The Coca-Cola Company's Second Quarter 2024 Earnings Results Conference Call is being conducted by Ms. Robin Halpern, Vice President and Head of Investor Relations. She introduces James Quincey, the Chairman and CEO, and John Murphy, the President and CFO. The call may contain forward-looking statements and the company's all-weather strategy is working well. The company is raising its top-line and bottom-line guidance due to strong results in the first half of the year.

In the second quarter, our company experienced strong growth in volume, revenue, and margins. We also gained value share and are investing in our business to drive future earnings growth. We are well positioned to take advantage of opportunities in the global market. In Asia Pacific, we saw strong performance in most regions, with the Philippines and India leading the way. In China, we are focusing on profitable long-term growth, while in Japan and South Korea, we saw growth in volume and value share.

Despite mixed external environments in EMEA, Coca-Cola is investing in highly anticipated activations and focusing on brands with strong momentum to capture value. In Africa, despite challenges with currency devaluations, the company saw strong performance due to affordable packages and increased outlet coverage. In North America, Coca-Cola saw growth in topline and bottom line, but experienced a decline in volume due to softness in away from home channels. To offset this, they are partnering with foodservice customers to drive traffic and beverage sales. At-home volumes remained strong, with Fairlife and Trademark Coke leading in retail sales growth.

The juice business had a strong quarter with successful new products. Coca Cola Zero Sugar saw significant growth and investments in equipment and marketing are helping to increase demand. Despite challenges in certain markets, the company's global ventures are still performing well. The company is focused on building capabilities and innovating to become more agile and efficient. This includes improving marketing and innovation processes to prioritize bigger and bolder ideas and improve success rates. The company's sustained investment in innovations has led to improved performance in the second year.

Coca-Cola has continued to have success with their innovative products, such as Sprite and Fanta reformulations and the introduction of Fuze Tea and Minute Maid Zero Sugar. They have also improved their ability to quickly produce and deliver marketing content and integrate activations with timely innovations. One example of this is their partnership with Marvel, which resulted in nearly 40 different limited edition collectible graphics on their packaging. As a result of these initiatives, Coca-Cola has seen growth in volume and share. They have also focused on revenue growth management and integrated execution, which has led to growth in markets like Mexico. Overall, Coca-Cola products are consumed approximately 2.2 billion times per day, totaling about 800 billion servings annually.

In the second quarter, the company saw strong results, with a 15% increase in organic revenues. This was driven by 2% unit case growth and a 4% increase in concentrate sales, which was partly due to timing and disruptions in the global supply chain. The company is piloting AI-based tools to better tailor offerings and improve speed to market, and early results show positive impact. The company is confident in their ability to meet their updated 2024 guidance and longer-term commitments, despite uncertainty in the external market.

The company experienced 9% price/mix growth in the quarter, driven by inflationary pricing and pricing and mix actions across markets. Organic revenue growth was at the high end of their long-term growth algorithm. Gross margin and operating margin both expanded, with operating margin expanding less due to currency headwinds and bottler refranchising. Despite currency headwinds and bottler refranchising, comparable EPS increased 7% year-over-year. Free cash flow decreased due to higher tax payments, cycling working capital benefits, and higher capital expenditures. The company raised $4 billion in cash through issuing long-term debt and is taking actions to achieve a fit for purpose balance sheet. A charge of $1.3 billion was recorded for the outperformance of Fairlife. The company is making progress in their IRS tax case and expects to move forward with an appeal by the end of the year.

The estimated final payment for the acquisition of Fairlife is $5.3 billion and the company is pleased with its performance. They have realized $3 billion in gross proceeds from bottler refranchising and have a strong balance sheet with low net debt leverage. Their capital allocation agenda prioritizes investing in growth, supporting dividends, and staying agile. The company has updated its 2024 guidance, expecting 9-10% organic revenue growth and 13-15% earnings per share growth. Bottler refranchising, currency fluctuations, and treasury markets will have a slight impact on their results. Overall, they expect 5-6% earnings per share growth in 2024.

The company expects unit cases and concentrate shipments to be in line with each other for the full year 2024, with earnings growth weighted towards the fourth quarter. They are encouraged by their track record and the underlying momentum of their business, and remain focused on driving growth. They are confident in delivering on their guidance and longer-term objectives. During a question and answer session, the company discusses the impact of consumer spending on their business, noting some softness in away-from-home channels and among lower income consumers. They also mention the transition to a more normalized cost environment and the potential for sustained price mix going forward in North America.

In the North American market, consumers are looking for value through combo meals and promo deals, but there is also a demand for premium products. The overall consumer demand remains resilient, with strong growth seen across the portfolio. The North American business has a unique price mix due to its consolidation of vertically integrated and franchise businesses, which can impact the overall price mix. In the second quarter, half of the 11 points of price mix growth in North America was due to business mix, rather than actual pricing in the marketplace.

The speaker discusses the factors contributing to the pricing and inflation trends in the marketplace, particularly in North America and overall around the world, excluding high inflation markets. They mention that inflation is approaching the "normalization zone" and that they will continue to focus on marketing, innovation, and execution to earn any pricing increases. They then address the softness in unit case volume in Western Europe, attributing it to challenging weather and slower away from home consumption, while noting strong volume growth in Africa.

In the Africa business, there were swings and roundabouts macro-economically, but overall it had a good quarter with volume and value share gains. The Middle East is facing headwinds due to ongoing conflict. Europe was not as strong as desired, with varying performance across countries. The sporting events have helped, but not enough to offset weather and lower income consumers seeking value. In terms of concentrate shipments, the company has not mentioned expecting them to line up by the end of the year, but the reasons behind this are unclear.

The speaker discusses the impact of various events on the relationship between unit cases and concentrate in the second quarter, including issues in the Red Sea, Brazil, and India. They anticipate a return to normal in the second half of the year but acknowledge the potential for unforeseen events. They also mention a slight benefit to gross and operating margins from stocking up, but it is reflected in their guidance. The speaker is then asked about the away-from-home business and its performance in the second quarter compared to the first, as well as their outlook for the rest of the year.

The speaker responds to a question about the impact of moderating growth in a specific sales channel on the company's top line and margins. They clarify that there has been a slow softening in this channel over the past few quarters, rather than a sudden decline. The company is implementing initiatives to address this softening, such as focusing on affordability and price pack architecture, and expects to see positive results in the future. The next question is from a representative of Deutsche Bank.

John Murphy, speaking on behalf of the company, confirms that the underlying margin performance has been strong year-to-date, with a 200 basis point increase driven by structural changes and currency impact. He expects the margin profile in the second half of the year to be similar to the first half, with more benefit on the underlying margin in the first half and a more even distribution in the second half. The company may make investment decisions that could affect the margin, but the overall direction is for it to strengthen and be in line with previous discussions.

The speaker, James Quincey, discusses the strong performance of the Latin America business, particularly in Mexico and Brazil. He attributes this success to a long-term approach with bottlers, including marketing transformation, innovation, and execution of price packaging. The bottling system has also focused on digitizing their relationships with retailers, resulting in strong volume growth and a broad-based category success story.

The speaker highlights the strong volume performance of 5% and notes that the price mix was heavily affected by inflation in Argentina. They mention that two-thirds of the price mix is due to Argentina, leaving roughly 6% for normal e-commerce pricing in other countries. They express satisfaction with the results in Latin America and anticipate continued success in the future. The next question from Chris Carey addresses the growing liability of Fairlife and its impact on cash flow. John Murphy responds by stating that they are pleased with Fairlife's performance and that the end is in sight for the current deal. He also mentions that they are managing cash flow through a combination of cash from operations, proceeds from re-franchising, and long-term debt issued in the second quarter. The speaker emphasizes that the balance sheet remains strong.

The speaker discusses the company's plans for the next 18 months, including investments, managing the Fairlife acquisition and tax payment, and their confidence in their preparedness. The following question asks about the company's pricing strategy and the speaker mentions the importance of marketing, innovation, and execution in earning the right to take reasonable pricing. They also mention that some inflationary and mix effects may become more subdued in the future.

The speaker believes that the key to success is looking at core pricing and taking into account factors like inflation and mix. In the second quarter, there was a big piece of inflation, but if you take it out, there was 4% core pricing and 2% volume, which is in line with their goals. They aim to keep consumers in their franchise by focusing on marketing, innovation, and affordability. They have seen 2% case volume growth, while other staples have seen a slowdown in volumes. The speaker believes it is important to keep consumers in the franchise rather than trying to re-recruit them later. They have achieved their goal of 2% volume growth.

The company has set a long-term growth algorithm of 4% to 6% revenue, with a goal of staying in the 5% to 6% range through a balance of volume and price mix. In the second quarter, there was a 2% volume and a slight increase in price, which is likely to continue for the rest of the year. Developing economies are driving growth, while North America and Europe are experiencing some challenges. The company is confident in their strategy and expects to meet their growth guidance for the year.

In response to a question about North America, James Quincey discusses the standout growth of Fairlife and Coca-Cola in the second quarter. He also mentions positive volume growth in the sports category, specifically for BODYARMOR and Powerade. Quincey notes that the marketing and innovation in this category is starting to stabilize and turn the corner, but there is still room for improvement. He concludes by saying that it was a great quarter overall and hopes for continued success.

James Quincey, CEO of Coca-Cola, discusses the weaker performance of the energy drink category and attributes it to increased competition and innovation in the market. He believes that working with their partner Monster, they can adapt and respond to the evolving needs of consumers. Quincey also mentions the importance of having multiple brands to cater to different needs and states, and notes that there is still room for growth in the international market.

In the paragraph, James Quincey discusses the performance of the energy category in different regions of the world. He explains that overall, there has been good growth, but it varies geographically. He then addresses a question about the performance of Asia Pacific in Q2, noting that volumes were up 3% due to a bounce back in India, while price mix was down 3% due to negative geographic mix. He also mentions positive volume growth in Southeast Asia, Japan, and South Korea, but negative growth in China.

The first part of the paragraph discusses the overall softness in the economy and how the company has been restructuring its investments in different categories. The second part addresses a question about potential bottler re-franchising and the timing of it, but the company does not disclose specific dates. The focus is on finding new partners and creating value for shareholders.

The impact on EPS dilution is a result of strategic decisions made by the Coca-Cola Company. The company believes that the refranchising work has benefited the overall system and will lead to long-term growth. There may be a mechanical impact on the EPS line, but the company is focused on its value proposition and working with partners. There has been no change in marketing investment plans, but the company will continue to invest where there are opportunities and may pull back if there is softness in the market.

The company is focused on improving all aspects of their business and has many opportunities ahead. They are confident in their strategy and believe they will create value for their stakeholders. The call has ended and participants can now disconnect.

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