Coca Cola : Transcript Q1 2022

Corrected Transcript

Total Pages: 20

CORPORATE PARTICIPANTS

Timothy K. Leveridge

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

James Quincey

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

John Murphy

Chief Financial Officer & Executive Vice President, The Coca-Cola Co.

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OTHER PARTICIPANTS

Lauren R. Lieberman

Analyst, Barclays Capital, Inc.

Dara Mohsenian

Analyst, Morgan Stanley & Co. LLC

Steve Powers

Analyst, Deutsche Bank Securities, Inc.

Bonnie Herzog

Analyst, Goldman Sachs & Co. LLC

Bryan D. Spillane

Analyst, Bank of America Securities

Filippo Falorni

Analyst, RBC Capital Markets LLC

Kaumil Gajrawala

Analyst, Credit Suisse Securities (USA) LLC

Carlos Laboy

Analyst, HSBC Securities (USA), Inc.

Andrea Teixeira

Analyst, JPMorgan Chase & Co.

Robert Ottenstein

Analyst, Evercore Group LLC

Laurent Grandet

Analyst, Guggenheim Securities LLC

Kevin Grundy

Analyst, Jefferies LLC

Chris Carey

Analyst, Wells Fargo Securities LLC

Brett Cooper

Analyst, Consumer Edge Research LLC

Stephen J. Lengel

Analyst, Truist Securities

MANAGEMENT DISCUSSION SECTION

Operator: At this time, I'd like to welcome everyone to The Coca-Cola Company's First Quarter Earnings Results Conference Call. Today's call is being recorded. If you have 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 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'd now like to introduce Mr. Tim Leveridge, Vice President of IR and FP&A. Mr. Leveridge, you may now begin.

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Timothy K. Leveridge

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

Good morning, and thank you for joining us today. I'm here with James Quincey, our Chairman and Chief Executive Officer; and John Murphy, our Chief Financial Officer.

Note that we've posted schedules on our financial information in the Investors section at our company website atwww.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 on our generally accepted accounting principles. You can also find schedules in the same section of our website that provide an analysis of 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 this morning, we'll turn the call over for questions. Please limit yourself to one question. If you have more than one, please ask your most pressing one first and then reenter the queue.

Now, I'll turn the call over to James.

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James Quincey

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

Thanks, Tim, and good morning, everyone. First and foremost, on behalf of our company and our entire system, I'd like to share our deepest sympathies to all those who have been affected by what's happening in Ukraine. The safety of our people and their families continues to be our top priority, and as we highlighted in our release this morning, we are taking actions to provide that support.

Now, this morning, I'll discuss how we drove strong results in the quarter and that we are reiterating our guidance even in the face of incremental challenges. Then, John will discuss the financial details of the quarter and how our work has prepared us for whatever may be around the corner.

We all know that much has happened in the world since we last talked with you in February, leading, for sure, to an operating environment that is fast-changing and increasingly complex. However, we remain confident aboutthe future and are well-equipped to manage external factors worldwide through our strengthened leadership position with the right portfolio, the right strategy, and the right execution in the marketplace.

After a promising start to the year, the operating environment soon changed with very significant geopolitical conflict, a resurgence of COVID in various places, record high inflation, and continued challenges on the supply chain front. Nonetheless, we've consistently sustained our momentum from last year, moving with agility and positions changed to generate strong top and bottom line growth in the quarter.

We delivered 8% unit case volume growth, primarily driven by strong recovery in away-from-home channels and continued growth in at-home channels. Volume growth was strong across all operating segments, driven by marketing investments and aided by an increase in consumer mobility as the impact of the pandemic abated in most regions.

Our enhanced capabilities helped us gain value share overall in both at-home and away-from-home channels globally and across most of our geographic operating segments, a clear indicator of the power of our new approach.

Amidst the dynamic macro conditions and an inflationary cost backdrop, we've focused on delivering growth. The key competitive edge of the Coca-Cola system continues to be the ability to deliver value for our consumers and our customers in any environment.

Our accelerated agenda in marketing and innovation is tying our beverages to daily consumption occasions, adding and creating value for our brands. Additionally, we continue to work with our bottling partners to expand package offerings and strengthen distribution to capture growth opportunities using all the available revenue growth management levers, including price, to win in the marketplace. These scaled global initiatives are coming to life at a local level all around the world.

So, let's start with Asia-Pacific. In India, we drove excellence in integrated execution as consumer mobility improved across channels by stepping up product availability, adding approximately 240,000 outlets and over 50,000 coolers. We also continued to build relevance through innovation by launching Maaza Aam Panna to leverage our equity in Mango and Fanta Apple to expand our footprint in the fast-growing, fruit-flavored sparkling sub category.

Japan is emerging from an extended state of emergency, and we've increased our consumer base and driven market share gains in key categories. The Coke ON app reached 35 million app downloads, continuing the direct engagement with consumers to create and capture value.

We also continued our focus on ESG initiatives with 100% recycled PET bottles now available in Japan for five key brands, including Coke and Georgia Coffee.

In China, a strong start in January, led by an excellent Chinese New Year brand activation with Coke was followed by strict COVID lockdowns. And this resulted in reduced consumer mobility. Momentum reversed in February and March and led to a decline in unit case volumes during the quarter.

We're moving fast to focus on core SKUs and ensure product availability. We're adapting how we engage with consumers depending upon local market conditions, and we're working in close collaboration with our bottling partners to focus on execution basics, like increasing multipack availability and maximizing share of visible inventory in channels and regions that are open.

In ASEAN and South Pacific, we gained share in key countries and across most categories while consumer mobility was mixed and supply chain headwinds remained. Growth was led by trademark Coke and sparkling flavors, driven by strong end-to-end execution of the [ph] Zero Words (00:06:38), Sprite Heat Happens, and the Fanta Colorful People brand campaigns.

In EMEA, notwithstanding the conflict in Ukraine and an uptick in inflation, we delivered a strong performance in

Europe in the quarter. The continued rollout of new and improved Coca-Cola Zero Sugar across key markets helped drive 5 percentage points of sparkling single-serve mix growth, which is ahead of pre-pandemic levels.

Topo Chico Hard Seltzer is closing the gap with the number-one Hard Seltzer brand in Europe and the eB2B business with myccep.com (sic) [my.ccep.com] (00:07:13) accounted for low-double digit contribution to total revenue. We are keeping a close watch on the spillover effects of the conflict in Ukraine on the health of the consumer and we remain ready to pivot and adapt.

In Africa, macroeconomic recovery is under way, although conditions remain challenging due to inflationary pressure. In South Africa, we accelerated refillable PET expansion and the execution of in-store sampling to retain consumers. We're connecting with our existing customers in the digital space and have surpassed 65,000 outlets on the Wabi eB2B platform significantly ahead of plan.

Despite macro volatility and intense inflation in the region, Eurasia and Middle East drove top line growth through a strong suite of marketing programs across categories, led by sparkling and ready-to-drink tea.

In Turkey, Coca-Cola Zero Sugar became the number two immediate consumption player in value share behind brand Coke. In Pakistan, Coke Studio, a platform that unites diverse cultures through the power of music, drove social engagement that reached an all-time high in terms of impressions and viewings.

In North America, we are seeing more inflation and are continuing to navigate supply chain dynamics. We're closely monitoring further pressure in some inputs such as high fructose corn syrup, PET, and metals along with wages and transportation as they impact us as well as our bottling partners. Despite these challenges, we continue to gain share in both at-home and away-from-home channels and across most categories.

The strong rollout of Real Magic platform and the successful launch of Coke Starlight resulted in Coke trademark being the fastest-growing trademark in measured retail, driving household penetration up a full point.

Powerade's Pause is Power launched during NCAA March Madness generating more than 1 billion impressions. We also continue to learn from the returnable glass bottle pilot that has been implemented in the Southwest.

In Latin America, we delivered strong performance despite challenging macro conditions, and the investments we made to sustain momentum are paying off. We remain focused on integrated execution and drove revenue growth faster than transaction growth, both of which grew faster than unit case volume growth. Our work to strengthen the traditional trade is paying off as the channel showed the best underlying performance across all channels.

The Prospera loyalty program added nearly 50,000 retailers in the quarter, while continuing to advance our customer-focused digital expansion.