Coca Cola : Transcript Q2 2021

Corrected Transcript

21-Jul-2021

The Coca-Cola Co. (KO)

Q2 2021 Earnings Call

	Total Pages: 20
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The Coca-Cola Co. (KO)	Corrected Transcript
Q2 2021 Earnings Call	21-Jul-2021

CORPORATE PARTICIPANTS

Timothy K. Leveridge	John Murphy
Vice President, Investor Relations Officer & Head-Financial Planning &	Chief Financial Officer & Executive Vice President, The Coca-Cola Co.
Analysis, The Coca-Cola Co.
James Quincey
Chairman & Chief Executive Officer, The Coca-Cola Co.

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OTHER PARTICIPANTS

Dara W. Mohsenian	Andrea Teixeira
Analyst, Morgan Stanley & Co. LLC	Analyst, JPMorgan Securities LLC
Lauren R. Lieberman	Robert Ottenstein
Analyst, Barclays Capital, Inc.	Analyst, Evercore Group LLC
Nik Modi	Carlos Laboy
Analyst, RBC Capital Markets LLC	Analyst, HSBC Securities (USA), Inc.
Bryan D. Spillane	Kevin Grundy
Analyst, Bank of America	Analyst, Jefferies LLC
Steve Powers	Sean R. King
Analyst, Deutsche Bank Securities, Inc.	Analyst, UBS Securities LLC
Bonnie Herzog	Laurent Grandet
Analyst, Goldman Sachs & Co. LLC	Analyst, Guggenheim Securities LLC
Kaumil Gajrawala
Analyst, Credit Suisse Securities (USA) LLC

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The Coca-Cola Co. (KO)	Corrected Transcript
Q2 2021 Earnings Call	21-Jul-2021

MANAGEMENT DISCUSSION SECTION

Operator: At this time, I'd like to welcome everyone to The Coca-Cola Company's Second 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 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 would now like to introduce Mr. Tim Leveridge, Vice President of Investor Relations, Financial Planning and Analysis. Mr. Leveridge, you may now begin.

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Timothy K. Leveridge

Vice President, Investor Relations Officer & Head-Financial Planning & Analysis, 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.

Before we begin, please note that we've posted schedules under the Financial Information tab in the Investors section of our company website at www.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 gross and operating margins. In addition, this conference call may contain forward-looking statements including statements concerning long-term earnings objectives and should be considered in conjunction with cautionary statements contained in our earnings release and in the company's most recent periodic SEC report.

Following prepared remarks this morning, we will turn the call over for your questions. Please limit yourself to one question. And if you have more than one, please ask your most pressing ones first and then reenter the queue.

Now, let me 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. In the second quarter, thanks to the tremendous efforts by our associates and our bottling partners, we executed on our key emerging stronger priorities as many parts of the world gradually reopened. As we continued to deliver on our transformation, we're encouraged by our results and are raising our top line, bottom line, and cash flow guidance, even as we are accelerating investments for the future.

At the same time, we also recognize the trajectory may be dynamic and understand that we must remain flexible to respond to changes in the environment. This morning, I'll provide a business update and discuss how disciplined innovation and more effective and efficient marketing are driving broad-based share gains and are delivering enhanced value for our system. Then I'll hand the call over to John to discuss our financial update, including our improved outlook for the year.

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The Coca-Cola Co. (KO)	Corrected Transcript
Q2 2021 Earnings Call	21-Jul-2021

Last year, in the face of a global pandemic, we laid out a path to emerge stronger across five strategic priorities. We are delivering against those priorities and this quarter demonstrates the power of our system. We started

2021 with promising results. Mobility in business levels improved in the first quarter and this trend continued in the second. Consumer mobility increased in markets where vaccination rates are reaching meaningful levels and our business has recovered as we lap last year's biggest lockdown impacts and see our strategies in motion.

Consumers have started to return to many prior routines; and as a result, our away-from-home volumes steadily improved as a percent of our business this quarter, driving strong price/mix and margin acceleration across the enterprise. However, the recovery remains asynchronous and several parts of the world have dealt with further ways of infections leading to delayed openings and, in some cases, heightened restrictions.

India and Southeast Asia were our only areas that did not see sequential volume acceleration on a two-year basis this quarter. Despite the asynchronous recovery, our revenues and earnings in the second quarter surpassed our 2019 results.

We also made progress on share this quarter. We said many times that gaining share is a key objective in our emerging stronger agenda, and I'm pleased to report that we have achieved that objective with broad-based share gains across categories as well as in both our at-home and away-from-home channels in the quarter. And importantly, despite away-from-home channels not having fully recovered, our value share today is higher than the 2019 levels, confirming that our effective brand-building and innovation, along with our advanced revenue growth management, our market execution capabilities are working.

So, let me dive a bit deeper into the key drivers across our geographies. In Asia Pacific, China saw continued momentum across categories, driven by both volume and improved mix with Trademark Coca-Cola. We outpaced the overall macroeconomic recovery and by strong performance in away-from-home channels and business-to- consumer e-commerce.

Australia and New Zealand were bright spots, performing at or close to 2019 levels, but they are currently seeing renewed lockdowns. While Japan is struggling to come out of lockdowns, there have been tangible successes with consumer-led innovation, small pack initiatives, and improved customer execution of key initiatives. As I mentioned earlier, in India and across much of Southeast Asia, resurgence in the virus impacted further recovery as India's restrictions have eased a bit, we're encouraged by the level of resilience in both the business as well as our system associates as they have navigated this resurgence.

In EMEA, Europe is still being impacted by some level of restrictions. The vaccination rates and consumer confidence are improving. Because of this, and our strong bottle alignment and marketing investment, we are seeing a much-improvedaway-from-home mix even as at-home volumes continue to grow. Great Britain and Russia, where mobility was at the highest, show noticeable volume outperformance relative to 2019, and sparkling soft drinks gained or maintained share in most of the top 10 markets in Europe.

Eurasia and the Middle East are performing well despite a diverse recovery landscape. In Turkey and Pakistan, strong execution during the key Ramadan holiday and emphasis on snacking and meal occasions drove new consumers to the Coke brand.

Africa delivered a strong first half performance with affordability packages delivering good results despite tightened restrictions heading into the winter season and vaccination rates that are behind the rest of the world.

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The Coca-Cola Co. (KO)	Corrected Transcript
Q2 2021 Earnings Call	21-Jul-2021

In North America, the consumer environment improved through the quarter as many states lifted restrictions and consumer mobility increased. More frequent social gatherings and rising travel and event activity drove significantly higher demand for our brands in away-from-home channels, while at-home volumes remained robust, leading to broad-based share gains in the quarter.

Within away-from-home, eating and drinking was the strongest-performing channel with travel, hospitality, and at- work trailing. In Latin America, lockdowns eased as vaccination programs rolled out in countries such as Mexico and Argentina and stimulus programs in Brazil and Chile also helped drive recovery. Our results and year-to-date share gains in the region continued to be driven by commercial initiatives to improve execution as well as a focus on affordable packs like refillables.

Costa's UK coffee shop revenues recovered almost entirely to 2019 levels through the reopening phase, despite ongoing capacity restrictions. Increased consumer traffic and digital momentum are also supporting recovery as restrictions eased in other countries where we have a retail presence.

Our Bottling Investments Group faced pandemic-related challenges particularly in India and Southeast Asia, but managed to sequentially improve or gain share in India, Vietnam, the Philippines and South Africa. BIG also made great progress against this growth and productivity agenda, increasing year-to-date comparable operating margin approximately 300 basis points from the 2019 levels.

Our category teams are collaborating with a global lens, enabling us to move even faster towards our Beverages for Life ambition. Our continuously engaging consumers around their passion points and testing ideas in a coordinated and increasingly digital way, we're getting even better at what we've always done best, building loved brands around the world.

For a few examples, the Coke trademark portfolio is experiencing robust growth led by brand Coke and driven in part by Coca-Cola Zero Sugar, which has contributed double-digit growth in value and volume year-to-date. The new Coca-Cola Zero Sugar recipe has already launched in nearly 50 markets across six of our operating units, including last week's announcement in the US, with more to come this year. Early results indicate that the recipe and simplified packaging design are resonating strongly with consumers.

In sparkling flavors, we're accelerating our Zero Sugar offerings and executing global campaigns to focus on key occasions. Sprite has done well globally, benefiting from the Let's Be Clear campaign, which has led to improve share gains. Likewise, Want The Fanta mystery flavor campaign in Europe drove accelerated growth and improved share.

Dairy remains an opportunity for their overall portfolio with premium offerings in key brands like Hollandia drinkable yogurt and Santa Clara's flavored milk showing healthy growth. We continue to leverage fairlife's great success in the US with a recent expansion in Canada.

There are many bright spots in hydration, sports, tea and coffee. We see momentum across brands in the US, including good results from our renewed focus on smartwater, a new brand bundle from Gold Peak tea, exciting flavor innovations in Dunkin' coffee, and continued growth from expanded distribution of Topo Chico sparkling mineral water.

We've had early success with Costa ready-to-drink launches in Asia with meaningful share gains in key markets in China, and was already voted a hit product in Japan.

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