Coca Cola : Transcript Q2 2023

Corrected Transcript

26-Jul-2023

The Coca-Cola Co. (KO)

Q2 2023 Earnings Call

	Total Pages: 19
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The Coca-Cola Co. (KO)	Corrected Transcript
Q2 2023 Earnings Call	26-Jul-2023

CORPORATE PARTICIPANTS

Robin Halpern	John Murphy
Vice President-Investor Relations, The Coca-Cola Co.	President & Chief Financial Officer, The Coca-Cola Co.
James Quincey
Chairman & Chief Executive Officer, The Coca-Cola Co.

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OTHER PARTICIPANTS

Bryan D. Spillane	Robert Ottenstein
Analyst, BofA Securities, Inc.	Analyst, Evercore Group LLC
Lauren R. Lieberman	Chris Carey
Analyst, Barclays Capital, Inc.	Analyst, Wells Fargo Securities LLC
Dara Mohsenian	Filippo Falorni
Analyst, Morgan Stanley & Co. LLC	Analyst, Citigroup Global Markets, Inc.
Bonnie Herzog	Andrea Teixeira
Analyst, Goldman Sachs & Co. LLC	Analyst, JPMorgan Securities LLC
Steve Powers	Peter Grom
Analyst, Deutsche Bank Securities, Inc.	Analyst, UBS Securities LLC

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MANAGEMENT DISCUSSION SECTION

Operator: At this time, I'd like to welcome everyone to the Coca-Cola Company's Second Quarter 2023 Earnings Results Conference Call. Today's call is being recorded. If you've any objections, please disconnect at this time. All participants will be on a listen-only mode until the formal question-and-answer portion of the call. I'd 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.

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Robin Halpern

Vice President-Investor Relations, The Coca-Cola Co.

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.

We've posted schedules under financial information in the Investor section of our company website at coca- colacompany.com. These schedules reconcile certain non-GAAP financial measures which may be referred to by our senior executives during this morning's discussion to our 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

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The Coca-Cola Co. (KO)	Corrected Transcript
Q2 2023 Earnings Call	26-Jul-2023

our gross and operating margins. In addition, this call may contain forward-looking statements including statements concerning long-term earnings objectives which should be considered in conjunction with cautionary statements contained in our earnings release and in the company's periodic SEC reports. Following prepared remarks, we will turn the call over for questions. Please limit yourself to one question. If you have more than one, please ask your most pressing question first and then re-enter the queue.

Now I will turn the call over to James.

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James Quincey

Chairman & Chief Executive Officer, The Coca-Cola Co.

Thanks, Robin, and good morning, everyone. After a strong start to the year, we continued our momentum in the second quarter. Our combination of strong loved brands and an aligned, pervasive distribution system is allowing us to win in many different operating environments. Given our strong first-half results and the resilience of our business, we are raising both our top-line and bottom-line guidance today.

To give you the full picture of our results and our raised guidance, I'll start by discussing second quarter performance and provide perspective on the current business and consumer environment. Then I'll highlight our performance across categories including how we are driving quality leadership throughout our portfolio.

Finally, I'll touch on why we are confident in our ability to deliver our long-term objectives, and then John will end by discussing our results for the quarter and our revised guidance for 2023.

In the second quarter, competing macro forces were at play across our markets. On the positive side, many supply chain pressures eased, concern surrounding the stability of the banking sector diminished and energy prices continued to pull back from record highs. However, global inflation was still elevated and geopolitical tensions continue to exist in some markets. Despite this confluence of factors, we delivered 11% organic revenue growth in this quarter. Volume was flat, and after a slower start, it sequentially improved with June being our strongest month in the quarter.

In the first half of 2023, we delivered volume growth that was consistent with our underlying performance since 2019. More broadly, our industry is strong, and we believe we have significant headroom to grow both volume and value. And we continue to gain share. During the quarter we gained value share in both at home and away- from-home channels. As we look towards the second half, the global inflationary environment is impacting consumers and our business differently across geographies.

In developed markets like North America and Western Europe, inflation is beginning to moderate and labor markets remain strong. Our elasticities continued to be relatively low. However, we have seen some willingness to switch to private label brands in certain categories.

Across the sector, consumers are increasingly cost conscious. They are looking for value and stocking up on items on sale. In these markets, our pricing is largely in place and is expected to moderate as we cycle pricing initiatives from the prior year. It's more important than ever to be consumer centric and to partner with customers to provide affordable and premium propositions which deliver value through basket and incidence growth.

In many developing and emerging markets like Latin America, the Middle East and Africa, consumers are more accustomed to persistent inflation. However, the number of markets with intense inflation has expanded. Five of our top 40 markets are currently experiencing over 20% annual inflation. In these markets, it's equally important to

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Q2 2023 Earnings Call	26-Jul-2023

leverage revenue growth management capabilities to balance affordability with premiumization to be able to take price with local market inflation, which helps offset the currency pressures.

There are, as always, a few markets affected by specific local factors. In China, economic recovery slowed in the second quarter and inflation has declined. Consumer confidence is below pre-pandemic levels. And we continue to monitor our leading consumer indicators and take action to win in the market. In India, business was unfavorably impacted by unseasonable rain and cooler temperatures in the quarter. However, the growth outlook remains intact.

In a world with a wide spectrum of market dynamics from inflation to currency devaluation to shifting consumer needs, our business is proving to be very resilient. We have many levers to pull to manage successfully through different operating environments, and we remain consumer centric and focused on growth. Our recipe for success is unchanged. We continue to deliver on our strategy through a combination of world class marketing and innovation, excellence in revenue growth management and strong execution. We are raising the bar and increasing quality leadership across our portfolio.

Starting with Coca-Cola. We are growing our base of Gen Z drinkers, gaining share and leveraging our scale to drive efficiencies across our system. During the quarter we gained volume and value share by linking Coca-Cola's consumption occasions and engaging consumers through local experiences. A great example is A Recipe For Magic, which was activated in more than 50 markets and celebrates consuming Coca-Cola with meals. The campaign was supported by experiences using local chefs, leveraging approximately 750 influencers globally and was brought to life through social media and recipe-focused billboards.

The Coke x Meals campaign also allowed Coca-Cola to strengthen its local relevance. For instance, in the away- from-home channel in Italy, Coca-Cola has grown instance with pizza, the number one consumed meal with approximately 3 billion pizzas each year, from 10% to 20% over the past four years.

While the Coca-Cola brand is ubiquitous, we tailor our price pack architecture to consumption occasions and are continuing to drive both affordability and premiumization. During the second quarter we grew basket incidence and volume per trip by double digits while increasing price per liter.

Moving on to sparkling flavors. We are seeing strong engagement from consumers across our staple of brands, which includes Sprite, Fanta, Fresca and Thumps Up. At the same time, we have significant headroom to drive further quality leadership across developed and developing markets.

With Sprite, we are driving brand awareness by connecting consumers to passion points and personalized experience at a more granular and locally relevant levels through our global Heat Happens platform.

In North America, Sprite celebrated Hip-Hop's 50th anniversary with the launch of Sprite Lymonade Legacy and sponsorship of concert tours, exclusive experiences and collaborations with prominent artists. We partnered with local pop stars and a grammy producer in China using our global Sprite Limelight music program for Gen Z drinkers across 1,500 college locations. And in South Korea, the Sprite WaterBomb Festival similarly generated strong results.

In India, the Joke in a Bottle promotion allowed consumers to scan packages and receive customized and localized jokes through WhatsApp to beat the heat. In June, Sprite was awarded most resilient brand by Kantar for adding the greatest number of new households in 2022 of any FMCG brand.

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The Coca-Cola Co. (KO)	Corrected Transcript
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Turning to water, sports, coffee and tea, we are segmenting the broader opportunities and using our refreshed resource allocation capabilities, prioritized markets and subcategories that offer the highest return on our investments. We are building our edge through consumer centricity by accelerating the speed to market our innovation, measuring results in real time and scaling successes.

We continue to build excitement for Fuze Tea through the rollout of green tea in Mexico, summer limited edition in Türkiye and expansion of Zero Sugar offerings across Europe. Early results show promising velocities, and Fuze Tea grew volume double digits during the quarter.

Vitaminwater is another example. During the quarter, we relaunched vitaminwater zero in North America with a new sweetness system of monk fruit and stevia, which generated value share gains.

We are capitalizing on consumer need for rapid hydration, a fast-growing subsegment within sports drinks, with the launch of BODYARMOR Flash I.V. in the US and Flashlyte in Mexico. While it's still early, both saw strong consumer interest during the quarter and have demonstrated promising initial results.

Our juice, value-added dairy, and plant-based beverages have delivered nine consecutive quarters of double-digit top line growth, and gained both volume and value share during the quarter. We continue to innovate to drive premiumization under the Simply trademark. Simply Mixology, which provides consumers with great-tasting mixers and ready-to-drink mocktails, kicked off an experiential campaign that celebrated the start of the summer and its national rollout.

Also, fairlife had another exceptional quarter as both Core Power and fairlife nutrition plan continued their strong momentum. In May, we announced a $650 million investment to build a state-of-the-art production facility to help drive the next wave of growth.

Finally, we are encouraged by what we're seeing across alcohol ready-to-drink beverages. We continue to take a measured approach through exploring and applying our learnings. While still early, Jack & Coke has shown promising results. In the Philippines, the combination of Jack & Coke and Lemon-dou delivered strong share gains. The Schweppes Mojito rollout in India is also off to a good start, and these examples illustrate how our marketing transformation is coming to life.

The strength of our total beverage portfolio gives us further confidence that we can continue to deliver by providing consumers beverage choices for every occasion. Our purpose is to refresh the world and make a difference, and we remain committed to building a more sustainable future for our company and the planet as we strive to grow our business. We continue to pursue progress toward our vision of a circular economy for packaging through innovation and partnerships.

For example, in the US, we recently partnered with Republic Services to ensure we have an adequate supply of recycled plastic for our packaging. At the same time, we are embracing refillables. We recently kicked off a program with customers in four US cities to test refillable fountain cups with plans to expand elsewhere.

We successfully navigated the first half of the year, which supports our decision to raise guidance for the full year. And instead of trying to predict the many directions things could take, we remain focused on delivering our key objectives that we outlined in February. In other words, number one, pursuing excellence globally and winning locally through relentless consumer centricity to drive top line momentum; two, investing for the long-term health of our business and raising the bar across all elements of our strategic flywheel; and three, generating US dollar EPS growth.

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