The operator welcomes everyone to The Coca-Cola Company's Third Quarter 2023 Earnings Results Conference Call and reminds participants that the call is for investors only. The purpose of the call is to discuss financial results, and questions from the media will not be addressed. Robin Halpern, Vice President and Head of Investor Relations, introduces James Quincey, Chairman and CEO, and John Murphy, President and CFO. Non-GAAP financial measures and forward-looking statements may be discussed during the call. Following prepared remarks, there will be a question and answer session. James Quincey discusses the company's strong top line growth, operating margin expansion, and earnings per share growth in the third quarter.

The company's strategy is proving successful as they have consistently delivered strong results. They have raised their guidance for both top and bottom line performance. The global consumer landscape is dynamic, with some markets improving and others facing challenges such as inflation and geopolitical tensions. The company has seen 11% organic revenue growth driven by volume and pricing actions. They have gained share in both at-home and away-from-home channels. Consumer sentiment varies around the world, with some shifting towards discount channels and private label brands. In developed markets, consumer spending has held up well but there is some pressure. In developing and emerging markets, the situation is more mixed.

The company has seen strong consumer strength in Latin America, India, and parts of Asia, but consumer confidence in spending has not fully recovered in Africa and China. They are leveraging their revenue growth management capabilities to ensure they have the right products at the right price points to meet consumer demand. In Asia Pacific, they saw organic revenue growth but a decline in operating income due to investments and portfolio rationalization. In ASEAN and South Pacific, they linked their brands to drinking occasions and had strong execution. In Thailand, they launched Coke Kitchen and partnered with food service aggregators, resulting in increased attachment rates. In Japan, they gained volume and value share and have stepped up execution in various channels. However, in China, volume declined and they are focusing on restoring momentum in the sparkling soft drink category.

In India, the company saw double-digit growth and gained the highest value share in the past 3 years. They achieved this through affordable pricing and increasing availability in rural areas. In Asia Pacific, they launched 100% recycled PET packaging to support a circular economy. In EMEA, there was strong growth in revenue and operating income, despite challenges in Africa and unfavorable weather in Europe. They gained value share through successful partnerships and performances in sparkling soft drinks and tea. They also expanded into the alcoholic drinks market and saw promising results. In Eurasia and Middle East, they recruited consumers through innovative marketing events and launched a 100% recycled PET package. In North America, they saw strong growth and margin expansion by focusing on the total beverage portfolio and outperforming in the away-from-home channel. Quality leadership was maintained in sparkling soft drinks.

The company's systems have been successful in promoting and increasing sales of various products, such as Sprite Lymonade Legacy and Fanta. They have also focused on sustainability, renewing partnerships to protect water resources and promoting refillable packaging in developing markets. In Latin America, the company has seen growth and value share gains in 4 out of 5 top markets. They have also been linking their brands to consumers' passions and driving affordability through refillable packaging. In global ventures, the company has seen strong growth at Costa and has focused on revenue growth management and increasing transactions.

The company has seen success in their global summer of ice campaign, expansion of the refreshment category, and personalized loyalty activation in the UK. They also gained value share in the UK and France. The Bottling Investments Group saw growth through expanding entry packs and optimizing trade collections. The company is also working towards decarbonizing their operations in India. They have confidence in the long term and are investing in digital initiatives, particularly in marketing and innovation. They have shifted their media spend towards digital and have seen success in engaging with Gen Z through digital campaigns. They are also using AI to connect with consumers and have launched Create Real Magic, which turns consumers into digital creators.

The company has successfully incorporated AI into their creative process, launching new products and improving access to insights and data. They are also investing in digital capabilities to expand their potential in the future. The company has had strong results in the third quarter and has updated their 2023 guidance. They are also taking actions to continue delivering on their objectives in 2024.

In the third quarter, the company saw an 11% growth in organic revenues and a 2% increase in unit case growth. Excluding the impact of suspending business in Russia, the company has had positive volume growth in each quarter of 2021. Price/mix growth was 9%, driven by pricing actions and carryover pricing from last year. Comparable gross margin and operating margin both saw increases, with EPS up 7% year-over-year. Free cash flow for the year-to-date was strong, but partially offset by transition tax and M&A-related payments. The company's net debt leverage is below their target range and they have entered into a letter of intent to refranchise their Philippines bottler. This is part of their goal to improve the return profile of their business, as their return on invested capital has increased by nearly 7 points since 2015.

The company's remaining assets in the Bottling Investments Group will include operations in India, Africa, and smaller locations in Asia Pacific. They will continue to focus on refranchising to promote long-term growth. The company is confident in its ability to meet its raised 2023 guidance, with expected organic revenue growth of 10-11%, led by price/mix and positive volume growth. They anticipate pricing in developed markets to moderate in the fourth quarter, but hyperinflationary markets will drive price/mix. The company expects a 13-14% growth in comparable currency-neutral earnings per share and a 4-point headwind from currency for net revenues and a 6-point headwind for earnings per share. They also anticipate a mid-single-digit impact on comparable cost of goods sold due to commodity price inflation. The underlying effective tax rate for 2023 is expected to be 19%. The company is updating its comparable earnings per share growth to 7-8% and expects to generate $9.5 billion in free cash flow in 2023. This does not include any payments related to their U.S. income tax dispute with the IRS.

The company has seen strong business momentum and has a strong balance sheet, giving them flexibility to reinvest in the business and return capital to shareholders. They are encouraged by their top line growth in most markets, but face challenges in hyperinflationary markets. They will continue to manage currency pressures and reinvest in their brands. They anticipate a low single-digit currency headwind for net revenues and a mid-single-digit headwind for earnings per share in 2024. They have delivered U.S. dollar EPS growth in the past and are confident in their ability to continue doing so. They remain focused on capturing opportunities and are ready to take questions.

In response to a question about the company's outlook for 2024, Coca-Cola CEO James Quincey discusses the factors that will impact pricing, including carryover from inflation in 2022 and high inflation markets like Argentina and Turkey. He also mentions the uncertainty of how these markets will affect pricing in the future and states that the company will provide updates in February. Overall, he expects pricing to moderate in developed economies.

The speaker discusses emerging markets with subnormal inflation, specifically mentioning China. They also mention the importance of considering the overall journey in high-inflation markets. In response to a question about inflationary pricing and unit case volume, the speaker explains that they have been pursuing a strategy to protect and grow their consumer franchise, with a focus on positive volume and transaction growth regardless of inflation levels. This strategy includes marketing, innovation, RGM, and execution.

The paragraph discusses the impact of inflation on the company's business in Latin America and EMEA (Europe, Middle East, and Africa) regions. In Latin America, inflation is largely driven by Argentina, but the company has experience operating in this environment and has been able to execute marketing and innovation strategies effectively. In the EMEA region, inflation is moderating in Europe, but there are still challenges in Eurasia and Africa, where some high inflation markets have had an impact on volume. Overall, the company has been able to manage through these challenges and maintain its total segment performance.

The speaker discusses the company's strategy of investing in marketing to drive growth, even if it results in a temporary decline in operating margins. They plan to continue this strategy in the future and are optimistic about its success in increasing both top line and bottom line results. They are willing to maintain this approach through the end of the year and into the next.

In 2024, the company is prepared to pivot if necessary but is currently focused on leaning in for growth. They have developed flexibility to move quickly if needed. The company has been increasing operating income margin by 0.5% annually and sees this as part of their strategy. In the U.S., there is room for improvement in pack diversity and the company is not currently capturing all opportunities in this area.

The speaker discusses the potential for leveraging packaging diversity to satisfy consumer needs and drive growth in the U.S. market, as well as in other developed markets such as Latin America and Europe. They also address concerns about the impact of GLP drugs on volume growth and assure investors that they are proactively approaching this potential risk.

John Murphy, an executive at Coca-Cola, discusses the company's performance in the past year and their plans for the future. He mentions the challenges of managing volatility and uncertainty in the market and highlights the company's strategies for growth, such as marketing and innovation. He also addresses the potential impact of sugar content and portion control on the company's sales, stating that they are well positioned to provide options for consumers. Finally, he mentions that 68% of their products have low or no calories and they continue to invest in innovation and choice.

The speaker, James Quincey, responds to a question about the deceleration of growth in the franchise and the potential for Coke Zero. He explains that there is still a lot of potential for Coke Zero and that the dip in Q3 was due to poor summer sales in Europe. The next question is about the slow recovery of the consumer market in China and Africa and whether Coca-Cola can do anything to accelerate it. Quincey states that they are not just waiting for the market to improve, but are actively investing and focusing on opportunities to restore momentum, particularly in the sparkling business.

The company is looking to have a strong Chinese New Year in 2024 and has made decisions to invest and prioritize in order to drive business growth. They also discuss their objective of refranchising their bottling operations, with the recent sale of their operations in the Philippines to CCEP. The company has had a good run in the Philippines and is looking to use proceeds from non-operating activities, such as BIG disposals, towards buybacks.

The company is looking for the right partners to refranchise to, and has found a strong, local, long-term investing family, the Aboitiz Group, to work with. They will also receive system expertise from CCEP. The transaction is expected to close in February, and the company will provide more details at that time. The company has a strong position and flexibility to reinvest in the business and return capital, including potential share repurchases. Hyperinflationary pricing had a 2.5 point impact on the total price/mix at the total company level.

Nielsen represents about half of the business in the U.S., with lower-income consumers facing the most pressure in terms of shopping for at-home occasions. The growth is happening in unmeasured channels, such as away-from-home channels like restaurants, amusements, and travel. This is driving the strength of the U.S. business and revenue, with a clear divergence in consumer behavior between at home and away from home.

James Quincey, CEO of Coca-Cola, discusses the impact of trade down to private label and discount channels on the company's observed measures channels and overall marketplace. He notes that Europe has seen a greater impact due to consumer disposable income, but the US, Australia, and Japan have been less affected. Quincey emphasizes the importance of brand strength and prioritization of occasions for consumers in maintaining market share. He also mentions the company's focus on delivering value through product, marketing, and innovation. The question then shifts to the Asia Pacific business.

In the paragraph, James Quincey discusses the performance of the India and China business segments. He mentions that China was a drag on the segment's volume and margin, but it is important to look at the average of four quarters rather than just one. He also mentions that there are investments being made in China and Japan, and the pricing environment is relatively clear. In response to a question about digital investments, Quincey explains that the U.S. bottlers are focusing on both revenue and cost efficiency in their digital investments.

The U.S. bottlers, like other international bottlers, are investing in digital technology to improve efficiency in their supply chain and manufacturing processes. They are also investing in digitizing their relationships with non-modern trade customers through B2B platforms. These investments aim to increase connectivity and improve forecasting and inventory visibility.

Coke plans to use AI to improve its B2B relationships and drive business growth. The company's growth in sparkling and non-sparkling categories has been similar, but they are focused on doing justice to all brands in their portfolio. They see the potential for growth in non-sparkling categories, but also recognize the opportunity to create new categories in the beverage industry. Therefore, they expect continued growth in sparkling as they expand into white spaces with their strongest brands.

The company is focused on gaining share in the non-sparkling categories and has a long-term plan to move from experimental to challengers to leader to quality leadership. This has been a consistent trend over the last few decades and the company is confident in their ability to continue building the industry in the future. They have proven their success in Q3 and are confident in their ability to create value over the long term. The call concludes with a thank you to investors and a reminder to disconnect.

This summary was generated with AI and may contain some inaccuracies.