion.
Speaker Change: Yes.
Speaker Change: Our next question comes from Bryan Spillane from Bank of America. Please go ahead. Your line is open.
Bryan D. Spillane: Hey, Thanks, operator, and good morning, everyone.
Bryan D. Spillane: I'd like to just drill in a little bit more on North America, and James I think on the last earnings call you talked a little bit about channel shift right like on premise or foodservice, maybe growing faster than than some of the take home channels. There was some commentary I think also about our observations I should say about maybe low.
James Quincey: I'd like to just drill in a little bit more on North America. And you know, James, I think, on the last earnings call, you talked a little bit about channel shift, right, like on premise or food service, maybe growing faster than some of the take home channels. There was some commentary, I think also about, or observations, I should say about maybe low-income consumers. So maybe they just kind of stated things there.
Bryan D. Spillane: Income consumers. So maybe just kind of state of things there and John just if you can also clarify I think in the press release, there was a mention.
John Murphy: And John, just if you can also clarify, I think in the press release, there was a mention in the description around price mix, some sort of adjustment. So I wasn't sure if that's an accrual related to promotions, or just if you could just give us a little bit more color on that as well. And also, sounds like concentrate shipments might have lagged in the quarter. So do we make that up in the first quarter? I know there's a lot there, but if you guys can just fill in the blanks, that'd be helpful. Thanks. Yeah, let me take the end, and then I'll pass it over to James for the beginning.
John Murphy: Mentioned in the description around price mix, some sort of adjustment. So wasn't sure. If that's sort of an accrual related to promotions or just if you could just give us a little bit more color on that as well and also.
John Murphy: It sounds like concentrate shipments might have lagged in the quarter. So do we make that up in the first quarter.
A lot there, but if you guys can just filling that'd be helpful. Thanks.
Speaker Change: Yeah, Let me, let me take the <unk> and then I'll pass it over to James from the beginning.
Speaker Change: Yes.
James Quincey: Mix that you referred to us as it is timing related.
James Quincey: The mix that you refer to is timing-related, and it's not unusual in the fourth quarter to have timing-related items in the deductions area, particularly that will flow back through into next year. Yeah, consumer to let me. There were two things. One, clearly, the consumer landscape in North America; one has to not think of it in aggregate because, actually, in aggregate, the US consumer spending power is held up pretty strongly compared to some other developed markets. What has been important is to understand there's a section of the population that has come under pressure from disposable income, the real spending power squeezed from the inflationary effect, and there we are very much focused on affordability, and you could perhaps argue that some of them go out less.
James Quincey: <unk>.
James Quincey: It's not unusual in the fourth quarter to have.
James Quincey: Timing related items and.
James Quincey: And the deductions area, particularly that will slow back too and so into next year.
James Quincey: Yes.
James Quincey: Consumer.
Speaker Change: To let me.
Speaker Change: So with two things that warm.
Speaker Change: Clearly the consumer landscape in North America.
Speaker Change: One has to not think of it in aggregate to actually in aggregate the.
Speaker Change: U S consumer spending power has held up pretty strongly compared to some other developed markets.
Speaker Change: What has been important as to all of a sudden there is a section.
Speaker Change: All of the population that has come under pressure from disposable income.
Speaker Change: Real spending power squeeze from the inflationary effects and there are very much focused on affordability and.
Speaker Change: And you could perhaps argue that some of them went out last there was more at home purchases some of the certain channels that we really focus with affordability both from pack size individual pack size and.
James Quincey: There were more at-home purchases, some of the certain channels, and there we really focus on affordability, both from pack size, individual pack size, and with multipack. On the other hand, there's a segment of consumers that still have plenty of money, plenty of purchasing power, and we've seen strong growth for some of the higher price point premium segments like Fair Life, Core Power, simply some of those ones. So there's clearly multiple things going on in the landscape in terms of categories and price points, and we've been working to address both ends of those. And as it relates to channels, I think we've seen a kind of renormalization.
Speaker Change: With multi packs all me I'll hand the.
Speaker Change: Segment of consumers that still have plenty of money plenty approaching path and we've seen strong growth with some of the the higher price point premium segments like fell off coal power.
Speaker Change: Assembly some of those one so there's clearly a multiple things going on in the landscape.
Speaker Change: In terms of categories and price points and we've been working to address both ends of those and as it relates to channels.
Speaker Change: I think we've seen the kind of re normalization there has been a historic slight shifting volume consumption from at home to Hawaii over time.
James Quincey: There has been a historic slight shift in volume consumption from at-home to away over time. Clearly, through COVID, there was a big downturn in the away-from-home and then a rebound in 21, the away-from-home channels. In 22, they stay out, but they continue to outpace at-home. In 23, they were slightly ahead of at-home.
Speaker Change: Clearly through co, but there was a big down in the away from home and then a rebound.
Speaker Change: In 'twenty, one the away from home channels in 'twenty, two they stay out but they continue to outpace our homes in 23 they were <unk>.
Speaker Change: Slightly ahead of at home if you look at the various away from home channel that was slightly ahead of at home I would say that that landing more than what it was previous to COVID-19 kind of the more normal situation.
James Quincey: If you look at the various away-from-home channels, they were slightly ahead of at-home. I would say that that's landing more in what it was prior to COVID, kind of the more normal situation. So that was kind of what I would say, a strong need to focus on the different consumer segments and a sort of renormalization of some of the channel dynamics. Our next question comes from Steve Powers from Deutsche Bank. Please go ahead; your line is open. Great, thank you. Good morning.
Speaker Change: Kind of what I would say strong need to focus on the different consumer segments, and a sort of a renormalization of some of the channel dynamics.
Speaker Change: Our next question comes from Steve Powers from Deutsche Bank. Please go ahead. Your line is open.
Steve Powers: Great. Thank you and good morning.
Unnamed Speaker: Um, two, two questions, if I could, I know I'm supposed to have one, but one's a quick one on the, if you could clarify, maybe for John, you call out the two to 3% currency headwinds for next year on revenue but a four to 5% headwind on EPS. Just if you could, how much of that incremental bottom-line headwind is going to show up in operating profit versus below the line given monetary asset revaluation, etc. And then I guess the broader question is just thinking about all the refranchising activity and the system progress that you made in 23. We talked about the financial impacts of that in lesson 24. But I guess I'd love your perspective, James, on the importance of the steps you made in 23, in terms of just bettering the system overall and priorities going forward from a system evolution. Okay, I'll, shall I start at this time and then you go second, John? Sure.
Steve Powers: Two questions if I could I know I'm supposed to have one but wanted to quick just on the if you could clarify maybe for John you called out the 2% to 3% currency headwind.
Steve Powers: For next year on the revenue, but a 4% to 5% headwind on EPS.
Steve Powers: You could how much of that incremental bottom line headwind is going to show up in operating profit versus below the line given.
Steve Powers: Monetary asset revaluation et cetera, and then.
Steve Powers: Then I guess the broader question is just.
Steve Powers: Thinking about.
Steve Powers: All of the Refranchising activity in the system.
Steve Powers: The progress that you've made in 'twenty three we talked about the financial impacts about 24, but I guess above your perspective, James on the importance of the steps you made in 'twenty three in terms of betterment of the system overall and priorities going forward from a system evolution perspective. Thank you.
Steve Powers: Okay.
Speaker Change: <unk> thought about it this time and then you guys second John sure.
John Murphy: Look we have.
We focus on our Refranchising effort.
Speaker Change: Like John strides our ambition is to be the world's smallest butler.
Speaker Change: Still remains absolutely true, but we're going to do it at the pace.
James Quincey: Um, look, we, we, we have, We focus on our re-franchising effort, and as I like John's phrase, our ambition is to be the world's smallest bottler. It still remains absolutely true, but we're going to do it at the right pace so that we make sure we do the re-franchising in the right way with the right partners. I think we can categorically say we're very pleased with the re-franchising process that we've undertaken over the last number of years, almost without exception. Every time we put one of the bottling companies into the hands of the right partner with a joint vision and investment plan to take the business forward, we have stepped up performance. Whether it be a straight re-franchising or a combination creating new bottlers or evolved bottlers, we have upped the level of performance. I think that is a sign of the commitment of the company to invest in what it does best, which is the branding, the marketing, the innovation, working with our bottlers to get revenue growth management, and their unwavering commitment. I think we're in the penultimate chapter of refranchising; there's only really a couple of pieces left.
Speaker Change: So to make sure we do the Refranchising in the right way with the right partners.
Speaker Change: I think we can categorically side, we're very pleased with the Refranchising process that we have taken over the last number of years almost without exception every time, we put the bottling companies into the hands of the right partner with the joint.
Speaker Change: Vision and investment plan to take the business forward, we have stacked up performance, whether it be straight refranchising or combination, creating new board lives will evolve bottlers, we have upped the level of performance and I think that as I sign of the commitment of the company to <unk>.
Speaker Change: And what it does best which is the <unk>.
Speaker Change: <unk> the marketing the innovation working with our bottlers to get the revenue growth management and their unwavering commitment to.
Speaker Change: To drive execution and build capabilities and capacities in the marketplace and that has helped power. The overall performance I talked about in the answer to the previous questions. So awesome I think were in the Penn Ultimate chapter of the Refranchising, There's only really a couple of pieces left at the <unk>.
James Quincey: At the right time, with the right partners, we would like to finish the really we have our eye on the prize, creating a much stronger system together with our bottling partners to continue the top of the algorithm momentum very far into the future. Great. And on currency, Steve. Let me just make a couple of comments in case there are other questions out there on currency overall. First of all, I think it's important to highlight the 24 guidance that we've given. It would be close to flat if we were to exclude those few hyperinflationary markets, and it just reinforces the point we're making about that sort of distortion that those few markets have. And then, secondly, with regard to your specific question, I do not have that breakdown today.
Speaker Change: Right time with the right partners, we would we would like to finish the play but really we have our eye on the prize on creating a much stronger system together with our bottling partners to continue the top of the algorithm momentum very far into the future.
Speaker Change: Right on.
Speaker Change: Currency Steve.
Speaker Change: Let me just make a couple of comments.
Speaker Change: There are other questions out there on on currency overall first of all I think.
Speaker Change: It is important to highlight that 24 guidance that we've given.
Speaker Change: It would be close to flat if we were to exclude those few hyperinflationary markets.
Speaker Change: It just reinforces the point that we're making on that sort of distortion that those few markets.
Speaker Change: <unk>.
Speaker Change: And then secondly, with regard to your specific question I do not have that breakdown.
Speaker Change: Today, there is just too many <unk>.
James Quincey: There's just too many, there's just too many puts and takes, particularly below the operating income line. As we go through the year, you've got to do a monthly remeasurement on the balance sheet items. And that's just a calculation that I don't have. I don't have the ability to predict in great detail, so I just keep in mind that the overall impact, I think, is the one to focus on. In normal years, the multiplier is one and a half times to two times.
Speaker Change: Too many puts and takes particularly in that.
Speaker Change: <unk>.
Speaker Change: Below the below the operating income line as we go through the year you got to do a monthly.
Speaker Change: <unk> measurement on the balance sheet items and Thats just a calculation is I don't have.
Speaker Change: I don't have the ability to predict with great detail. So I'll just keep it keep in mind.
Speaker Change: The overall impact I think is the 1% to focus on.
Speaker Change: In normal years, the multiplier is one five to two times.
John Murphy: We would continue to assume that'll be the case going forward, but these hyperinflationary markets have a tendency to create that distortion that we've highlighted, and we'll continue to provide guidance as we go through the year to make sure that everybody stays abreast of the latest developments. Our next question comes from Rob Ottenstein from Evercore ISI. Please go ahead. Your line is open.
Speaker Change: We continue to assume that'll be the case going forward.
Speaker Change: Hyperinflationary markets have a tendency to.
So Chris distortion Thats, so we've highlighted as well.
Speaker Change: We will continue to provide guidance as we go through the year to make sure that everybody says abreast of the latest developments.
Speaker Change: Our next.
Speaker Change: Comes from Rob <unk> from Evercore ISI. Please go ahead your line is open.
Unnamed Speaker: Great, thank you very much. James, I think, you know, you made a very strong case that really, over the last five years, if you X out the noise, you've delivered roughly kind of five and a half percent top line growth, which, you know, puts you clearly in the top rankings of your other staples companies. And that's great. In terms of both 24 and looking forward, you know, assuming a continuation of that, what can you do to both de-risk that in terms of the bottom line and enhance it in terms of the bottom line given, you know, the various macro variables. And then given that you've now de-levered to, you know, 1.7, and you've shown, you know, interest in buying back stock, should we think of share buybacks as perhaps a greater part of the overall algorithm and, you know, value creation for shareholders going forward? Thank you. Um, okay.
Rob: Great. Thank you very much so James.
Rob: You've made a very strong case that really over the last five years.
Rob: You ex out the noise, you've delivered roughly kind of five 5% Todd.
Rob: Topline growth, which puts you.
Rob: Clearly in the top.
Rob: Rankings of of your other staples companies and Thats great.
Rob: In terms of both 24 and looking forward.
Rob: Assuming a continuation of that.
Rob: What can you do to both de risk that.
Rob: In terms of the bottom line and enhance it in terms of the bottom line given that.
Rob: Various macro variables.
Rob: And then given that you've now de Levered 217.
Rob: You've shown.
Rob: Trust and buying back stock should we think of share buybacks as perhaps a greater part of the overall.
Rob: Our algorithm and.
Rob: Value creation for shareholders going forward. Thank you.
Speaker Change: Okay. So I mean.
James Quincey: So, I mean, I think the, the... The de-risking, I think what I would say is, look, we've faced an extraordinary number of headwinds in the last five years and still delivered at the top end of the algorithm. Things will happen in the coming years, but there'll be tailwinds.
Speaker Change: The.
Speaker Change: Sure.
Speaker Change: The Derisking I think what I would say is look we face an extraordinary number of headwinds.
Speaker Change: In the last five years and still delivered at the top end of the Alvin.
Speaker Change: Things will happen in the coming years.
Speaker Change: But that'll be tailwind and I think really the argument about whether it's I cannot tell you what the future holds but if you look at what we've managed to work through and deliver at the top end on the revenue and the momentum and the capabilities that we've built in the system and actually if you look at the.
James Quincey: And I think, really, the argument about the old weather is that I cannot tell you what the future holds. What? If you look at what we've managed to work through and deliver at the top end on revenue and momentum and the capabilities that we've built in the system, and actually, if you look at the share and look at our long-term performance of also gaining share within the industry, I think you can see a head of steam building up on momentum, and at the scale that we operate, it's a very compelling way to drive it forward. And as that So, kind of on an ongoing basis, that's already six to seven.
Speaker Change: Sure and look at our long term performance are also gaining share within the industry. I think you can see hey, this theme builds up our momentum and at the scale that we operate it's a very compelling way to drive it forward and as that feeds down into the bottom line of.
Speaker Change: Lee the mid single digits.
Speaker Change: The us dollar EPS coal for 2024 includes the disposal of two points of EPS from the bottling system, So kind of on an ongoing basis, that's already <unk>.
Speaker Change: Seven.
James Quincey: I think we can continue to drive some leverage from the top line to the bottom line in dollars, and that becomes a compelling compounder over time. As it relates to cash, I think that you will see... We've put in a kind of new non-GAAP metric somewhere in the ecosystem of the website, which just calls out what John was talking about, about the number of discrete items that are coming up over the next couple of years as it relates to transition tax, actually, tax on the M&A transactions. If you sell a bottler, the money you get disappears into one account, but the tax you pay goes into the free cash flow, curiously enough.
Speaker Change: I think we can continue to drive some leverage from the top line to the bottom line.
Speaker Change: In dollars and that becomes a compelling compound.
Speaker Change: Overtime.
Speaker Change: As it relates to cash I think you will see.
Speaker Change: We've put in.
Speaker Change: Kind of a new non-GAAP metrics somewhere in the ecosystem of the websites, which just calls out what John was talking about about the number of discrete items that are coming up over the next couple of years as it relates to transition tax actually curiously tax on the M&A transactions.
Speaker Change: If you sell a bottler the money you get disappears into one account for the taxes you pay it goes into the free cash flow curiously enough. So there's a whole set of discrete items that make the free cash flow look at for the next few years, but if you strip that out you see that the earnings are flowing into free cash flow the cash conversion.
James Quincey: There's a whole set of discrete items that make the free cash flow look odd for the next few years. But if you strip that out, you see that the earnings are flowing into free cash flow, and the cash conversion on that adjusted basis remains very high and is likely to continue to do so. In a normal world, clearly, as John said, we would continue to increase our dividend, and we would have... Standing additional cash to continue to invest in the business and consider potential share repurchases. The wrinkle in the cream, if you like, is our considerations of the IRS tax case and the impending appeal. And so as we go forward for the next few years, we like our strong balance sheet.
Speaker Change: I will not adjusted basis remains very high and is likely to do so so on a on us on a in a normal world clearly as John said, we will continue to increase our dividend and we would have substantive additional cash to continue to invest in the business and consider potential share repurchases.
Speaker Change: The wrinkle in the claim if you like is our considerations of the IRS tax case.
Speaker Change: And the impending.
Speaker Change: <unk>.
Speaker Change: And so as we go forward for the next few years, we we like our strong balance sheet, we're mindful of.
James Quincey: We're mindful of the likelihood of launching the appeal in the second half. We have Incoming non-operating cash flows, which, as John talked about, we used to buy some shares in the fourth quarter. We're gonna balance all these things, particularly in the next couple of years. We'll keep everyone updated. But I think the long-term perspective is that the cash generation will continue to be very strong, John. Yeah, go on. Just one additional point.
Speaker Change: The likelihood of launching the appeal in the second half we have incoming nonoperating cash flows, which as John talked about we used to buy some shares in the fourth quarter, we're going to balance all these things.
Speaker Change: Particularly in the next couple of years, we will keep everyone updated but I think a long term perspective is that the cash generation will continue to be very strong.
John Murphy: John Yes.
John Murphy: One additional point in addition to that unwavering commitment we have to the dividend we talked about in the script one of the lessons I think over the last couple of years is to be prepared to be.
John Murphy: In addition to that unwavering commitment we have to the dividend that we've talked about in the script, one of the lessons I think we've learned over the last couple of years is to be prepared to be more dynamic relative to your kind of normal view of the individual components. So, Yeah, as you know, our debt goal is to be two to two and a half times, and we're at 1.7. We think that's right for what we need going into 2024 and 2025. We've taken up our CAPEX for 2024 because it's the right thing to do to continue to build the growth foundations that we need in those parts of the business that need capacity, just two examples, and so I think we will continue to demonstrate that as we go forward with the share repurchases in the back half of the year.
John Murphy: More dynamic relative to your kind of.
John Murphy: Normal view of the.
John Murphy: Individual components so.
John Murphy: Our debt our debt goal is to be two to two five times and we're at a $1 seven we think that's right for what we needed.
John Murphy: Going into 2020 for 2025.
John Murphy: We've taken up our Capex for 2024, because it's the right thing to do to continue to build the growth foundations that we need.
John Murphy: And those parts of the business that needs need capacity.
John Murphy: Just two examples.
John Murphy: Yes.
Speaker Change: I think we will continue to demonstrate that as we go forward.
Speaker Change: The share repurchases in the back half of the year.
John Murphy: Again, it was not something that we had necessarily considered at the start of the year, but we felt there was an opportunity with the Boffler proceeds coming in to do so, and we continue to take that approach as we enter this coming year. Our next question comes from Chris Carey from Wells Fargo. Please go ahead; your line is open. Hi, good morning.
Speaker Change: Again was was not something that we had necessarily considered at the start of the year, but we felt there was an opportunity with the Buffalo proceeds coming in to do so.
Speaker Change: And we continue to take that approach as we enter this coming year.
Speaker Change: Yeah.
Speaker Change: Our next question comes from Chris Carey from Wells Fargo. Please go ahead. Your line is open.
Chris Carey: Hi, Good morning, I wanted to see if you could maybe frame the global away from home channel I know you touched on it a little bit in response to Brian's question, but.
Unnamed Speaker: I wanted to see if you could maybe frame the global away from home channel. I know you touched on it a little bit in response to Brian's question. But, you know, we've heard about, obviously, there's a lot of pricing power in that channel, there's been a lot of pricing, you're talking about a normalization from, you know, elevated levels, back to a more normal channel distribution between at home and away from home. Can you maybe just give us a bit more granular perspective on what you're seeing by region and whether some of the strengths, you know Thanks. Yeah, sure, Chris, I'll give it a go.
Chris Carey: We've heard about obviously, there's a lot of pricing power in that channel, there's been a lot of pricing youre talking about a normalization from.
Chris Carey: Elevated levels are back to a more normal channel distribution between us at home and away from home, but can you maybe just give us a bit more.
Chris Carey: Granular perspective on what Youre seeing by region and whether some of the strength.
Chris Carey: I think what's occurring in Q4 has continued into this year. Thanks.
Speaker Change: Yes, sure Chris I'll I'll give it a go.
James Quincey: Look, I think that the headline is the commentary about North America, to some extent, applies everywhere else in the sense that, you know, clearly in COVID, there was the closed down, the reopening, big swings between away from home and at home. But in 22, it kind of renormalized. And I think overall, in 23, you see that again. You saw that in the US, where the away-from-home channels, in aggregate, were slightly ahead of the at-home channels. You see that also in Europe, or the EMEA segment, you see the at home slightly ahead, but it's only marginal. And when you break it down, I mean, there's going to be the kind of continuing structural growth of away from home, but it's only a small fraction. If that's a sort of, if that's leading to a question about pricing, and is there some ongoing likelihood of a big upside from a kind of channel mix? The short answer is: no.
Speaker Change: Look I think that the.
Speaker Change: The headline is the commentary about North America to some extent applies to some extent applies everywhere else in the sense that clearly in Covid, though was the closed down the reopening big swings between away from home.
Speaker Change: And at home, but in 'twenty, two it kind of re normalized.
Speaker Change: And I think overall in 23, you see that again you saw that in the U S where the away from home channels in aggregate were slightly ahead.
Speaker Change: The at home channels.
Speaker Change: See that also in Europe, or EMEA segment, you see.
Speaker Change: The at home slightly up but it's it's it's only marginal.
Speaker Change: And when you when you break it down I mean, there's going to be the kind of continuing.
Speaker Change: Our structural growth of away from home, but it's only a small fraction if that's a sort of.
Speaker Change: It's also sort of leading.
Speaker Change: Two.
Speaker Change: A question about pricing and if there is some ongoing a likelihood of a big upside from channel mix. The short answer is no.
James Quincey: If I were to take the proxy of immediate consumption packages and future consumption packages, because channel mix becomes very different as you get to different parts of the world, particularly emerging markets, then the kind of immediate consumption came much more into balance versus the future consumption in 23 relative to 22, and that's not too surprising as we start to also think about Affordability having been a strategy in 2023. So that's a that's a roundabout way of saying We're not expecting big mix effects from the channel in 2023. Our next question comes from Andrea Teixeira from J.P. Morgan. Please go ahead. Your line is open.
Speaker Change: <unk> take a proxy of immediate consumption packages and future comps consumption packages.
Speaker Change: Just channel mix becomes very different as you get to different parts of the world, particularly the emerging markets than.
Speaker Change: And then that became much more the kind of the immediate consumption came much more into balance versus the future consumption.
Speaker Change: In 'twenty three relative to <unk>.
Speaker Change: 'twenty two.
Speaker Change: That's not too surprising as we start to also think about affordability, having been a strategy in 2023, so that's a.
Speaker Change: That's a roundabout way of site.
Speaker Change: Not expecting big mixed effects from channel in 2004.
Speaker Change: Our next question comes from Andrea Teixeira from Jpmorgan. Please go ahead. Your line is open.
Unnamed Speaker: Thank you. And good morning, everyone. So, James, can you comment a little bit about the U.S.? I understand, obviously, the U.S. is not, in terms of volumes, it's about 20 percent. But within your outlook for 2024, you quoted in the fourth quarter that water, sports, and coffee were negative or decelerating. And how about some of that is mostly self-inflicted vis-a-vis what you're actually facing in terms of market share and how much you expect that to be lingering into the first half of 2024? And just a clarification to your comment now in terms of the shift into on premises and back to your comments on price mix. Out of the 9% that you got, if my math is correct, you got about 2% or 3% benefit from MIGS in 2023.
Thank you and good morning.
Andrea F. Teixeira: Everyone. So James can you comment a little bit about the U S. I understand obviously you asked is not in terms of the volumes.
Andrea F. Teixeira: About 20%, but within our outlook for 2024.
Andrea F. Teixeira: You quoted in the fourth quarter that water sports coffee.
Andrea F. Teixeira: <unk>.
Andrea F. Teixeira: More negative or negative or decelerating.
James Quincey: And how about what is of that is like mostly self inflicted.
James Quincey: Yes.
James Quincey: What you are actually facing in terms of market share and how much you expect that to be lingering into the first half of 'twenty four and just a clarification to your comment now in terms of like the shifting to on premise.
James Quincey: And back to your comments on price mix.
James Quincey: Out of the 9% that you bought if my math is correct you got about two or 3% benefit from mix in 2023 should we expect that to decelerate or with your efforts to do more mini cans and take that more broadly is that still going to be the projected contribution for 2024. Thank you.
James Quincey: Should we expect that to decelerate? Or with your efforts to do more mini-CANs and take that more broadly, is that still going to be the projected contribution for 2024? Thank you.
Speaker Change: Sure Okay. The comments on the 2% in the fourth.
James Quincey: Okay, the comments on the 2% in the fourth quarter, that was related not to channel mix but to the rate that, the way that deductions happen, so this is not, this is often just an accounting treatment between the quarters within the year, but not mix as you would think of it in terms of package mix or channel mix or category mix. This is, this is related to kind of the big difference between gross and net revenue. And so it's a distraction in the short term. So I would, I would, I would move past that one.
Speaker Change: In the fourth quarter that was related not to channel mix, but to the right that the way that deductions happen.
Speaker Change: It happens. So this is not this is this is often just on the accounting treatment between the quarters within the year. So it's not mix as you would think about it in terms of package mix or channel mix of category mix. This is related to kind of the big difference between gross and net revenue and so it's a.
Speaker Change: Distraction in the short term so I would I would I would move past bought warrants.
James Quincey: And if you like, ignore that bit; focus instead on the underlying impact of non-hyperinflationary pricing in 2023, which was the kind of three and a half percent, which is very, which ran through 2023 and is inherent in what we're saying, roughly speaking, for 2024. So we're expecting rate and mix, whether it's channel category, geography, package, the sort of things we were saying, which in 23 is what we were expecting in 21. And again, those are all largely normalized in 23. So, by inference, they're all largely normalized in 24 as well.
Speaker Change: And if you like it to me ignore that bit focus instead on the underlying impact in 2023 of the non hyper inflationary pricing, which was the kind of three and a half.
Speaker Change: <unk> percent, which is very.
Speaker Change: Which ran through 2023 and is inherent in what were saying roughly speaking for 2024, so we expecting right and mix, whether it's channel category geography package the sort of.
Speaker Change: Things, we were saying.
Speaker Change: In 'twenty three is what we're expecting in 'twenty, one and again.
Speaker Change: Those are all largely normalized in 2003, so by inference that all largely normalized in 'twenty four as well. So you kind of see a stability across channels packages et cetera et cetera.
James Quincey: So you kind of see stability across channels, packages, et cetera, et cetera. As it relates more specifically to the U.S., yes, we did some deprioritization of some of the bulk water categories, and some of the advanced hydration was the normalization or re-stabilization of the sports drinks category. I mean, I don't think there's an obvious or useful split between self-inflicted or proactive decisions versus things that are competitive. That's hard to tease apart.
Speaker Change: As it relates more specifically to.
Speaker Change: The U S. Yes, we did some de prioritization of some of the bulk water categories.
Speaker Change: And some of the advanced hydration walls the.
Speaker Change: Normalization or re stabilization of the sports drinks category.
Speaker Change: I don't think there is a.
Speaker Change: Adult VSO useful split between.
Speaker Change: Self inflicted.
Speaker Change: Proactive decisions versus things that were competitive that's hard to tease apart.
James Quincey: Clearly, from a performance point of view, you know, when we think about it, in the US, yes, there's a fractional softening of the volume through the year, which I think goes back to the comment I made about the different consumer segments. But if you step back and think about what the overall impact of our marketing, innovation, RGM, and execution with the bottlers, the answer is we won volume share in 2023, and we won value share in 2023. So, yeah, there's work to be done in the water category and advanced hydration and, to a much lesser extent, in tea, but the overall picture is strong growth in sparkling, particularly Coke and Sprite, good for smart water, good for vitamin water, good on Topo Chico, very good on Fairlife, good overall win on both dimensions, and that's the platform we'll be looking to drive in 2024. Thank you. Our next question comes from Bill Chappell from Truist. Please go ahead, your line is open. Yeah, good morning. Hey Bill,
Speaker Change: Clearly.
Speaker Change: From a from a from a performance point of view.
Speaker Change: When we think about it.
Speaker Change: In the U S. Yes, there was.
Speaker Change: Fractional softening of the volume through the year, which I think goes back to the comment I made about the different consumer segments, but if you step back and think about what was the overall impact of marketing innovation <unk> and execution with the bottlers. The answer is we want volume share in 2023, and we wont.
Speaker Change: Value share in 2023, so yes, there's work to be done.
Speaker Change: In the water category in advanced hydration.
Speaker Change: A much lesser extent in <unk>, but the overall picture is strong growth in sparkling, particularly coke.
Speaker Change: Good on Smartwater good on vitamin water good on top of Chico very good on satellite good overall win on both dimensions.
Speaker Change: That's the platform, we'll be looking to drive in 2024.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Bill Chappell from Trust. Please go ahead. Your line is open.
William B. Chappell: Yes, good morning.
William B. Chappell: Hey, Bill.
Unnamed Speaker: Just a question on kind of the Chinese consumer and both kind of how he or she has progressed over the past few months versus your expectations or just in general and kind of what you see in terms of spending power and just getting back to normal consumption as we move into 24. Sure. Let me, let me, let me put it like this.
William B. Chappell: Just a question on <unk>.
William B. Chappell: The Chinese China, consumer and both kind of how it's progressed or how he or she has progressed over the past few months versus your expectations or just in general and kind of what you see kind of spending power and just getting back to normal consumption as we move into 'twenty four.
William B. Chappell: Okay.
William B. Chappell: Sure.
William B. Chappell: Yeah.
Speaker Change: Let me, let me, let me put it out.
James Quincey: 23 started very strongly in China. We had invested very heavily in the Chinese New Year. And we had a very, actually, we had a very strong first quarter last year in China. And then, which is kind of still the back end of the reopening.
Speaker Change: <unk> three started very strongly in China, we had invested very heavily behind China.
Speaker Change: Chinese new year.
Speaker Change: And we had actually we had a very strong first quarter last year.
Speaker Change: China, and then which is kind of still the back end of the reopening.
James Quincey: And while we grew volumes for the rest and for the total of the year 23 in revenues, they did soften for the last three quarters of the year in China. And I think what we're going to see is a kind of a kind of reverse of that in 24. We've invested strongly again in the Chinese New Year. We won't know the result for another few weeks, net net. But we're kind of expecting it to be a little slower in the first quarter, especially given what we've cycled from last year, and then for the year to improve. But not too hot and not too cold, if I can use that analogy.
Speaker Change: And while we grew volumes for the rest and for the total of the year 'twenty three in revenues a deed softened for the last three quarters of the year in China.
Speaker Change: And I think what we're going to see is a kind of a kind of a reverse of that in 'twenty. Four we've invested strongly again in Chinese new year. This year, we won't know the result for another few weeks net net.
Speaker Change: But we're kind of expecting it to be a little slower in the first quarter, especially given what we are cycling from last year.
Speaker Change: And then for the year to improve but not not too hot and not too cold if I can use that analogy.
James Quincey: So, yes, there's a little weakness in the economic system, but we expect things to tend to get better directionally through the year. And we're going to keep investing behind not just key moments in the year, like Chinese New Year, but restoring more momentum to sparkling and really focusing on RGM and execution. Our next question comes from Kaumil Gajrawala from Jefferies. Please go ahead. Your line is open. Everybody, good morning.
Speaker Change: So, yes, theres, a little weakness in the economic system.
Speaker Change: But we expect things to get we get tend directionally to get better through the year.
Speaker Change: And we're going to keep investing behind not just.
Speaker Change: Keep key moments in the like Chinese new year, but restoring amendment more momentum to sparkling.
Speaker Change: We're really focusing on all GM and execution opportunities.
Speaker Change: Our next question comes from <unk> <unk> from Jefferies. Please go ahead. Your line is open.
Jefferies: Hey, everybody good morning.
Speaker Change: We met in December we talked a little bit about.
Unnamed Speaker: When we met in December, we talked a little bit about 2023; there was a lot of testing and learning on innovation, and 24 will be about scaling some of them. Both of you mentioned Fairlife CorePower. It's a big brand now. Can you maybe just talk about the scale of that capacity expansion? And then maybe what other brands we should be considering in that same way. Yeah, sure. I mean, firstly, we're going to continue to experiment and find lots of new things, hopefully, in 2024.
2023, there was a bunch of testing and learning on innovation in 24 will be about scaling some of them.
Speaker Change: Both of you mentioned fair life core power.
Jefferies: It's a big brand now you maybe just talk about the scaling of that capacity expansion and then maybe what other brands, we should be considering in that same context. Thank you.
Speaker Change: Yes sure.
Speaker Change: I mean, firstly, we're going to continue to experiment and find lots of new things hopefully in 2024, but it is certainly true.
James Quincey: But it's certainly true, as you say, that Fairlife has been on the roll, and we have been driving that. I think it's had near double-digit volume growth for as many years as I can remember, plus faster double-digits in revenue. Clearly, as we've scaled that, we needed to put down more capacity. We have recently announced and begun the process of building a mega plant up in upstate New York.
Speaker Change: As you as you say that <unk> life has been on a roll.
Speaker Change: And we have been driving that I think is not in the double digit volume growth.
Speaker Change: For many years I can remember plus fast double digits in revenue clearly as we scale that we needed to put down more capacity.
Speaker Change: We have recently.
Speaker Change: <unk> announced and begun the process of building a mega plant up in upstate New York.
James Quincey: And so, you know, capacity is tight in the fair life business, and core power is also firing on all cylinders. We'll certainly talk about some of these at Cagney, when we'll kind of lay out some of the backstory, things like fair life and, particularly, core power and how, you know, these brands and products have done a great job driving from experimentation to scaling to challenges. And for example, in the case of core power to lead. Our next question comes from Peter Grom from UBS. Please go ahead, your line is open. Thanks, operator. And good morning, everyone. So James, I was hoping to pick up on your, Brian, and Andrea's question on the US. Perhaps first, did performance in the quarter play out as you expected? You mentioned softening in the market in your response to Andrea, but was that in line with how you thought growth would evolve? Or was it a bit weaker than you would have anticipated?
Speaker Change: And so capacity is.
Speaker Change: Is tight.
Speaker Change: Business in coal power is also firing on all cylinders, we will certainly talk about some of these.
Speaker Change: At Cagny.
Speaker Change: We'll kind of lay out some of some of the back story.
Slide <unk> life, and particularly coal power and how you know.
Speaker Change: These brands and products have done a great job in driving from experimentation to scaling to challenging and for example in the case of coal part of leading.
Speaker Change: Our next question comes from Peter Grom from UBS. Please go ahead. Your line is open.
Peter K. Grom: Thanks, operator, and good morning, everyone. So James I was hoping to pick up on your commentary in response to Brian Andrea's question on the U S. Maybe first did performance in the quarter play out as you expected you mentioned softening in the market in your response, but was that in line with how you thought growth would evolve or was it a bit.
Peter K. Grom: Weaker than you would have anticipated and then looking ahead to 'twenty four I appreciate the commentary on expecting balanced growth as a total company level, but do you expect that balance to incur in North America as well. Thanks.
Unnamed Speaker: And then looking ahead to 24, I appreciate the commentary on, you know, expecting balanced growth at the total company level. But do you expect that balance to occur in North America as well? Thanks.
Peter K. Grom:
Speaker Change: Yeah look.
James Quincey: Yeah, look, I think it was, at a macro level, foreseeable that the market would get tighter through the course of 2023 as inflation ran ahead of wage growth. And so, therefore, it wasn't surprising that, you know, there were tightness, particularly for certain consumer segments. I think all things in due proportion. I mean, the growth in North America in the fourth quarter was basically the same as the growth in the full year. It was only very slight fractional differences.
Speaker Change: I mean I think it was.
Speaker Change: At a macro level foreseeable that the market would get tied up through the course of 2023 as inflation ran ahead of wage growth.
Speaker Change: And so therefore, yes it wasn't surprising.
Speaker Change: That tightness.
Speaker Change: Tightness, particularly for certain for certain consumer segments, I think all things in jus proportion.
Speaker Change: The the.
Speaker Change: The growth in North America or in the fourth quarter was basically the same as the growth in.
Speaker Change: The full year.
Speaker Change: I'll be very fractional differences, so I think.
James Quincey: So I think these are not big changes in trends. But yeah, I think there was a little softening through 2023. And I think we'll see that kind of a bit in reverse as 2024 starts off as consumers, and you can see it in the confidence indicators for consumers, are starting to feel like the money coming in is starting to contain and get ahead of inflation. So I think we'll see that improve through the year. Again, all in due proportion. They're not going to be big shifts in the volume growth rate of the US business. In aggregate, we would expect to get more from price relative to volume in the US. So the balance that I talk about between price and volume applies on a global basis. Clearly, that's then made up of a geographic portfolio mix. So places like the US.
These are not big changes in.
Speaker Change: <unk> trends.
Speaker Change: But yes, I think there was a little softening.
Through through through the through 2023, and I think we'll see that kind of a bit in reverse.
Speaker Change: 24 starts off as consumers and you can see it in the confidence indicators to consumers, they're starting to feel like the money coming in is starting to contain and get ahead of the inflation. So I think we'll see that improve through the year again, all engie proportion, they're not going to be big shifts in the volume growth right.
Speaker Change: In the U S business in aggregate.
Speaker Change: We would expect to get more from price relative to volume for the U S business. So the balance that I talked about.
Speaker Change: Between price and volume applies on a global basis clearly that's been made up of geographic portfolio mix of places like the U S.
James Quincey: We'd expect to see, you know, stable or slightly increasing volume with decent pricing all the way over to places like India, where clearly we're getting much more volume than price and having to invest significantly in capacity. And those two, you know, take those two examples, but that's true of the global portfolio; blend it all together. And that's where the balance is. Our next question comes from Charlie Higgs from Redburn Atlantic. Please go ahead. Your line is open. Yeah, hi James and John, I hope you're both well.
Speaker Change: We would expect to see stable or slightly increasing volume with decent pricing.
Speaker Change: The way over to places like India, where clearly we're getting much more volume than price on having to invest significantly.
Speaker Change: In capacity in those two.
Speaker Change: Those two examples but that's true of the global portfolio blended all together and that's where the balance comes from.
Speaker Change: Our next question comes from Charlie <unk> from Redburn Atlantic. Please go ahead. Your line is open.
Charlie: Yeah, Hi, James John a quick question on sparkling pleased but I mean, 2% volume growth in the quarter in the year very strong.
Unnamed Speaker: I've got a question on sparkling, please, where I mean, 2% volume growth in the quarter of the year, very strong. I think in the 20 quarters since 2019, it's actually averaged 3% in those 20 quarters. So definitely not X growth. And I was just wondering what your perspective is on the category going forward, maybe with the consumer weakening. And if you can just touch on the launch of Coca-Cola Spice, I don't think we've talked about that yet. I mean, what gives you the confidence of launching this just as a permanent launch rather than a limited edition co-creations launch? You know, who's the target consumer? Is it going after Gen Zs? Is it there to help with the co-cooked meals strategy? Just any color on that would be useful, please.
Charlie: And the 20 quarters since 2019, it's actually averaged 3% 20 quarters, so definitely ex.
Charlie: Greg I was just wondering what your perspective is on the Caf II going forward, maybe with the consumer weakening and if you could just touch on the launch of Coca Cola spikes. So everything we've talked about that yet.
Speaker Change: You see the confidence of launching this just as a permanent loan rather than a limited edition.
Speaker Change: Creations launch he used to target consumers are getting up to Gen Z as it adds to help with coke with meals strategy just any color on that please.
Greg: Yeah I mean.
James Quincey: Yeah, I mean, Coke, and Spice are a bit like Coke Creations, not exactly, but are really aimed at, you know, increasing connectivity with Gen Z and the broader consumers, driving engagement, and driving reconsideration. It's part of a whole overall strategy that, as you say, we've been deploying for a good number of years that has really worked to re-engage consumers with the Coke trademark, whether it's Coke Original, Coke Zero Sugar, or even Diet Coke to some extent. The overall strategy of an upgraded approach to marketing, the innovation, whether it's Coke Spice or some of the creations through the RGM, and the execution has allowed us to drive Coke growth across the global business. And actually, by also increasing the focus on Fanta and Sprite, even organizationally splitting them out into two sub teams within the organization has allowed us to bring more clarity and more focus to Fanta and Sprite and to drive growth there too, which worked in Q4 of 2023. And as you say, over the last five years, I know that sometimes people, well, I would say that people think about the sparkling category just through the lens of the US over the last 20 years. And I would invite you to look at the optics, or everyone to look at the optics of the sparkling category globally over time.
Greg: Okay.
Spice.
Greg: A bit like co creation not exactly but it is is really aimed at.
Greg: Increasing connectivity with Gen Z in the bulk water consumers driving engagement driving reconsideration.
Greg: As part of our whole overall strategy that as you say we've been deploying for good number of years that has really worked to reengage consumers with the coke trade about whether it's coke original coke zero sugar or even <unk> talked to some extent.
Greg: The the overall strategy.
Greg: All right eight approach to the marketing the innovation, whether it's coke spine. So some of the creations through the GM and the execution of it.
Greg: Allowed us to drive our core growth.
Greg: Across the global business and actually.
Greg: By also increasing the focus on fanta and sprite, even organizationally splitting them out into two sub teams within the organization has allowed us to bring more clarity and more focused onto <unk> as Brian to drive growth there too, which is which has worked in Q4 and 2023.
Greg: As you say over the last five years.
Greg: I know that sometimes people well I would say that people think about the sparkling category just through the optic of the U S. Over the last 20 years and I would invite you to look at the optics or everyone to look at the optics of the sparkling category globally overtime and actually there you see the category remains Roe.
James Quincey: And actually, you see that the category remains robust at a global scale, both in terms of volume and revenue growth. And, of course, we are not just the leaders, but we're the share winners. So we see that if we do the right things for our brands, we will be able to drive the category forward and benefit disproportionately from that growth. Our last question today will come from Carlos Laboy from HSBC. Please go ahead; your line is open.
Greg: Bust out of global.
Greg: Scale, both in terms of volume and revenue growth on of course, we are.
Greg: Not just the leaders, but with a share winners so we see.
Greg: If we do the right things for our brands, we will be able to drive the category forward.
Greg: Im benefit disproportionately from that growth.
Greg: Our last question today will come from Carlos Laboy from HSBC. Please go ahead. Your line is open.
Unnamed Speaker: Yes, good morning, everyone. Thank you. Can you comment for us on the state of global independent bottlers CAPEX? or Digital Capabilities?
Carlos Laboy: Yes, good morning, everyone. Thank you.
Carlos Laboy: You can you comment for us on the state of global independent Bottlers Capex.
Carlos Laboy: Our digital capabilities, we've seen a really robust.
Carlos Laboy: We've seen really robust Latin American digital investment over the last four or five years. But where else do you see a step up in digital market development capabilities like this? And can you comment on the U.S. in this area? On the U.S. what?
Carlos Laboy: Atlanta, Latin American digital investment over the last four five years, but where else do you see a step up in digital market development capabilities like this.
Carlos Laboy: And can you comment on the U S. In this area as well.
Carlos Laboy: On U S water.
Carlos Laboy: On the U.S. regarding digital bottling system investment. Sure, Carlos, yeah, I think it's fair to say that the overall investment levels that you refer to in that are pretty consistent across the world. One of the underlying tailwinds I believe we have is the degree to which our system is sharing with us the opportunity that's ahead and willing to increasingly invest ahead of the curve. So I think that's what's happening across the global system. One of the subsets of that, of course, is the degree to which digital, in its many forms, is playing a pivotal role too. sustaining and indeed building an advantage wherever we operate. We have Cagney next week and, I think you'll hear more of that threaded through the conversation we'll see up there. But safe to say, I think CapEx levels are at the highest as a percentage of system revenue that I can remember. And within that, the appetite and willingness to invest ahead of the curve, particularly in digital, is also at a very high level.
Carlos Laboy: On the U S regarding digital.
Bottling system investments.
Speaker Change: Sure Yeah, I think it's I think it's fair to say that.
Speaker Change: Overall.
Speaker Change: Investment levels.
Speaker Change: That you referred to and led to.
Speaker Change: Pretty consistent across the world.
Speaker Change: <unk>.
Speaker Change: Underlying tailwind I believe we have is the degree to which our system is.
Speaker Change: Sharing in us.
Speaker Change: The opportunity that's ahead and.
Speaker Change: Willing to increasingly invest ahead of the curve.
Speaker Change: I think that's that.
Speaker Change: It's happening.
Speaker Change: Across the global system.
Speaker Change: One of the subsets of that of course.
Speaker Change: Is the degree to which digital.
Speaker Change: And its many forms is playing a pivotal role to.
Speaker Change: Sustaining and indeed building advantage wherever we operate.
Speaker Change: We have Cagny next week and.
Speaker Change: I think you'll hear more of a thread through the conversation will will help there.
Speaker Change: But safe to say I think capex levels.
Speaker Change: The highest as a percentage of system revenue that I can remember.
And within that the.
Speaker Change: Appetite and willingness to invest ahead of the curve.
Speaker Change: Particularly in digital is also at a very high level.
John Murphy: Thank you. Great. Thanks very much, everyone. Just to summarize, we're proud of what we accomplished in 2023. We are winning in the marketplace. We're going to be maintaining agility and improving every aspect of how we do business across our Total Beverage portfolio.
Speaker Change: Thank you.
Speaker Change: Great. Thanks, very much everyone.
Speaker Change: Just to summarize where we're proud of what we accomplished in 2023.
Speaker Change: We are winning in the marketplace, we're going to be maintaining agility and improving every aspect of how we do business across our total beverage portfolio.
James Quincey: John and I look forward to discussing more with you all next week at Cagne. Thank you for your interest, your investment in our company and joining us this morning. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect. Lonely ones out there on an eagle's wing, you're bringing something they can't bring, and singing something they can't sing, I know it's lonely when saying something they ain't heard, don't wanna share a mumbling word, but just follow me and we will learn, That you can only be who you are, Cuz it's who I am, I show my radio, Cuz it's who I am, I show my video, Cuz it's who I, I, I, I, I am, I say what I know, You can only be who you are, Cuz it's who I am, I show my radio, Well, boy you are, Real magic, You can only be who you are, Post Malone Men
Speaker Change: John and I look forward to discussing more with you all next week at Cagny. Thank you for your interest your investment in our company and joining US this morning.
Okay.
Speaker Change: Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
Speaker Change: Okay.
Speaker Change: Thank you.
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Green.
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Speaker Change: Thanks Anthony.
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Speaker Change: So I think you kind of know Nathan.
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Speaker Change: We don't made away with no time.
Speaker Change: And now <unk> will take breaks.
Speaker Change: We then made away with no time.