Q2 2024 The Coca-Cola Co Earnings Call
[inaudible]
Operator: At this time, I'd like to welcome everyone to the Coca-Cola Company's second quarter 2024 earnings results conference call. Today's call is being recorded. If you have any objections, please disconnect at this time. All participants will be in listen-only mode until the formal question and answer portion of the call.
Speaker Change: At this time, I'd like to welcome everyone to the Coca Cola Company's second quarter 2024 Earnings Results Conference Call.
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.
Operator: 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 Ms. Robin Halpern, Vice President and Head of Investor Relations. Ms. 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.
Robin Halpern: I would now like to introduce Ms. Robin Halpern, Vice President and Head of Investor Relations. Ms. Halpern, you may now begin.
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.
Robin Halpern: 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.
Speaker Change: We've posted schedules under financial information in the investors section of our company website. These reconcile certain on- GAAP financial measures that may be referred to this morning to result as reported under generally accepted accounting principles.
Speaker Change: You can also find schedules in the same section of our website that provide an analysis of our growth and operating margins.
Robin Halpern: This column contains 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.
Speaker Change: This column contains 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 Halpern: Following prepared remarks, we will take your questions. Please limit yourself to one question. Re-enter the queue to ask follow-ups. Now I will turn the call over to James.
Robin Halpern: You can re-enter the queue to ask follow-ups. Now, I will turn the call over to James. Thanks, Robin. And good morning, everyone.
James Robert B. Quincey: After a good start to the year, we continued our momentum in the second quarter. In a world with a wide spectrum of market dynamics, our all-weather strategy is working. We're winning in the marketplace by leveraging our scale and continuing to foster a growth mindset. Given our strong year-to-date results, we are raising both our top line and our bottom line guidance today. This morning, I'll start by discussing the current operating environment and reviewing our second quarter performance.
James Robert B. Quincey: Thanks, Robin, and good morning, everyone.
James Robert B. Quincey: But for a good start of the year, we continued our momentum in the second quarter.
James Robert B. Quincey: In a world with a wide spectrum of market dynamics, our all-weather strategy is working. We're winning in the marketplace by leveraging our scale and continuing to foster a growth mindset.
Robin Halpern: Given our strong year-to-date results, we are raising both our top-line and our bottom-line guidance today.
James Robert B. Quincey: Then, I'll explain how we're enhancing our capabilities to drive more effective and efficient operations, including leveraging digital and tech-enabled innovations to ultimately contribute to our earnings growth. Finally, John will discuss our financial results in the RAISE 2024 guide. In the second quarter, we grew volume, generated strong organic revenue growth, and expanded margins while continuing to invest in our business. We also gained value share. This culminated in 7% comparable earnings per share growth despite 10% currency headwinds and 2% headwinds from bottlery franchises.
Robin Halpern: This morning I'll start by discussing the current operating environment and reviewing our second quarter performance.
Robin Halpern: Then I'll explain how we're enhancing our capabilities to drive more effective and efficient operation, including leveraging digital and tech-enabled innovations that ultimately contribute to our earnings growth.
Robin Halpern: Finally, John will discuss our financial results in the RAISE 2024 Guidance.
John Murphy: In the second quarter, we grew volume, generated strong organic revenue growth, and expanded margins while continuing to invest in our business. We also gained value share.
John Murphy: This culminated in 7% comparable earnings per share growth, despite 10% currency headwinds and 2% headwinds from bottler refranchising.
James Robert B. Quincey: Overall, our industry remains attractive, and it's expanding. We believe we're well positioned to capture the vast opportunities available to us. The world will continue to navigate many varying market dynamics locally to deliver a global objective. In Asia-Pacific, we had strong performers across most of our footprint. In ASEAN and South Pacific, the re-franchising of the Philippines is off to a good start.
John Murphy: Overall, our industry remains attractive and is expanding. We believe we're well positioned to capture the vast opportunities available to us.
John Murphy: Across the world, we'll continue to navigate many varying market dynamics locally to deliver our global objectives.
John Murphy: In Asia Pacific, we had strong performers across most of our footprint.
John Murphy: In ASEAN and South Pacific, the re-franchising of the Philippines is off to a good start.
James Robert B. Quincey: In the Philippines, we grew volume by double digits and drove strong value share gains by increasing focus on affordable packages, including accessible price points and refillable offerings. Growth across ASEAN and South Pacific was driven by strong end-to-end execution across our sparkling portfolio. Our business in India recovered nicely from a slower start of the year, driven by Sprite and Fanta, as well as strong local brands such as Thumbs Up and Mastodon. Strong end-to-end execution across our growth flywheel led to double-digit volume growth. In China, consumer confidence remains subdued.
John Murphy: In the Philippines, we grew volume by double digits and drove strong value-share gains by increasing focus on affordable packages, including accessible price points and refillable offerings.
John Murphy: Growth across ASEAN and South Pacific was driven by strong end-to-end execution across our sparkling portfolio.
John Murphy: Our business in India recovered nicely from a slower start of the year, driven by Sprite and Fanta, as well as strong local brands such as Thumbs Up and Mazda.
John Murphy: Strong end-to-end execution across our growth flywheel led to double-digit volume growth.
James Robert B. Quincey: We continue to focus on our core business and invest in profitable long-term growth. Lastly, in Japan and South Korea, we generated volume growth during the quarter and one value share. We've successfully relaunched Ayataka, a much-loved local tea brand in Japan, and we're also benefiting from stronger execution in e-commerce channels.
John Murphy: In China, consumer confidence remains subdued. We continue to focus on our core business and invest behind profitable long-term growth.
John Murphy: Lastly, in Japan and South Korea, we generated volume growth during the quarter and won value share. We successfully relaunched Ayataka, a much-loved local tea brand in Japan, and we're also benefiting from stronger execution in e-commerce channels.
James Robert B. Quincey: In EMEA, the external environment remains me. In Europe, we saw pressure in our away from home business due to some reduced foot traffic and adverse weather in Western Europe. To capture value, we're investing in several highly anticipated activations, including music festivals, the Euro 2024 football championship, and, of course, the Paris Olympics. We're increasing our focus on brands with strong momentum across our total beverage portfolio, including Fused Tea and Powerade, and on promising sparkling innovations such as Coke Lemon and reformulated Sprite. In Eurasia and the Middle East, geopolitical tensions and economic uncertainty continue to impact our business.
John Murphy: In EMEA, the external environment remains mixed. In Europe , we saw pressure in our away-from-home business due to some reduced foot traffic and adverse weather in Western Europe .
John Murphy: To capture value, we're investing in several highly anticipated activations, including music festivals, the Euro 2024 football championship, and of course, the Paris Olympics.
John Murphy: We're increasing our focus on brands with strong momentum across our total beverage portfolio, including fused tea and Powerade, and on promising sparkling innovations such as Coke Lemon and reformulated Sprite.
John Murphy: In Eurasia and Middle East, geopolitical tensions and economic uncertainty continue to impact our business. We are working closely with our local partners to navigate these headwinds while investing for the longer term.
James Robert B. Quincey: We're working closely with our local partners to navigate these headwinds while investing for the longer term in Africa, despite multiple currency devaluations. Strong, integrated execution led to robust performance across our market. For example, in Nigeria, our system quickly responded to the intense inflationary environment by focusing on affordable packages, including accessible price points and refillable offerings, and increasing outlet coverage to win both volume and value share. Across Africa, we grew volume in mid-single digits and similarly won both volume and value share. In North America, we generated robust top line and bottom line growth and one value share. Our volume decline was driven by softness in away-from-home channels.
John Murphy: In Africa, despite multiple currency devaluations, strong integrated execution led to robust performance across our markets.
John Murphy: For example, in Nigeria, our system quickly responded to the intense inflationary environment by focusing on affordable packages, including accessible price points and refillable offerings, and increasing outlet coverage to win both volume and value share.
John Murphy: Across Africa, we grew volume in mid-single digits and similarly won both volume and value share.
John Murphy: In North America, we generated robust top-line and bottom-line growth and one value share. Our volume decline was driven by softness in away-from-home channels.
James Robert B. Quincey: To offset this, we're partnering with food service customers to market food and drink combo meals to drive traffic and beverage incidents, excluding mainstream package water at home volumes held up well. Fairlife and Trademark Coke finished number one and number two as the at-home retail sales growth leaders for the industry during the quarter. Our juice business also had a strong quarter, and recent innovations, including Sprite Chill and Taco Chico Saboris, are off to a solid start.
John Murphy: To offset this, we're partnering with food service customers to market food and drink combo meals to drive traffic and beverage incidents.
John Murphy: Excluding mainstream packaged water, at-home volumes held up well.
John Murphy: Fairlife and Trademark Coke finished number one and number two as the at-home retail sales growth leaders for the industry during the quarter.
John Murphy: Our juice business also had a strong quarter, and recent innovations including Sprite Chill and Topo Chico Sabores are off to solid starts.
James Robert B. Quincey: In Latin America, volume momentum continued, led by strength in Mexico and Brazil, while growth was driven across our entire Total Beverage portfolio. Coca-Cola Zero Sugar had a standout quarter with over 20% volume growth, and we're continuing to take integrated execution to the next level by increasing investments behind cold drink equipment to win a share of visible inventory and create additional consumer demand. Finally, in global ventures, despite pressures in key markets such as the United Kingdom and China, we generated organic revenue growth and expanded markets.
John Murphy: In Latin America, volume momentum continued, led by strength in Mexico and Brazil.
John Murphy: Growth was driven across our entire Total Beverage Portfolio.
John Murphy: Coca Cola Zero Sugar had a standout quarter with over 20% volume growth, and we're continuing to take integrated execution to the next level by increasing investments behind cold drink equipment to win share of visible inventory and create additional consumer demand.
John Murphy: Finally, in global ventures, despite pressures in key markets, such as the United Kingdom and China, we generated organic revenue growth and expanded margins. Costa is driving loyalty through targeted promotions like TreeDrop and Innocent Gain value share in Europe .
James Robert B. Quincey: Coster is driving loyalty through targeted promotions like Tree Drop and Innocent Gain Value Share in Europe. Putting it all together, despite an ever-changing external environment, our business remains very resilient. The power of our portfolio, amplified by our system's unique capabilities, is a clear advantage. While we're delivering on our near-term commitments, we're also building capabilities and innovating across our flywheel to become a more agile, effective, and efficient organization. Starting with marketing and innovation. Last year, we set up StudioX, which is our digital and organizational ecosystem that integrates marketing capabilities and connects them to our global network structure.
John Murphy: Putting it all together, despite an ever-changing external environment, our business remains very resilient. The power of our portfolio, amplified by our system's unique capabilities, is a clear advantage.
John Murphy: While we're delivering on our near-term commitments, we're also building capabilities and innovating across our flywheel to become a more agile, effective, and efficient organization.
John Murphy: Starting with marketing and innovation.
Speaker Change: Last year, we stood up StudioX, which is our digital and organizational ecosystem that integrates marketing capabilities and connects them to our global network structure. We're producing tailored content at scale and with speed and are able to measure impact in real time.
James Robert B. Quincey: We're producing tailored content at scale and with speed and are able to measure impact in real time. We're also refining our innovation process to prioritize bigger and bolder bets. And we're removing barriers to deliver a more holistic approach to shorten the time to launch and increase success. We know that innovations that grow in the second year have a much greater chance of multi-year success and deliver far greater impact. We focused on sustaining investment and have consistently improved second year performance success rates in each of the past four years. Continued innovation successes include Sprite and pantry formulations. Fuse Tea in Europe, and it has zero sugar in North America, among many others.
Speaker Change: We're also refining our innovation process to prioritize bigger and bolder bets. And we're removing barriers to deliver a more holistic approach, shorten the time to launch, and increase success rates.
Speaker Change: We know that innovations that grow in the second year have a much greater odds multi-year success and deliver far greater impact. So we focused on sustaining investment and have consistently improved second year performance success rates in each of the past four years.
Speaker Change: Continued innovation successes include Sprite and pantry formulations.
Speaker Change: Fuse Tea in Europe , and it made zero sugar in North America, among many others.
James Robert B. Quincey: As a result of these combined initiatives, we have greatly improved our ability to rapidly produce and deliver marketing content, integrate activations with timely innovations, and scale successes to drive the greatest impact. One example from the second quarter is Coca-Cola's partnership with Marvel, which featured nearly 40 different limited edition collectible graphics and QR codes on our packaging to connect consumers with unique augmented reality experiences. We collaborated closely with Marvel Studios and the Walt Disney Company and tapped into the best in class animation and activation to quickly scale to over 50 markets.
Speaker Change: As a result of these combined initiatives, we have greatly improved our ability to rapidly produce and deliver marketing content, integrate activations with timely innovations, and scale successes to drive the greatest impact.
Speaker Change: One example from the second quarter.
Speaker Change: Coca Cola's partnership with Marvel, which featured nearly 40 different limited-edition collectible graphics and QR codes on their packaging to connect consumers with unique augmented reality experiences.
Speaker Change: We collaborated closely with Marvel Studios and the Walt Disney Company and tapped into the best-in-class animation and activation to quickly scale to over 50 markets.
James Robert B. Quincey: As a result of this and other growth initiatives, Trademark Coca-Cola grew volume and won volume and value share during the quarter. Our marketing and innovation transformation journey contributed to Trademark winning creative brand of the year for the first time ever at the Cannes Lions in June. We won 18 different awards at Cannes Lions.
Speaker Change: As a result of this and other growth initiatives, Trademark Coca Cola grew volume and won volume and value share during the quarter.
Speaker Change: Our marketing and innovation transformation journey contributed to trademark winning creative brand of the year for the first time ever at the Cannes Lions in June . We won 18 different awards at Cannes Lions.
James Robert B. Quincey: Beyond marketing innovation, we're flexing our muscle in revenue growth management and integrated execution to sustain competitive development. Even in markets with very well-developed capabilities, there's potential to be even better. For example, Mexico is one of the markets at the forefront of revenue growth management and has the highest cold drink equipment density in the world. During the quarter, we drove affordability with refillables and premiumization with single sub-transactions. Our system has also added over 80,000 coolers year-to-date.
Speaker Change: Beyond marketing innovation, we're flexing our muscle in revenue growth management and integrated execution to sustain competitive advancement.
Speaker Change: Even in markets with very well-developed capabilities, there's potential to be even better.
Speaker Change: For example, Mexico is one of the markets at the forefront of revenue growth management and has the highest conflict equipment density in the world.
Speaker Change: During the quarter, we drove affordability with refillables and premiumization with single sub-transactions. Our system also added over 80,000 coolers year-to-date.
James Robert B. Quincey: Through these and similar initiatives, we grew volume in mid-cycle digits during the quarter, continuing the momentum for the past few quarters. Each day, consumers enjoy approximately 2.2 billion servings of our products, translating into about 800 billion servings annually. This kind of scale gives us unique insights into the consumer, which helps us to better tailor offerings. Emerging technologies, including those enhanced by AI, have the potential to create value for retailers and consumers.
Speaker Change: Through these and similar initiatives, we grew volume in mid-cycle digits during the quarter, continuing the momentum for the past few quarters.
Speaker Change: Each day, consumers enjoy approximately 2.2 billion servings of our products, translating into about 800 billion servings annually. This kind of scale gives us unique insights into the consumer, which helps us to better tailor offerings.
Speaker Change: Emerging technologies, including those enhanced by AI, have the potential to create value for retailers and consumers.
James Robert B. Quincey: For example, we're piloting an AI-based price pack channel optimization tool across several markets that evaluates opportunities to better tailor solutions to drive incremental volume and revenue. Early results show the tool helps improve both our offerings and speed to market. Our system is also piloting an AI-driven initiative to push personalized messages to retailers with suggested items based on previous orders and market data.
Speaker Change: For example, we're piloting an AI-based price pack channel optimization tool across several markets that evaluates opportunities to better tailor solutions to drive incremental volume and revenue.
Speaker Change: Early results show the tool helps improve both our offerings and speak-to-market.
Speaker Change: Our system is also piloting an AI-driven initiative to push personalized messages to retailers with suggested items based on previous orders and market data.
James Robert B. Quincey: Initial pilots indicate that retailers who receive the messages are over 30% more likely to purchase recommended SKUs, which results in incremental sales for our retailers and the system. We're just scratching the surface of what's possible, and we're taking steps to seize opportunities down the road. To sum it all up, while we recognize there's still much work to be done to capture the vast opportunities available, we're encouraged by our year-to-day results and efforts to improve every aspect of how we do business.
Speaker Change: Initial pilots indicate that retailers who receive the messages are over 30% more likely to purchase recommended SKUs, which results in incremental sales for our retailers and the system. We're just scratching the surface of what's possible, and we're taking steps to seize opportunities down the road.
Speaker Change: To sum it all up, while we recognize there is still much work to be done to capture the vast opportunities available, we are encouraged by our year-to-day results and efforts to improve every aspect of how we do business.
James Robert B. Quincey: As we look forward to the second half of the year, the external backdrop remains uncertain, including some signs of pressure in various consumer segments across developed markets. However, thanks to the power of our portfolio and the unwavering dedication of our system employees, we are confident we will deliver on our updated 2024 guidance and longer-term commitment. With that, I'll turn the call over to John. Thank you, James, and good morning, everyone.
Speaker Change: As we look forward to the second half of the year, the external backdrop remains uncertain, including some signs of pressure in various consumer segments across developed markets.
Speaker Change: However, thanks to the power of our portfolio and the unwavering dedication of our system employees, we are confident we will deliver on our updated 2024 guidance and longer-term commitments. With that, I'll turn the call over to John .
John Murphy: In the second quarter, we delivered strong results. We grew organic revenues 15%. This consisted of 2% unit case growth. Concentrate sales were ahead of volume by four points, driven primarily by timing of concentrate shipments and some disruptions in the global supply chain that we partly expect to reverse next quarter. Our price markup of 9% in the quarter was primarily driven by two items.
John Murphy: Thank you, James, and good morning, everyone.
John Murphy: In the second quarter, we delivered strong results.
John Murphy: We grew organic revenues 15%.
John Murphy: This consisted of 2% unit case growth.
John Murphy: Concentrate sales were ahead of volume by four points.
John Murphy: driven primarily by timing of concentrate shipments and some disruptions in the global supply chain that we partly expect to reverse next quarter.
John Murphy: Our price mix growth of 9% in the quarter was primarily driven by two items.
John Murphy: One, approximately five points of intense inflationary pricing across a handful of markets to offset significant currency devaluation and an array of pricing and mixed actions across our markets. Excluding the impacts from concentrated shipment timing and pricing from markets with intense inflation, organic revenue growth during the quarter was at the high end of our long-term growth algorithm. Comparable growth margin was up approximately 200 basis points, driven by underlying expansion and the benefit from bottle refranchising partially offset by currency headwinds.
John Murphy: won approximately five points of intense inflationary pricing across a handful of markets to offset significant currency devaluation.
John Murphy: and to an array of pricing and mixed actions across our markets.
John Murphy: Excluding the impacts from concentrated shipment timing and pricing from markets with intense inflation, organic revenue growth during the quarter was at the high end of our long-term growth algorithm.
John Murphy: Comparable growth margin was up approximately 200 best points driven by underlying expansion and the benefit from bottle refranchising partially offset by currency headwinds.
John Murphy: Operating Margin expanded approximately 120 basis points. Comparable Operating Margin Expansion was less than Comparable Gross Margin Expansion due to less benefit from bottle refranchising and greater currency headwinds to Comparable Operating Margin. Putting it all together, second quarter comparable EPS of 84 cents was up 7% year over year, despite 10% currency headwinds and 2% headwinds from after refranchising. Free cash flow was approximately $3.3 billion, down approximately $700 million versus the prior year due to higher tax payments, cycling, working capital benefits from the prior year, and higher capital expenditures. We continue to take action to achieve a fit-for-purpose balance sheet that will best support our growth agenda. During the quarter, we raised approximately $4 billion in cash by issuing long-term debt for general corporate purposes.
John Murphy: Operating Margin expanded approximately 120 basis points.
John Murphy: Comparable Operating Margin Expansion was less than Comparable Gross Margin Expansion due to less benefit from bottle refranchising and greater currency headwinds to Comparable Operating Margin.
John Murphy: Putting it all together, second quarter comparable EPS of 84 cents was up 7% year-over-year, despite 10% currency headwinds and 2% headwinds from Boster refranchising.
John Murphy: Free cash flow was approximately $3.3 billion.
John Murphy: Down approximately $700 million versus the prior year due to higher tax payments, cycling, working capital benefits from the prior year.
John Murphy: and Higher Capital Expenditures.
John Murphy: We continue to take actions to achieve a fit-for-purpose balance sheet that will best support our growth agenda.
John Murphy: During the quarter, we raised approximately $4 billion in cash by issuing long-term debt for general corporate purposes.
John Murphy: This may include pre-funding upcoming payments related to the IRS tax case and the Fair Life contingent consideration. With respect to our IRS tax case, which we continue to vigorously defend, We're making progress on our next step, and we expect we will be able to move forward on appeal by the end of the year. Given the continued outperformance of Fairlight, we recorded a charge of $1.3 billion during the quarter. Our estimated final payment related to this acquisition is $5.3 billion, which will be made in 2025.
John Murphy: This may include pre-funding upcoming payments related to the IRS tax case and the Fair Life contingent consideration.
John Murphy: With respect to our IRS tax case, which we continue to vigorously defend, we're making progress toward next steps.
John Murphy: And we expect we will be able to move forward on appeal by the end of the year.
John Murphy: given the continued outperformance of Fairlife.
John Murphy: We recorded a charge of $1.3 billion during the quarter.
John Murphy: Our estimated final payment related to this acquisition is $5.3 billion, which will be made in 2025.
John Murphy: We are encouraged by Fairlight's performance and the value it has created for our company. So far this year, we've realized nearly $3 billion in gross proceeds from bottle refranchising and streamlining our equity investments, will continue to prioritize higher growth businesses and take passive capital off the table. Return on invested capital is 24%, up approximately five points from three years ago. Our balance sheet is strong, as demonstrated by our net debt leverage of one and a half times EBITDA, which is well below our targeted range of two to two and a half times.
John Murphy: We are encouraged by Fairlight's performance and the value it has created for our company.
John Murphy: We'll continue to prioritize higher growth businesses and take passive capital off the table.
John Murphy: Return on invested capital is 24% up approximately five points from three years ago.
John Murphy: Our balance sheet is strong as demonstrated by our net debt leverage of one and a half times EBITDA, which is well below our targeted range of two to two and a half times.
John Murphy: We have ample capacity to pursue our capital allocation agenda, which prioritizes investing to drive further growth, continuing to support our dividends, and being dynamic, agile, and opportunistic. As James mentioned, we're proactively managing our portfolio to deliver on our commitment. Our updated 2024 guidance reflects the momentum of our business in the first half of the year and our confidence in our ability to execute on our plans during the second half of this year.
John Murphy: We have ample capacity to pursue our capital allocation agenda which prioritizes investing to drive further growth, continuing to support our dividend.
John Murphy: and staying dynamic, agile and opportunistic.
John Murphy: As James mentioned, we're proactively managing our portfolio to deliver on our commitments.
James Robert B. Quincey: Our updated 2024 guidance reflects the momentum of our business in the first half of the year.
James Robert B. Quincey: and our confidence in our ability to execute on our plans during the second half of this year.
John Murphy: We now expect organic revenue growth of 9 to 10% and comparable currency-neutral earnings per share growth of 13 to 15%. Also, refranchising is still expected to be a four to five point headwind to comparable net revenues. And we now expect a one to two point headwind to comparable earnings per share, based on current rates at our hedge positions. We now anticipate an approximate five to six point currency headwind to comparable net revenue and an approximate eight to nine point currency headwind to comparable earnings per share for full year 2024. This increase in currency headwind is driven by a small number of intense inflationary markets.
Speaker Change: We now expect organic revenue growth of 9-10% and comparable currency-neutral earnings per share growth of 13-15%.
Speaker Change: Also, refranchising is still expected to be a four to five point headwind to comparable net revenues.
Speaker Change: And we now expect a one to two point headwind to comparable earnings per share.
Speaker Change: Based on current rates at our hedge positions.
Speaker Change: We now anticipate an approximate 5 to 6 point currency headwind to comparable net revenues and an approximate 8 to 9 point currency headwind to comparable earnings per share for full year 2024.
Speaker Change: This increase in currency headwind is driven by a small number of intense inflationary markets while the rest of the currency basket is relatively neutral to our results.
John Murphy: While the rest of the currency basket is relatively neutral to our results, all in, we now expect comparable earnings per share growth of 5 to 6% versus $2.69 in 2023. There are some considerations to keep in mind. We expect unit cases and concentrate shipments to be relatively in line with each other for the full year 2024. Please keep in mind there are two extra days in the fourth quarter.
Speaker Change: All in, we now expect comparable earnings per share growth of 5-6% vs $2.69 in 2023.
Speaker Change: There are some considerations to keep in mind.
Speaker Change: We expect unit cases and concentrate shipments to be relatively in line with each other for the full year 2024.
Speaker Change: Please keep in mind there are two extra days in the fourth quarter.
John Murphy: Taking everything into consideration, we expect earnings growth during the remainder of 2024 to be weighted towards the fourth quarter. To summarize, we're encouraged by our track record and the underlying momentum of our business. Our system remains incredibly focused and motivated to drive growth.
Speaker Change: Taking everything into consideration, we expect earnings growth during the remainder of 2024 will be weighted towards the fourth quarter.
Speaker Change: To summarize, we're encouraged by our track record and the underlying momentum of our business.
Speaker Change: Our system remains incredibly focused and motivated to drive growth.
Speaker Change: We're continuing to drive quality top-line growth.
Speaker Change: Expand margins.
Speaker Change: Grow Comparable Earnings Per Share and improve the return profile of our business.
Speaker Change: and we're confident we will deliver on our guidance and longer-term objectives.
Operator: We're continuing to drive quality top line growth, expand margin and Grow Comparable Earnings Per Share, and improve the return profile of our business, and we're confident we will deliver on our guidance and longer-term objectives. With that, operator, we are ready to take questions. Ladies and gentlemen, to ask a question, you'll need to press star one on your telephone.
Speaker Change: With that, Operator, we are ready to take questions.
Operator: 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 queue. Our first question comes from Dara Mohsenian from Morgan Stanley. Please go ahead. Your line is open. Hey, good morning.
Speaker Change: Ladies and gentlemen, to ask a question, you'll need to press star 1 on your telephone. To withdraw your question, press star 1 again.
Speaker Change: 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 queue.
Speaker Change: Our first question comes from Dara Mohsenian from Morgan Stanley . Please go ahead, your line is open.
James Robert B. Quincey: It'd be helpful to get an update on North America, given questions around consumer spending, to just discuss any demand impact you're seeing on your business, any variance in channel performance, and how that informs your view going forward. And then also, as we transition to a more normalized cost environment, can you give us any perspective on what's a more sustained price mix run rate going forward in North America? Thanks.
Dara Warren Mohsenian: Hey, good morning.
Dara Warren Mohsenian: It'd be helpful to get an update on North America, given questions around consumer spending to just discuss any demand impact you're seeing on your business, any variance in channel performance and how that informs your view going forward. And then also as we transition to a more normalized cost environment.
Speaker Change: Can you give us any perspective on what's a more sustained price mix run rate going forward in North America? Thanks
James Robert B. Quincey: Yeah, sure, no problem there. Firstly, overall, it'd be fair to say that consumer sentiment in aggregate is actually pretty strong and pretty resilient. Within that, there are some softer spots, particularly, I think, which have been relatively put out there already, some softness in away-from-home channels, with a little lower traffic and certainly some increase in value seeking for combo meals. So definitely, there's a piece of lower income consumers, who are either going out slightly less or when they do go somewhere looking for greater value through combo meals.
Speaker Change: Yeah, sure, no problem there. First, we have a roll.
Speaker Change: It'd be fair to say that the consumer sentiment in aggregate is actually...
Speaker Change: Pretty strong, pretty resilient.
Speaker Change: Within that, there are some soft spots.
Speaker Change: Particularly, I think, which has been relatively put out there already, some softness in away-from-home channels with a little lower traffic.
Speaker Change: and certainly some increase in value seeking for combo meals. So definitely there's a piece of the lower income consumers which are either going out slightly less or when they do go somewhere looking for greater value through combo meals.
James Robert B. Quincey: And then, of course, in the at home channels, there's a slightly greater focus by those consumers on getting some kind of value deals or promo deals. Having said that, there are just as many consumers spending on more premium categories or more premium price points and experiences. So that's all aggregating out to a sort of resilience for the average overall consumer. Within that, you know, I think we've done, we've done very well. We've seen strong growth across the portfolio. We saw strong growth in the Coke trademark, in Fairlife, in Topo Chico, and in tutoring.
Speaker Change: And then, of course, in the at-home channels, there's a slightly greater focus by those consumers on getting kind of value deals or promo deals.
Speaker Change: Having said that, there are just as much consumers spending on more premium categories or more premium price points and experiences, so that's all aggregating out at a sort of resilience for the average overall consumer.
Speaker Change: Within that, you know, I think we've done, we've done very well, we've seen strong growth across the portfolio.
Speaker Change: We saw Strong Growth in Grape, Coke, Trademark.
James Robert B. Quincey: So, and in aggregate, we won value share in the quarter. So, broad-based growth, some hot spots in terms of demand up, demand down, but overall resilience for the consumer. And as you look out, the first thing that I think is worth underlining in North America in particular is the nature of the price mix. Remember that in our North American business, atypically compared to the other parts of the world, we consolidate a set of vertically integrated businesses and a set of franchised concentrate businesses, such that the growth of a channel or a category can produce a mixed effect independent of pricing in the marketplace. As you look at the 11 points of price mix in the second quarter in North America, it's important to understand that only half of that is actually price. The other half is mix.
Speaker Change: In Fair Life, in Topo Chico, in Tutoring, and in Aggregate, we won value share in the quarter. So, broad-based growth, some hot spots in terms of demand up, demand down, but overall resilience for the consumer.
James Robert B. Quincey: So when the juice drinks and Fairlife and the juice business grows, Topo Chico grows, and Dasani is weaker, you get a mechanical business mix effect that makes the price mix look like it's gone up, but it hasn't really gone up in the marketplace. So think of it as half of it is business mix, and half of it is real pricing in the marketplace, which gets you to a much more logical match to the level of inflation that's going on in the marketplace in general, such that I think in North America and, actually, overall, around the world, excluding the intense inflation markets John mentioned in the comments, we see that inflation is largely coming into the landing zone.
Speaker Change: And as you look out, the first thing that I think is worth underlining in North America in particular is the nature of the price mix.
Speaker Change: I'll remember that our North American business
Speaker Change: Atypically compared to the other parts of the world, we consolidate a set of vertically integrated businesses and a set of franchise concentrate businesses such that
Speaker Change: The growth of a channel or a category can produce a mixed effect independent of pricing in the marketplace.
Speaker Change: As you look at the 11 points of price mix in the second quarter in North America It's important to understand that only half of that is actually price
Speaker Change: The other half is mixed.
Speaker Change: So when the juice drinks and Fairlife and the juice business grows, Topo Chico grows, and the sound is weaker, you get a mechanical business mix.
Speaker Change: effect that makes the price mix look like it's gone up but it hasn't really in the marketplace. So think of it as half of it
Speaker Change: It's business mix and half of it is real pricing in the marketplace.
Speaker Change: which gets you to a much more logical match to the level of inflation that's going out.
Speaker Change: going on in the marketplace in general, such that I think, in North America, and actually overall, in general around the world, excluding the high, high, the intense inflation markets.
Speaker Change: John mentioned in the comments.
John Murphy: We see that inflation is largely coming into the landing zone. Yes, central banks would like to squeeze out another point or so, but generally we're getting there and I think that's reflected in our price mix. We still have input costs.
James Robert B. Quincey: Yes, central banks would like to squeeze out another point or so, but generally, we're getting there, and I think that's reflected in our price mix. We still have input costs that are going up, typically agricultural ones rather than metal or commodity-based ones.
John Murphy: that are going up, typically the agricultural ones rather than the metal or commodity based ones, but in the end our strategy remains
James Robert B. Quincey: But in the end, our strategy remains, yes, there'll be cost inflation. Yes, we'll look to put it through. Yes, we'll work on productivity. But any pricing we're going to take, we're going to have to earn with marketing in innovation and execution. But it is, as I said earlier, approaching the normalization zone. Our next question comes from Lauren Lieberman from Barclays. Please go ahead. Your line is open. Great, thanks so much.
John Murphy: Yes, there'll be cost inflation. Yes, we'll look to put it through. Yes, we'll work on productivity, but any pricing we're going to take, we're going to have to earn with the marketing, in the innovation, and the execution. But it is, as I said earlier, approaching the normalization zone.
John Murphy: Our next question comes from Lauren Lieberman from Barclays. Please go ahead, your line is open.
James Robert B. Quincey: And I'd love to have a similar conversation about Western Europe, because James, you mentioned a bit about some slowness away from home. But, you know, the summer of sports kind of has already kicked off, right?
Lauren Rae Lieberman: Great, thanks so much. I'd love to have a similar conversation about Western Europe because James, you mentioned a bit on some
James Robert B. Quincey: June was certainly part of it. And so, you know, the weather's been challenging, but maybe a little surprising to see the softness in the unit case volume in EMEA. So I'd love a similar run through as you just did on North America on some of the dynamics, particular in Western Europe. Thanks. Yes, sure. So let me first just separate Europe from EMEA, which obviously includes the Middle East and Africa.
Lauren Rae Lieberman: Also slowness in away from home.
Speaker Change: But, you know, the summer of sports kind of has already kicked off, right? June was certainly part of it. And so, you know, the weather's been challenging, but maybe a little surprising to see the softness in the unit case volume in
Speaker Change: and Amia. So I'd love some just a similar run through as you just did on North America on some of the dynamics particular to Western Europe . Thanks.
Speaker Change: Yes, so...
Speaker Change: Let me first just separate Europe from EMEA, which obviously includes the Middle East and Africa. Africa had a strong...
James Robert B. Quincey: Africa had a strong second quarter volume, good volume growth, building on good volume growth in the first quarter price mix. Obviously, there's a lot of swings and roundabouts macroeconomically going on in Africa, but actually, net net, the African business had a really good quarter, winning volume and value share managing through the inflation and growth on good volume growth and good price growth. The flip side is the Middle East.
Speaker Change: Second quarter, good volume growth, building on good volume growth.
Speaker Change: In the first quarter, price mix, obviously there's a lot of swings and roundabouts macroeconomically going on in Africa, but actually net-net, the Africa business had a really good quarter, winning volume and value share, managing through the inflation and growth on good volume growth and good price growth.
James Robert B. Quincey: Obviously, the conflict is continuing to affect business in that part of the world. So there's some there's some headwinds there. And then if you come to Europe within EMEA, Europe was overall, not where we'd like to be; we'd like to see a little more growth coming out of the European business. And really, it's a complete mix across the countries in Europe.
Speaker Change: The flip side is Middle East.
Speaker Change: Obviously, the conflict is continuing to affect the business in that part of the world.
Speaker Change: So there's some headwinds there.
Speaker Change: And then if you come to Europe within EMEA, Europe was overall not where we'd like it to be. We'd like to see a little more growth coming out of the European business.
Speaker Change: And really it's a complete mix across the countries in Europe . There's more pressure on the away from home in the West.
James Robert B. Quincey: There's more pressure on the away from home in the West than the East. Yes, some of the sporting programs have certainly helped, whether it was UEFA that's already happened or the Olympics, which are imminently going to start. The sport has helped, but there's been some pressure on the away from home, as I said, in the West. And so the immediate consumption packs have been growing slower there. But the strong, strong programs are strong, but not yet enough to offset the weather in some of the countries and the same general effect of the U.S. in terms of lower income consumers seeking value and doing less away from home trips. So, big picture, Europe is not too dissimilar from the U.S., perhaps a little worse weather and a little more sporting events, but in an aggregate sense, very similar.
Speaker Change: and The East.
Speaker Change: Yes, some of the sporting programs.
Speaker Change: have certainly helped, whether it was UEFA, that's already happened, or Olympics, which is...
Speaker Change: are imminently going to start.
Speaker Change: The sporting has helped, but there's been there's been some pressure on the away from home. As I said in the West.
Speaker Change: And so the immediate consumption packs have been growing slower there, but the...
Speaker Change: Strong, strong programs, but not yet enough to offset.
Speaker Change: The weather in some of the countries and the same general effect as the U.S. in terms of the lower-income consumers.
Speaker Change: Big picture, Europe not too dissimilar from the US, perhaps a little worse weather and a little more sporting events, but in an aggregate sense, very similar.
Operator: 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: Our next question comes from Bryan Spillane from Bank of America. Please go ahead, your line is open.
Operator: Um, John, just a question for you. Two points maybe related to the concentrate shipments. One is, I mean, we've talked about expecting the lineup by the end of the year, but I guess, can you talk a little bit about what's driving this? How much of it is, you know, the Red Sea?
Bryan Douglass Spillane: Hey, thanks, operator. Good morning, everyone. John , just a question for you, two points maybe related to the concentrate shipments. One is,
John Murphy: And I don't know, just maybe it's maybe more difficult to get stuff around versus just kind of the regular, you know, timing differences. And I guess what's underneath this is, should we expect a little bit more volatility in the near term just around shipments versus units? just simply because the world's, you know, a little bit, you know, unsettled right now. And the second, if you can, just give us a perspective on how much growth margin benefited from the, you know, the excess shipments in the quarter.
Bryan Douglass Spillane: I know you've talked about expecting that they'll line up by the end of the year, but I guess, can you talk a little bit about what's driving this? How much of it is, you know, the Red Sea, and I don't know, just it's maybe more difficult to get stuff around versus just kind of the regular, you know, timing differences?
Speaker Change: And I guess what's underneath this is should we expect a little bit more volatility in the near term just around, you know, shipments versus units?
Speaker Change: Just simply because the world's, you know, a little bit, you know, unsettled right now. And the second, if you can, just give us a perspective on how much margin, gross margin, benefited from the, you know, the excess shipments in the quarter. Thanks.
John Murphy: Thanks. Okay, thanks, Brian. So on the first question, yes, we had a number of events during the quarter that affected the relationship between unit cases and concentrate. You mentioned a couple of them, the congestion in the Red Sea at Singapore. In that time, we had some restocking in the wake of the floods in Brazil, and in our Indian operations, we had some stocking up to anticipate some future demand. So, a range of factors, none of them with a thread, a common thread to them.
Speaker Change: Okay, thanks, Bryan. So on the first question, yes, we had a number of events.
Speaker Change: During order that that affected the that relationship between unit cases and concentrate
Speaker Change: You mentioned a couple of them, didn't you?
Speaker Change: Congestion and the Red Sea of Singapore
Speaker Change: In that time, we had some restocking in the wake of the floods in Brazil and
Speaker Change: In the operations, we had some...
Speaker Change: Some stocking up to anticipate some future demand. So a range of factors, none of them with a thread, a common thread to them. Our guidance assumes a more normal
Speaker Change: second half of the year. But as you rightly highlighted,
Speaker Change: There is likely to be something.
Speaker Change: ahead of us that we have not anticipated. And if that were to happen, we'd certainly advise. But our goal over the longer haul is to continue to have cases and gallons in line.
Speaker Change: With regard to the growth margin impact, there's a slight benefit on both the growth and operating margins related to the stocking, but it's in the tens of basis points and again reflected in our guidance.
Speaker Change: years ago with that with that leveling out that we expect. Thanks.
John Murphy: Our guidance assumes a more normal second half of the year, but as you rightly highlighted, there is likely to be something ahead of us that we have not anticipated. And if that were to happen, we'd certainly advise. But our goal over the longer haul is to continue to have cases and gallons in line. With regard to the growth margin impact, there's a slight benefit on both the growth and operating margins related to the stocking, but it's in the tens of basis points and, again, reflected in our guidance years ago with that leveling out that we expect. Thanks. And our next question comes from Bonnie Herzog of Goldman Sachs. Please go ahead. Your line is open.
Speaker Change: Our next question comes from Bonnie Herzog from Goldman Sachs. Please go ahead, your line is open.
Operator: All right. Thank you. Good morning, everyone.
Bonnie Lee Herzog: All right. Thank you. Good morning, everyone.
Operator: I did want to ask a little bit more about your away from home business, James, which you did touch on. I guess I was hoping to hear how much your business in this channel decelerated in Q2 versus Q1 and what your outlook is for the remainder of the year. And then, assuming growth in the channel moderates further, how do we think about the impact this may have on your top line and margin? Maybe just touch on any initiatives you've implemented to accelerate growth in this channel moving forward. I think that would be helpful. Thank you. Yeah, sure. Thanks, everybody. I don't think it would be.
Bonnie Lee Herzog: I did want to ask a little bit more about your away from home business, James, which you did touch on. I guess I was hoping to hear how much your business in this channel decelerated in Q2 versus Q1 and what your outlook is for the remainder of the year, and then
Speaker Change: Assuming growth in the channel moderates further, you know, how do we think about the impact this may have on your top line and margins and maybe just touch on any initiatives you've implemented to accelerate growth in this channel moving forward? I think that would be helpful. Thank you.
Speaker Change: Yeah, sure. Thank you, Bonnie.
Speaker Change: I don't think it would be...
James Robert B. Quincey: I don't think it'd be worth saying there's a big deceleration going on as we come into the second quarter from the first quarter. If you just stand back a bit and look at what happened, and I think we were already calling out some softness in a way from home in the back end of last year. And so, I would characterize it more as a slow build from the back half of last year through the first and second quarters.
Speaker Change: I don't think it'd be worth saying there's a big deceleration going on as we come.
Speaker Change: into the second quarter from the first quarter. If you just stand back a bit and look at what happened.
Speaker Change: And I think we were already calling out some softness in Away From Home in the back end of last year. And so I would characterize it more as
Speaker Change: There's been a slow build from the back half of last year through the first and the second quarter.
James Robert B. Quincey: The first and second quarters may be a little more negative than the back half of last year, but really, it's been a kind of slow softening rather than anything major and abrupt. And it's not like accelerating off a cliff.
Speaker Change: So the first and second quarter maybe a little more negative than the last half but really, it's been a kind of a slow.
Speaker Change: Softening rather than anything major and abrupt, and it's not, you know,
James Robert B. Quincey: It's kind of a slow softening that's kind of just running at a softness level when thinking about away from home in the US. And then in terms of what we're doing about it, which is obviously the key question, is we've really been more focused on how can we make sure that we bring to bear in the away from home channels, in a sense, all the thinking that we have historically done on affordability and price pack architecture in some of the mom and pop and at home channels to make sure working with our partners across the different channels that we can provide, whether it's the meal combos or whatever format of offering so that there's a laddering of pricing to allow people to stay within the category and the channel.
Speaker Change: Like accelerating off a cliff.
Speaker Change: It's kind of a slow softening that's kind of...
Speaker Change: Just running at the softest level when thinking about away from home in the U.S.
Speaker Change: And then in terms of what we're doing about it, which is obviously the key question, is we really got being more
Speaker Change: focused on how can we make sure that we bring to bear in the away from home channel
Speaker Change: In a sense, all the thinking that we have historically done on affordability and price pack architecture in some of the mom-and-pop and at-home channels, to make sure, working with our partners across the different channels, that we can provide, whether it's the meal combos or whatever format.
Speaker Change: of offering so that there's a laddering of pricing to allow people to stay within the category and the channel. And so those are rolling out as we speak. We expect to see them making an impact in the years to go.
James Robert B. Quincey: And so those are rolling out as we speak. We expect to see them making an impact in the years to come. Our next question comes from Steve Powers from Deutsche Bank. Please go ahead. Your line is open. Hey, thank you. And good morning.
Speaker Change: Our next question comes from Steve Powers from Deutsche Bank. Please go ahead, your line is open.
Operator: Um, John, just to maybe put a wrap on the margin driver conversation and the impact of mix and concentrate timing, etc. Year to date, the underlying margin performance, both in the quarter and year to date, I guess, has been strong. If I'm penciling it out, right, I don't feel like you're expecting a material difference in the underlying margin performance of the business in the back half, despite the slower concentrate sales and some of the macro drivers. I'm going to play that back and confirm that. And if there are any material differences, maybe you just help us as to what order of the driver.
Stephen Robert R. Powers: Hey, thank you and good morning. Um, maybe John , just to...
Speaker Change: Maybe put a wrap around
Stephen Robert R. Powers: The Margin Driver Conversation and the Impact of Mix and Concentrate Timing, etc. Year-to-date, the underlying margin performance...
Speaker Change: both in the quarter and year-to-date, I guess, has been strong. If I'm penciling it out right, it doesn't feel like you're expecting a material difference in the underlying margin performance of the business in the back half, despite...
Speaker Change: I'm going to play that back and confirm that and if there are any material differences maybe you just help us as to what are the drivers.
John Murphy: Sure, Steve. Thanks. So on gross margin, just to maybe highlight the big drivers, typically our underlying performance and the structural changes we have in the quarter, most of which nowadays are related to our refranchising activity, and then how to take account of currency impact.
Speaker Change: Sure, Steve, thanks. So, on gross margin, just to maybe highlight the big drivers.
Speaker Change: Typically our underlying performance, any structural changes we have in the quarter.
Speaker Change: Most of which nowadays is related to our re-franchising activity and then any currency impact. So year-to-date we're reflecting
John Murphy: So year to date, we're reflecting almost 200 basis points of increase. And that's primarily driven by structural and underlying with some offset on currency. And for the second half of the year, typically, the margin profile in the second half of the year is slightly, slightly lower than the first half.
Speaker Change: almost 200 basis points of
Speaker Change: of increase. And that's primarily driven by across your structural and underlying with some some offset on currency.
John Murphy: But I would, I would say the overall trends in the second half of the year will be similar to what we've seen in the first half. Um, And maybe just to step it down one to the operating margin line, not so similar as we have had more benefit on the underlying margin in the first half of the year than on structural. And then in the second half of the year, I expect it to be more even.
Speaker Change: And for the second half of the year, typically, the margin profile in the second half of the year is slightly.
Speaker Change: slightly lower than the first half but I would I would say the the overall trends in the second half of the year will be similar to what we've seen in the first half
Speaker Change: and maybe just to step it down one down to the operating margin line not this similar we we have had
Speaker Change: more benefit on the underlying margin in the first half of the year than on structural and then second half of the year I expect it to be more even and yet as we've discussed in prior calls
John Murphy: And yet, as we've discussed in prior calls, we sort of reserve the right to stay flexible in the event that we make investment decisions that link to what's happening in our many markets around the world. But the overall direction of travel on both the growth and operating lines is for our margin profile to be strengthened and to be pretty much in line with some of the previous conversations we've had on this topic. Thanks. Our next question comes from Filippo Falorni from Citi. Please go ahead. Your line is open. Hey, good morning, everyone.
Speaker Change: [inaudible]
Speaker Change: So we reserve the right to stay flexible in the event that, you know, we make.
Speaker Change: Investment decisions that
Speaker Change: that link to what's happening in in our many markets around the world but overall direction of travel on both the growth and operating line is our margin profile to be strengthening and to be pretty much in line with
Speaker Change: some of the previous conversations we've had on this topic. Thanks.
Speaker Change: Our next question comes from Filippo Falorni from Citi. Please go ahead, your line is open.
Operator: I wanted to ask about the Latin America business. It continues to be a very strong driver of your total company growth with very strong unit case volume and still very strong price mix. There were obviously some temporary impacts with the flooding in Brazil, but just curious, what is working well?
Filippo Falorni: Hey, good morning everyone
Filippo Falorni: I wanted to ask about the Latin America business. It continues to be a very strong driver of your total company growth with very strong unique volume.
Speaker Change: still very strong price max
Speaker Change: There was obviously some temporary impact with the flooding in Brazil, but just curious
Speaker Change: A, what is working well? I know your bottler relationship has improved significantly over the last couple of years. And also just a general sense of how the consumer is behaving in your key markets, Brazil, Mexico, and some of the other countries. Thank you.
Operator: I know your bottler relationship has improved significantly over the last couple of years. And also, just a general sense of how the consumer is behaving in your key markets, Brazil, Mexico, and some of the other countries. Thank you. Yeah, sure, Filippo.
Speaker Change: Yeah, sure, Filippo. Yeah, Latin America had another strong result in the quorum, you know, sustained volume momentum, as you mentioned.
James Robert B. Quincey: Yeah, Latin America had another strong result in the quarter, you know, sustained volume momentum, as you mentioned, clearly being driven from Mexico and Brazil. It's a pretty broad based category, success story, you know, including not just Coke Trademark, but now Coke Zero at 20% volume growth. Obviously, part of this is a long term capability momentum building approach with our bottlers in Latin America, really bringing together all of the components of the strategy that we talked about, whether it be the marketing transformation, the focus on innovation, the execution of price packaging in the marketplace, particularly in markets like Latin America, making sure we both have premiumization and opportunities, but also critically important affordability options, whether that be with, you know, regular packaging or returnable packaging, but really making sure we have ways of keeping people in the franchise and all executed by the by the bottling system, which has, you know, really doubled down not just on traditional execution and putting more cold doors out there, but the digitization of their relationships with the retailer.
Speaker Change: Clearly being driven from Mexico and Brazil. It's a pretty broad-based category success story, you know, including not just Coke Trademark, but now Coke Zero at 20% volume growth.
Speaker Change: Obviously, part of this is a long-term capability and momentum building approach with our bottlers in Latin America, really bringing together all of the components of the strategy that we talk about, whether it be
Speaker Change: The marketing transformation.
Speaker Change: The focus on innovation, the execution of price packaging in the marketplace, particularly in markets like Latin America, making sure we both have premiumization and opportunities, but also critically important affordability options, whether that be with, you know,
Speaker Change: Regular packaging or returnable packaging, but really making sure we have ways of keeping people in the franchise and all executed by the bottling system, which has, you know, really doubled down, not just on traditional execution and putting more cold doors out there, but the digitization of their relationships with the retailers. So, really a
Speaker Change: Representation of what is possible when all the elements of the strategy of the system are executed in the marketplace. I think it's worth noting that obviously yes strong volume performance of 5% please do take in mind
James Robert B. Quincey: So, really, a representation of what is possible when all the elements of the strategy of the system are executed in the marketplace. I think it's worth noting that, obviously, yes, a strong volume performance of 5%. Please do keep in mind that the price mix is heavily affected by Argentinian high inflation, and two-thirds of the price mix is actually due to Argentina. So that leaves you about roughly six for normal inverted commas pricing for the rest of the countries.
Speaker Change: that the price mix is heavily affected by the Argentinian.
Speaker Change: High Inflation, and two-thirds of the price mix is actually due to Argentina, so that leaves you about roughly six.
James Robert B. Quincey: Nevertheless, a very strong result in Latin America, very pleasing, and looking forward to seeing that continue into the future. Our next question comes from Chris Carey from Wells Fargo Securities. Please go ahead. Your line is open. Good morning. I wanted to ask a question on just balance sheet cash flow, specifically around Fair Life.
Speaker Change: For normal inverted commas pricing for the rest of the countries, nevertheless, a very strong result in Latin America, very pleasing, and looking forward to seeing that continue into the future.
Operator: Clearly, it's a positive development that Fair Life continues to do so well. The liability, however, does, however, continue to grow. John, can you maybe comment on what you can do to perhaps limit the negative impact from raising additional capital to cover fair life, to cover the escrow payment, and specifically from a cash flow perspective in the next 12 to 18 months, and perhaps just an overall view on how you see net interest expense versus income trending as you have some of these major payments ahead? Thanks. Sure, Chris, thank you.
Speaker Change: Our next question comes from Chris Carey from Wells Fargo Securities. Please go ahead, your line is open.
Christopher Michael Carey: Hi, good morning.
Christopher Michael Carey: I wanted to ask a question on just balance sheet cash flow, specifically around Fairlife.
Christopher Michael Carey: Clearly, it's a positive development that Fair Life continues to do so well. The liability does, however, continue to grow. John , can you just maybe comment on...
Christopher Michael Carey: What you can do to perhaps limit the negative impact from raising additional capital to cover fair life.
Speaker Change: to cover the escrow payment. And specifically from a cash flow perspective in the next 12 to 18 months, and, and perhaps just an overall view on how you see net interest expense versus income trending as you have some of these major payments ahead. Thanks.
John Murphy: Well, firstly, as I said, we're very pleased with the performance of Fair Life and the end is in sight relative to the overall construct of the deal we have in place there. With regard to the broader free cash flow conversation, there's, The sources. The sources we have are cash from operations.
Speaker Change: Sure, Chris. Thank you. Well, firstly, as I said, we're very pleased with the performance of Fair Life and
Speaker Change: The end is in sight relative to the overall construct of the deal we have in place there. With regard to the broader free cash flow conversation, yeah, there's...
Christopher Michael Carey: The sources.
Christopher Michael Carey: The sources we have are cash from operations.
Christopher Michael Carey: And in the short term, as we continue to re-franchise some of our businesses from the proceeds that
John Murphy: And in the short term, as we continue to re-franchise some of our businesses from the proceeds that come in from that, during the second quarter, we also went into the debt market, and we issued some long-term debt. And so it's really a combination of those three that we are managing very closely to deal with the end of this year and into 2025 on the outflows that we see, so that the balance sheet remains strong.
Christopher Michael Carey: Come in from that
Christopher Michael Carey: During the second quarter we also went into the debt market and we issued some long-term debt and so it's really a combination of those three that we are managing very very closely to
John Murphy: We go into 2025 with a clear line of sight as to what needs to be taken care of. And yet, as we have discussed on many occasions, relative to our overall capital allocation strategy, we will continue to invest in the business as appropriate to support the dividend while we take care of the fair life, acquisition, and the tax payment that is on the horizon relative to the IRS tax case.
Christopher Michael Carey: The balance sheet remains strong. We go into 2025 with a clear line of sight as to what needs to be taken care of.
Christopher Michael Carey: And yet, as we have...
Christopher Michael Carey: We've discussed on many occasions, relative to our overall capital allocation strategy, we will continue to invest in the business as appropriate, support the dividend while we take care of the fair life.
Speaker Change: Acquisition and the detects
Speaker Change: All in all, it's going to be an interesting 18 months to work through, but we feel very confident that the work we've done today prepares us well to manage through it.
John Murphy: So, all in all, it's going to be an interesting 18 months to work through, but we feel very confident that the work we've done today prepares us well to manage through it. Our next question comes from Andrea Teixeira from J.P. Morgan. Please go ahead. Your line is open. Thank you.
Speaker Change: Our next question comes from Andrea Teixeira from JP Morgan. Please go ahead, your line is open.
Operator: So James, on the price mix in North America, you mentioned about half of the 11 points in my mix and the other pretty much pricing, but still quite driven by innovation. Can you talk about the cadence of what to expect going forward? Of course, you've done amazing well in the team there in terms of the marketing campaigns and marketing and around packaging and all of that RGM playbook that you have.
Andrea Faria Teixeira: Thank you. Good morning. So, James, on the price mix in North America, you mentioned about half of the 11 points in my mix, and the other pretty much pricing, but still quite driven by innovation.
Andrea Faria Teixeira: Can you talk about the cadence of what to expect moving ahead? Of course, you've done amazing well in the team there in terms of the marketing campaigns and marketing and around packaging.
Operator: But looking ahead, are there any additional gains you expect and how should we be thinking, I guess, broadly, not only in North America but also in Brazil and Mexico, how to think of additional gains there and as well as in the media? Thank you. Sure, I'm in.
Speaker Change: and all of that RGM playbook that you have. But looking ahead, is there any additional?
Speaker Change: Games you expect and and how we should be thinking I guess broadly even not only in North America But also in Brazil and Mexico how to think of additional games in there and as well as in India. Thank you
James Robert B. Quincey: Absolutely, we're going to continue to press ahead with the marketing, with the innovation, with the price packer, with the execution. That's the way we earn the right to take a reasonable level of pricing. Clearly, some of the inflationary effects and some of the mixed effects are likely to become more subdued as we go into the back half of the years. So I'm not expecting, for example, in North America, if half of it is from the mixed piece and half of it is from, you know, core pricing, I think the mixed piece will start to taper off over time. And in part, it does so because it starts cycling itself.
Speaker Change: Sure. I'm in.
Speaker Change: Absolutely, we're going to continue to press ahead.
Speaker Change: With the marketing, with the innovation, with the price factor, with the execution, that's the way we earn the right to take a reasonable level of pricing. Clearly, some of the...
Speaker Change: Inflationary effects and some of the mixed effects are likely to become more subdued as we go into the back half of the year. So I'm not expecting, for example, in North America, half of it is
Speaker Change: A mix and half of it is from, you know, core pricing. I think the mixed piece will start to train down over time and in part it does so because it starts cycling itself.
James Robert B. Quincey: And so I think it's the key for me to look through the kind of mix and the inflation effects and think about core pricing. And if you do that at an overall company level and look at the second quarter in its totality. Again, there, as I said, a big piece of it was inflation. You take it out, and you're at the four-ish percent in core pricing off a 2% volume. There you are right in the sweet spot of the top end of the algorithm that we've been looking to deliver on.
Speaker Change: and so I think it's the key for me is to look through the kind of mix and the inflation effects and think about core pricing and if you do that as an overall company level and look at the second quarter in its totality
Speaker Change: Again there, as I've said, a big piece of it was inflation. You take it out and you're at the 4-ish percent.
Speaker Change: In Core Pricing Offer 2% Volume
James Robert B. Quincey: So I think the central assumption is a kind of a landing zone for these effects like inflation and mix, and we are starting to see more of the price mix being the core actions across the strategy flywheels driving the business. Our next question comes from Kaumil Gajrawala from Jeffreys. Please go ahead. Your line is open. You delivered 2% case volume growth, and you know we look across sort of the rest of Staples; we're seeing quite a bit of a slowdown in volumes. I think you're positive everywhere with the exception maybe of North America.
Speaker Change: There you are, right in the sweet spot of the top end of the algorithm that we've been looking to deliver on. So I think that the kind of the central...
Speaker Change: Assumption is a kind of a landing zone for these for these effects like inflation and mix and starting to see more of the price mix being the core actions across the strategy flywheels driving the business.
Speaker Change: Our next question comes from Kaumil Gajrawala from Jeffreys. Please go ahead. Your line is open.
Kaumil Gajrawala: You delivered 2% case volume growth and you know we look across sort of the rest of Staples we're seeing quite a bit of slowdown in volumes I think you're positive everywhere with the exception maybe of North America can you maybe just talk a bit more as you're you know you provided your operating environment views but also AI innovation new sports sporting events these types of things what should we be looking at over the medium term in terms of volume growth
Operator: Can you maybe just talk a bit more as you provided your operating environment views but also AI innovation, new sports, sporting events, these types of things. What should we be looking at over the medium term in terms of volume growth? Yeah, so we, from a strategy perspective, have taken the approach over the last number of years, if not even longer, that it's critically important, particularly when times get tougher, to try and keep as many consumers in the franchise as possible, rather than trying to re-recruit them at some later stage.
Speaker Change: Yeah, so we, as from a strategy perspective, have taken the approach over the last number of years, if not even longer, that it's critically important.
Speaker Change: Particularly when times get tougher.
Speaker Change: to try and keep as many consumers in the franchise as possible rather than trying to re-recruit them at some later stage. And there we now focus not just on marketing innovation, but affordability within the price pack.
James Robert B. Quincey: And they're in our focus, not just on marketing innovation but affordability within the price pack architecture. So clearly, an objective of ours is not to see negative volumes and to make sure we keep people in and use all the elements to do that. As you say, we've got 2% in the quarter; we've had a run right there.
Speaker Change: Clearly, an objective of ours is not to see negative volumes and to make sure we keep people in and use all the elements to do that.
Speaker Change: And so, as you say, we've got 2% in the quarter, we've got, we've had a run right there.
James Robert B. Quincey: We've talked in the past, and it remains true today, that the central long-term growth algorithm is looking for revenue of 4% to 6%, and we've set ourselves the ambition of staying in the 5% to 6% range with a balance of volume and price mix. Essentially, if you split that, you're saying two to three in volume and two to three in price. We were kind of in that range in the quarter with the 2% volume.
Speaker Change: We've talked in the past, and it remains true today, that the central long-term growth algorithm, we're looking for a revenue of 4% to 6%, and we've set ourselves the ambition of staying in the 5% to 6% range with a balance of volume and price mix.
Speaker Change: essentially a way of you know if you've split that you're saying two to three in volume and two to three in price
Speaker Change: We were kind of in that range in the quarter with the 2% volume, so I think in the long run...
James Robert B. Quincey: So I think in the long run, we'll continue to pursue that. I said earlier this year that, you know, in the shorter term, it's likely to be slightly more price and slightly less volume, which was kind of exactly what happened in the second quarter. So it would not surprise me as we go through the rest of the year if that remains true, that we see slightly less volume than the kind of standard algorithm and slightly more prices as pricing tends towards, inflation tends towards the landing zone.
Speaker Change: We'll continue to pursue that, talked earlier this year.
Speaker Change: that, you know, in the shorter term, it's likely to be slightly more price and slightly less volume, which was kind of exactly what happened in the second quarter, so it would not surprise me.
Speaker Change: As we go through the rest of the year, that remains true, that we see slightly less volume than the kind of standard algorithm and slightly more prices.
Speaker Change: As inflation tends towards the landing zone.
Speaker Change: And I think that's likely to be true.
Speaker Change: as we go through the rest of the summer. Hopefully the weather gets a bit better. But we're likely to see that, you know, slightly less volume, slightly more price.
James Robert B. Quincey: And I think that's likely to be true as we go into the, as we go through the rest of the summer, hopefully, the weather gets a bit better. But we're likely to see that, you know, slightly less volume, slightly more price, and probably a repetition of where that volume is coming from in terms of the rest of the year. The positives are largely the developing economies, Latin America, India, Africa, Southeast Asia, and to some extent, Japan.
Speaker Change: and probably a repetition of where that volume is coming from in terms of the rest of the year. The positives largely being the developing economies, Latin America, India, Africa, Southeast Asia and to some extent Japan.
Operator: And the kind of weighing on a little, the kind of parts of North America and Europe channel and income specific, and some disruptions from the Middle East. But net net, we think we've got a strong strategy that's playing out and is winning. And we're confident that we can drive that to get that balanced algorithm of growth through the rest of this year and into the future. Our next question comes from Robert Ottenstein from Evercore ISI. Please go ahead. Your line is open. Great, thank you very much.
Speaker Change: and the kind of weighing on a little the kind of the parts of North America and Europe channel and income-specific and some of disruptions.
Speaker Change: from the Middle East.
Speaker Change: But net net.
Speaker Change: We think we've got a strong strategy that's playing out and is winning, and we're confident that we can drive that to get a balanced algorithm of growth through the rest of this year for our guidance and into the future.
Speaker Change: Our next question comes from Robert Ottenstein from Evercore ISI. Please go ahead, your line is open.
Operator: I'd like to go back to North America, but look at it more on a category basis, you know, for the first half of the year, you know, with more emphasis on maybe the second quarter, and get your thoughts on a couple of things. Number one, it looks like, for the first time that I can think of, sparkling is doing better than energy as a sector. I would love to get your thoughts on maybe what the drivers are there.
Robert Edward Ottenstein: Great. Thank you very much. I'd like to go back to North America, but look at it more on a category basis.
Robert Edward Ottenstein: You know, for the first half of the year, you know, with more emphasis on maybe the second quarter.
Speaker Change: and get your thoughts on a couple of things. Number one.
Speaker Change: It looks like for the first time that I can think of, sparkling is doing better than energy.
James Robert B. Quincey: Second, sports strengths, how your new strategy is working, you know, combining power aid and body armor under one management team. And then third, any other particular things that you're seeing on the category side that are worth noting. Thank you.
Speaker Change: As a sector, love to get your thoughts on maybe what the drivers are there.
Speaker Change: Second, sports strengths, how your new strategy is working, you know, combining powerade and body armor under one management team. And then third, any other particular things that you're seeing on the category side that are worth noting. Thank you.
James Robert B. Quincey: Yeah, sure. So definitely, you know, North America had a good, good second quarter. The standouts in terms of growth, clearly, actually, what's interesting is actually, if you look at the Nielsen universe, and you look at which two trademarks provided the most dollar retail growth in Q2, the answer is Fairlife and Coca-Cola.
Speaker Change: Yeah, sure. So definitely, you know, North America had a good
Speaker Change: Good second quarter, the standouts in terms of growth, clearly, actually what's interesting is actually if you look at the Nielsen universe.
Speaker Change: And you look at which two trademarks provided most dollar retail growth.
Speaker Change: Q2. And the answer is Fairlife and Coca Cola. And so, you know, in a way, you could see that as a sort of microcosm for the overall strategy working, you've got
James Robert B. Quincey: And so, you know, in a way, you could see that as a sort of microcosm for the overall strategy working; you've got, you know, broad ends of the portfolio working, and it's being executed in the marketplace and driving, you know, really, really substantial growth. So, good, good performance by Fairlight.
Speaker Change: broad ends of the portfolio working and it's being executed in the marketplace and driving really, really substantial growth. So good performance.
James Robert B. Quincey: Good performance by Coca-Cola overall, with growth obviously being led by Coca-Cola Zero. In the sports category, things are getting better. We had some positive volume growth in body armor and Powerade, and we're really starting to see the kind of stabilization with the marketing and the innovation and some really good price work going on there. We're not yet gaining all the share we want to gain, but we've stabilized and are starting to turn the corner with some of those innovations on Zero and Flash IV and Powerade power. So a good kind of step forward and turning the corner, and clearly looking to do better. I'm not sure there's much more to say, Greg Porter, and long may it last.
Speaker Change: by Fairlight. Good performance by the overall Coca Cola with growth obviously being led by Coca Cola Zero. In the sports...
Speaker Change: category, getting better. We had some positive volume growth in body armor and powerade. And we're really starting to see the kind of stabilization with the marketing and the innovation and some packed price work going on there. We're not yet gaining all the share we want to gain, but we've stabilized and starting to turn the corner with some of those innovations on Xero and Flash IV and Powerade power. So.
Speaker Change: A good, a good kind of step forward and turning the corner and clearly looking to do better. I'm not sure there's much more to say. Great quarter and long may it last.
James Robert B. Quincey: My next question comes from Peter Grom from UBS. Please go ahead. Your line is open. Thanks, operator. And good morning.
Speaker Change: My next question comes from Peter Grom from UBS. Please go ahead, your line is open.
Operator: So I guess I just wanted to follow up on Robert's questions and be specific about energy drinks, right? I mean, it's one of the few categories where we've seen a pretty notable change here. So do you have any perspective, James, on what may be driving the weaker performance? And then, as you look ahead, would you anticipate maybe some of this pressure to be short-lived? Is there something you're seeing that would suggest this weakness could persist through the balance of the year and into maybe the next 25? Thanks. Sure. Well, I think you need to kind of break it up a bit.
Peter K. Grom: Thanks, operator, and good morning. So I guess I just wanted to follow up on Robert's question, just specifically.
Peter K. Grom: You know, on energy drinks, right? I mean, it's one of the few categories where we've seen a pretty notable change here. So do you have any perspective, James, on what may be driving the weaker performance? And then as you look ahead.
Speaker Change: Would you anticipate maybe some of this pressure to be short-lived? Is there something you're seeing that would suggest this weakness could persist through the balance of the year and into maybe 25? Thanks.
Speaker Change: sure
James Robert B. Quincey: Well, I think you need to kind of, um,
James Robert B. Quincey: I mean, firstly, look, we've had a great partnership with Monster and created tremendous value for Monster, for us, Coca-Cola, and for the bottling partners. Clearly, in the case of the US, what happens in every category when people create a category and there are one or two brands is that people look for the white spaces and start to innovate and start to bring new news to the category. And I think that's what's happening in energy, particularly in the US.
Speaker Change: Break it up a bit. I mean, firstly, look, we've had a great partnership with Monster, created tremendous value for Monster, for us, Coca Cola, and for the bottling partners.
Speaker Change: Clearly, in the case of the U.S.
Speaker Change: There's been what happens in every category when when people create a category and there's one or two brands is
Speaker Change: People look for the white spaces and start to innovate and start to bring new news to the category And I think that's what's happening in energy particularly in the US
James Robert B. Quincey: And so, you know, working with Monster that will respond to the evolution of the way the consumer is looking at the category. I think it's also important to understand that the energy category is one of the categories that responds to an overall consumer need to be fueled for their lives.
Speaker Change: I think it's also important to understand that the energy category is one of the categories that responds to an overall consumer need state of being fueled for their lives.
James Robert B. Quincey: And so, from a company point of view, we see that as something where we bring multiple brands to bear against that need state. And each brand and each category needs to play its part in kind of delivering on that, and each one has to do its own work to do it.
Speaker Change: and so
Speaker Change: From a company point of view, we see that as something where we bring multiple brands
Speaker Change: All of those are there to bear against that new state and each brand and each category needs to play its part in kind of delivering on that. And each one has to do their own work to do it. But I think there's more to be done across the board, including in the Monster Energy portfolio, and we're working with them on that.
James Robert B. Quincey: But I think there's more to be done across the board, including in the Monster energy portfolio, and we're working with them on that. And then I think internationally, there's robust growth in the energy category and good progress around the world in different ways and different forms. So I think one has to kind of pull apart the energy category and look at it kind of geographically to see that, overall, it's still got some good growth. And there are different jobs to be done in different parts of the world. Our next question comes from Charlie Higgs from Redburn. Please go ahead. Your line is open. Yeah, hi James and John, I hope you're both well.
Speaker Change: And then I think, internationally, there's...
Speaker Change: Robust growth in the energy category and making good progress around the world In different ways in different forms. So I think one has to kind of pull apart Energy category and look at it kind of geographically to see that overall It's still got some good growth
Speaker Change: and there's different jobs to be done in different parts of the world.
Operator: I've got a question on Asia Pacific, the performance in Q2, please, where volumes are up 3% and price mix was down 3%. Can you maybe just talk a bit more about the volumes up 3% and specifically how China performed and what you're seeing on the ground there in China in Q2? And then the price mix down three, is that purely just a negative geographic mix from India and the Philippines, Australia, and Japan, or was there negative pricing within that? Thank you. Yeah, sure. I'll take them in reverse order, Charlie.
Speaker Change: Our next question comes from Charlie Higgs from Redburn. Please go ahead, your line is open.
James Robert B. Quincey: Yeah, the negative pricing is more than driven by the mix effect. So core pricing is positive if you go operating unit by operating unit. But overall, the Asian price mix is negative because of the way the mathematics of the thing works. But the central answer there is it's more than just geography.
Charlie Higgs: Yeah, hi James, John , hope you're both well. I've got a question on Asia Pacific, the performance in Q2, please, where volumes are up 3% and price mix was down 3%.
Charlie Higgs: [inaudible]
Speaker Change: Talk a bit more about the volumes up three and specifically how China performed and what you're seeing on the ground there in China in Q2.
Speaker Change: And then the price mix down through, is that purely just negative geographic mix from India and Philippines rather than Japan, or was there negative pricing within that? Thank you.
Speaker Change: Yeah, sure. I'll take it in reverse order, Charlie. Yeah, the negative pricing is more than driven by the mix effect.
Charlie Higgs: So, core pricing is positive if you went operating unit by operating unit, but overall Asian price mix is negative because of the way the mathematics of the thing works. But the central answer there is it's more than just geography mix. Geography mix is consuming core pricing and taking it down to minus three.
James Robert B. Quincey: The geography mix is consuming core pricing and taking it down to minus three. Then, if I go back to the performance of the different operating units, clearly, the big swing in Asia Pacific is driven by the bounce back of India. You'll remember that in the first quarter, India had a soft first quarter.
Charlie Higgs: Then if I go back to the performance of the different operating units,
Charlie Higgs: Clearly, the big swing in Asia Pacific is driven by the bounce back of India.
Charlie Higgs: You'll remember that in the first quarter, India had a soft first quarter. The second quarter was very strong. And so, that produces...
James Robert B. Quincey: The second quarter was very strong, and so that obviously produced a big swing in the results. So India had a good double-digit growth in volume in the second quarter. Still very bullish on India, still very realistic in terms of it won't be a straight line into the future. But they certainly had a good quarter in the second quarter. We also saw good volume growth across Southeast Asia, including volume growth across Japan and South Korea. However, volumes were negative in the China operating unit.
Charlie Higgs: Obviously a big swing in the results.
Charlie Higgs: We're still very bullish on India, still very realistic in terms of it won't be a straight line into the future, but they certainly had a good quarter in the second quarter. We also saw good volume growth.
Charlie Higgs: across Southeast Asia, including also volume growth across Japan and South Korea. Volumes were negative in the China operating unit.
James Robert B. Quincey: There are two parts to this story. The first is, yes, there's a general macro softness as the overall economy works through some of the structural issues around real estate, pricing, et cetera, et cetera. But within the things that we control, we have essentially been prioritizing and restructuring where we invest across the category portfolio, focusing more on sparkling and juice drinks and teas and deprioritizing what is essentially case-packed water where we don't make money in China. So the overall volumes were negative in China, entirely driven by the deprioritization of water.
Charlie Higgs: There's two parts to this story. The first is.
Speaker Change: Yes, that's it.
Speaker Change: There's a general macro.
Speaker Change: Softness, as the overall economy works through some of the structural issues around real estate, pricing, et cetera, et cetera. But within the things that we control, we have essentially been prioritizing and restructuring where we invest across the category portfolio and focusing more on sparkling and juice drinks and teas and deprioritizing what is essentially case-packed water where we don't make money in China. So the overall volumes...
Speaker Change: were negative in China, but that's
Speaker Change: Entirely driven by the deprioritization of the water and actually I think the sparkling volume was slightly positive in China for the quarter.
James Robert B. Quincey: And actually, I think the sparkling volume was slightly positive in China for the quarter. Our next question comes from Kevin Grundy from BNP Paribas. Please go ahead. Your line is open.
Speaker Change: Our next question comes from Kevin Grundy from BNP Paribas. Please go ahead, your line is open.
Operator: Great. Thanks. Good morning, everyone.
Kevin Grundy: Great. Thanks. Good morning, everyone.
John Murphy: Question for John, please, just kind of building on some of the questions earlier on cash flow. Can we get an update, please, on the timing of potential bottler refranchising? I think it's probably largely a question of CCBA and understanding that market conditions may potentially dictate, but can you help us understand how you're currently thinking about potential timing there? And then, as you're thinking about value creation for shareholders, how much does EPS come into that? We hear that from shareholders sometimes, if at all, as you're thinking about moving forward with that. Thanks.
Kevin Grundy: Question for John , please. Just kind of building on some of the questions earlier on cash flow.
Kevin Grundy: Can we get an update please on timing of potential bottler refranchising? I think it's probably largely a question on CCBA.
Kevin Grundy: and understanding that market conditions may potentially dictate, but can you help us how you're currently thinking about potential timing there?
Speaker Change: And then as you're thinking about value creation for shareholders, how much does EPS solution come into that? We hear that from shareholders sometimes, if at all, as you're thinking about moving forward with that. Thanks.
John Murphy: So, regarding the timing, Yeah, we're, you know, we're not giving up. Dave says to That's when we expect the refranchising process to finish. To finish, we're staying very thoughtful, and disciplined. [inaudible] recruiting new partners in the areas that are still standing. And so there's good work underway. But no, no imminent decisions, and we'll advise as that work bears fruition. But I think the overall message is we continue to be very clear internally on the path forward, and we'll expect, in the next couple of years, to have the bulk of the refranchising done, if not all of it.
Speaker Change: So regarding the timing, you know, we're not giving out dates as to
Speaker Change: That's when we expect the re-franchising process to...
Speaker Change: To finish, we're staying very thoughtful, disciplined, and
Speaker Change: Recruiting new partners in the areas that are still outstanding and so there's good work underway.
Speaker Change: but no no imminent decisions and we'll advise as that work bears fruition but
Speaker Change: I think the overall message is we continue to be very clear internally on the path forward and we'll expect.
Speaker Change: Over the next couple of years to have the bulk of the the re-franchising done, if not all of it.
John Murphy: With regard to the impact on EPS dilution, it's a mechanical effect that comes from the broader strategic decisions that we believe are right for the Coca-Cola company and, over time, for the Coca-Cola system. The refranchising work that started back in the mid-19teens is demonstrating time and again that the overall system benefits when there's a step change in overall performance. And with that step change, we benefit So, as you've seen this year, there is a mechanical impact on the EPS line.
Speaker Change: With regard to the impact on EPS dilution, it's a mechanical effect that comes from the broader strategic decisions that we believe are right for the Coca Cola company and over time for the Coca Cola system. The re-franchising work that
Speaker Change: that started back in the mid-teens.
Speaker Change: is demonstrating time and again that the overall system benefits when there's a step change.
Speaker Change: and overall performance.
Speaker Change: And with that step change, we benefit over the longer haul. So, as you've seen this year, there is a mechanical impact.
Speaker Change: On the EPS line, but longer term, we think that the broader the broader value proposition
John Murphy: But longer term, we think that the broader value proposition of the Coca-Cola company staying very focused on what we do best and having a balance sheet then that's designed to support what we do best, working in partnership with great partners around the world is the recipe for us to meet and exceed our long-term growth model. Our last question today will come from Robert Moskow from TD Cowen. Please go ahead. Your line is open. Hi, thanks for the question. Maybe I missed it.
Speaker Change: of the Coca Cola company staying very focused on what we do best and having a balance sheet then that's designed to support what we do best.
Speaker Change: working in partnership with great buffers around the world is the recipe for for us to meet and exceed our long-term growth model.
Speaker Change: Our last question today will come from Robert Moskow from TD Cowen. Please go ahead, your line is open.
Operator: But did you make any commentary about your intentions for marketing investment for the year? Has anything changed since the start of the year? I think you talked about maybe, you know, some surgical efforts in certain markets in certain categories. But can I assume that, you know, that there's no signal here that there needs to be incremental investment to improve volume? Um, let me let me let me attack the answer.
Robert Bain Moskow: Hi, thanks for the question. Maybe I missed it, but did you make any commentary about your intentions on marketing investment for the year? Whether anything's changed since the start of the year? I think you talked about maybe, you know, some surgical efforts in certain markets and certain categories.
Speaker Change: but but can I assume that you know that there's no there's no signal here that it needs to be incremental investment to improve volume?
James Robert B. Quincey: Our bias is to lean in and invest where we see opportunities. And to the extent that we continue to see opportunities, we continue to invest. And if we see more opportunities, we'll invest more. And the contrary is also true. If we see softness that doesn't warrant a certain level of investment, then we will look to pull back.
Speaker Change: [inaudible]
Speaker Change: Let me, let me, let me attack the answer. Our bias is to lean in and invest where we see opportunities. And to the extent that we continue to see opportunities, we continue to invest.
Speaker Change: And if we see more opportunity, we'll invest more. And the contrary is also true. If we see softness that doesn't warrant certain level of investment, then we will look to pull back.
James Robert B. Quincey: Having said that, there's nothing particularly in the guidance that's trying to tell you it's changing radically in one direction or the other. You know, we continue to see the need for marketing pressure. It's not a fixed sum that is not subject to inflation.
Speaker Change: Yeah, we continue to see the need for marketing pressure.
Speaker Change: It's not a fixed sum that...
James Robert B. Quincey: But there's nothing in the guidance that's trying to tell you anything radically different. It's very much we continue to invest and drive the top line. And we see the two marching together. Okay. Thanks, Robert. That was the last question.
Speaker Change: is not subject to inflation, but there's nothing in the guidance that's trying to tell you something radically different. It's very much we continue to invest and drive the top line, and we see the two marching together.
Operator: So to summarize, we're building a culture that emphasizes improving every aspect of how we do business. We have lots of opportunities in front of us. We think we're well positioned to capture these opportunities, and we're confident that we will successfully execute our strategy and create value for our stakeholders. Thank you for your interest, your investment in our company, and for joining us this morning. Ladies and gentlemen, this concludes today's conference call.
Speaker Change: Okay.
Speaker Change: Thanks Robert that was that was the last question. So to summarize...
Speaker Change: We're building a culture that emphasizes improving every aspect of how we do business.
Speaker Change: We have lots of opportunities in front of us. We think we're well positioned to capture these opportunities. And we're confident that we will successfully execute our strategy and create value for our stakeholders. Thank you for your interest, your investment in our company, and for joining us this morning. Thank you.
Speaker Change #100: Ladies and gentlemen, this concludes today's conference call. Thank you for participating, you may now disconnect.
Speaker Change #101: Radio! 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 there's lonely ones 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 That's just who I am, that's how I radio That's just who I am, that's how I video That's just who I, I, I am, I, I, I am Because I know you can only be who you are
Speaker Change #101: Who I am, a separate radio I'm a radio I'm just who I am, a separate video Wherever you are Real magic You can only be who you are Short days turn to long nights I don't take breaks I don't buy the hype We done made a way With no time to waste There's no way to last
Operator: Thank you for participating; you may now disconnect. You can only be who you are, short days turn to long nights, I don't take breaks, I don't buy the hype, we've made a way, but there's no time to waste, there's no way to last. Stay.