The Coca-Cola Company (KO) on Q2 2021 Results - Earnings Call Transcript
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. Tim Leveridge: Good morning and thank you for joining us today. I am here with James Quincey, our Chairman and Chief Executive Officer; and John Murphy, our Chief Financial Officer. Before we begin, please note that we posted schedules under the Financial Information tab in the Investor 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 margin. 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 to 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. James Quincey: 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 are encouraged by our results and are raising our topline, bottomline 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 will 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 will hand the call over to John to discuss our financial update, including our improved outlook for the year. 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. John Murphy: Thank you, James. This morning, I will highlight the drivers of our second quarter performance, as well as our revised guidance. In the second quarter, we built on the momentum from the beginning of the year and our business mix improved as consumer mobility increased across many markets. Our Q2 organic revenue was up 37% comprised of concentrate shipments up 26% and price/mix improvement of 11% as we lapped the biggest pandemic impacts of 2020. Unit case growth was 18%. Our shipments outpaced unit cases in the quarter and year-to-date due to cycling the destocking we experienced last year and certain timing impacts this year, including five additional days in the first quarter. Improvement in the away-from-home channels and positive segment mix from higher growth in our finished goods businesses positively impacted our price/mix. Channel and package mix also affected comparable gross margin, which showed significant improvement relative to last year, even with certain inflationary costs like transportation coming through. As we have said throughout the pandemic, our goal is to emerge stronger and we are investing ahead of recovery as markets reopen. As a result, we have doubled our marketing dollars year-over-year, cycling the significant pullback from the same period last year. Even with a step-up in those investments, we delivered a 170-basis-point improvement in comparable operating margins driven by the strong topline. Below operating income, we saw a benefit from improvement in our equity income, as our bottling partners also emerged stronger, as well as reduced interest expense on a comparable basis. As a result, second quarter comparable EPS of $0.68 was an increase of 61% year-over-year. We also delivered strong year-to-date free cash flow of approximately $5 billion, double last year’s results. Our cash flow performance has also driven the return of our leverage to within the targeted range of 2 times to 2.5 times. Since we reiterated guidance last quarter, the operating environment and our business have clearly improved. Given the improvement year-to-date and the increased visibility, we are raising our outlook for the full year. We now expect to deliver year-over-year organic revenue growth of 12% to 14% and comparable EPS growth of 13% to 15% in 2021. Our steady focus on cash generation continues to yield progress and our updated guidance for free cash flow of at least $9 billion implies a dividend payout ratio significantly improved from where we began the year and is edging closer to our targeted level of 75% over the long-term. So as we think about the remainder of the year a few things to keep in mind. The recovery phase continues to be asynchronous creating a dynamic demand environment in addition to causing many parts of the supply chain to experience tightness as a result. While experiencing some isolated pressure points, our team is navigating the challenges well through supplier diversification and inventory management. Despite recent upward pressures in many commodities driven by pandemic related disruption, we feel good about the rest of the year and as we anticipate hedges rolling off in 2022, we are working with our system to take appropriate action in the back half of this year to manage the ongoing volatility using revenue growth management capabilities and supply chain productivity levers. With regard to marketing investment, we have three priorities, increase consumer-facing marketing spend toward levels similar to 2019, improve the quality of that spend, and allocate the spend in a more targeted manner. Our currency outlook continues to contemplate a tailwind of 1% to 2% to the topline and approximately 2% to 3% to comparable EPS in 2021, based on current spot rates and our hedge positions. That said, the currency markets remain volatile and dependent on recovery from the pandemic, as well as macroeconomic factors. We will also have some additional timing considerations with the leveling out of our concentrate shipments that are running a bit ahead year-to-date, as well as six fewer days in the fourth quarter. To summarize, our company and our system have tackled many challenges through the pandemic, but we are emerging stronger, thanks to the hard work of our people and the focus on our strategic priorities. With our networked organization up and running, we are on a path to operate more efficiently and effectively, and to unlock the enormous potential we have in our brand and across our markets. As James mentioned earlier, we remain clear eyed as we look at the rest of the year, with many markets continuing to face obstacles, such as the spread of the COVID-19 Delta variant, but others continue to see the benefits of reopening. Overall, we are pleased with our progress in the first half of the year and we are grateful for the commitment from the stakeholders across our ecosystem that contributed to our results. With that, Operator, we are ready to take questions. Operator: Our first question comes from Dara Mohsenian with Morgan Stanley. Your line is open. Dara Mohsenian: Hey, guys. So, on the revenue front, in markets like the U.S., where COVID concerns have now dissipated, can you just discuss how quickly consumer behavior is coming back? How that compares versus what you originally expected, presumably it’s better than expected with the raised full year topline guidance? But how that impacts your strategy going forward and maybe also what you see as the lasting changes in consumer behavior in some of those markets? James Quincey: Yeah. Sure, Dara. Well, firstly, I am not sure I would characterize the U.S. has past COVID. It’s certainly moved to a phase like lot of the other markets where there’s high levels of vaccination where the COVID, the most serious parts of the COVID are affecting mainly the unvaccinated, as well as some of the vulnerable. So it’s not over and we can see that in the numbers. If you just take a look for a second at what’s happened in the U.S., a couple of interesting things as it’s moved into this reopening phase. Firstly, consumers, as we have talked before on these calls, we have always believed that humans are social creatures and that once the restrictions come down and the panorama of the virus allows people with confidence to go out that they will go back out to all of the away-from-home channels. They want to be social and they will go off to their experiences and this you can see very much beginning to happen in the second quarter. So if we look at our away-from-home channels, you can obviously see large rebounds compared to the second quarter last year, which is obviously logical given how much they fell last year. But they have not yet all reached the levels of 2019. You can take a couple of channels like QSR, which was one of the ones that went down least last year as they pushed delivery, as they pushed pickup and closed the in-room dining. Those channels -- even though many QSRs have still not yet fully reopened in restaurant dining, they have bounced back and are back kind of at or above 2019 levels. So Q -- for example, QSR did well and they are doing very well now, whereas if you take channels like bars and taverns, they went down by about three quarters last -- Q2 last year. Now, of course, they have reopened, people have flocked back and they have gone up by 200% odd, but that still means they are not back to 2019 levels and you can go through the various away-from-home channels. You obviously travel and transportation are very like about. So people who had a good second quarter last have generally held on or expanded in those gains in this 2021 and some which have bounced back are still not there, in part because COVID restrictions are still not fully gone and confidence is still not fully back. But interestingly, and I think, positively, from the Coca-Cola Company’s point of view, if you look at the at-home channels, those that -- those gains or those -- that extra consumer interaction with brands and products at-home over the last 15 months has created some new behaviors and engagement with brands that may well be enduring. So it’s quite possible that over time we will both regain the away-from-home business that we had before and hang on to some of the gains in the at-home. And you can look at e-commerce, which was the poster child for growth in Q2 last year, which grew exponentially. That has basically stabilized, grown a little bit this year. So they have held on to a step-up. But you can also see that in some of the large stores, which obviously did well last year. They continued to grow this year, so you are getting growth-on-growth and even the small stores that were impacted last year are bouncing back. So, net-net, you look at the U.S., you see an enduring resilience in the step-up of the at-home business and a rebound in the away-from-home business that is in-progress but not yet complete, and I think, that’s what’s driving the business. And that pattern I think is very visible if you look around other countries at like stages of development in the COVID trajectory. In other words, restrictions are coming down and there’s a high percentage of the population vaccinated, and therefore, reopening whether it’s the U.K. or other places going into Europe. Operator: Thank you. Your next question comes… Dara Mohsenian: Okay. Operator: … from Lauren Lieberman with Barclays. Lauren Lieberman: Great. Thanks. Good morning. John, you offered definitely some perspective on the bigger picture profitability and I know this quarter was kind of a new high watermark on operating margins. But I was curious if you think about the full year, and frankly, even into 2022, how you are thinking about the ability to better leverage your sales growth as a result of some of the restructuring work that you have been doing but also in the vein of this come out stronger and what you have been able to achieve already and think you will still be able to achieve in terms of changing package mix and premiumization. And so, again, it’s sort of a longer term margin question with the awareness that perhaps this quarter is more timing than something directly related to my question? Thanks. John Murphy: Yeah. Thanks, Lauren. And you are right, it would take the rest of the call to explain all that happened before, so I will spare you. But let’s take a step back and I think it’s the first part to your question or the first part of the answer is, let’s think about the two-year picture. In 2020, we saw -- at the gross margin line we saw expansion driven primarily by a significant scale-back of our operating costs and marketing investments, even despite there being also some gross margin compression in the same period. In 2021, we are pleased with the progress year-to-date on getting gross margins back to where we would like them to be, and I think, we will continue to see us get back close to 2019 levels by the end of the year. We are also -- as James highlighted in the script, we are also very focused on investing in our brands and our key markets for the future. We have seen a good step-up already year-to-date and we continue to have that as a major priority for the second half of the year. So, in a nutshell, if you take a two-year picture, you are going to see -- on the operating margin front you will see 2021 is -- there will be some compression versus 2020, just given the nature of, what I just said, gross margins getting back, not quite there, significant focus on reinvesting back into the business for the mid- to long-term. But the good news, I think, by the end of this year 2021 will be better than 2019. So that’s first part one. Part two is if you look at 2022 onwards, we have talked about our flywheel driving the business from the topline through a much stronger marketing and innovation agenda to support the streamlined portfolio of brands that we now are focused on. We have talked about innovation as being a continued driver of growth in the future and that all wraps into execution in the marketplace with our bottling partners and through a variety of levers and not the least of which is our RGM lever. So going into 2022, 2023, 2024, the goal is the same as it has been. It’s to continue to be hyper focused on improving our overall margin equation and Q2 was a good shot in the arm for us to continue on that path. Operator: Our next question comes from Nik Modi with RBC. Nik Modi: Thanks. Good morning, everyone. I was -- James, I was hoping you can talk a little bit about WABI and the fact that you are rolling out to more countries. Maybe if you could just give us some topics on where exactly you are rolling it out? And what have you seen from that initiative from a data standpoint, because I know you can get direct access to that whereas maybe some other direct-to-consumer platforms you won’t get that data and if it’s something that you think could work in the U.S. market. James Quincey: Sure. WABI is a set of features in a digital ecosystem that allow us to both do direct-to-consumer and I will come back to it specifically how, and to do B2B both or either for just the beverages or for multi-category orders. Now predominantly where we are using WABI in partnership with our bottlers is more in the B2B space. We have done some experiments doing B2C, but in the case of WABI, the model that was used which is very appropriate in Latin America, where you have a very high density of mom-and-pop stores, essentially the consumer uses the WABI app to place an order. If they want to have a whole set of Cokes and Fantas and Sprites or whatever, that order goes into the app. And the app then shops the order to the mom-and-pops that are nearest to the consumer and they can accept that order much like a ride hailing service and given that they are likely to be 50, 100, 200 meters from the consumer in these high density cities, they will just run around the product and deliver it in a very short space of time, 15 minutes or 20 minutes or less. And so it is very interesting and we have actually also used that platform with some of the QSR restaurants in places like Argentina to do the same thing. So it’s an interesting experiment. We are getting a lot of insights and data. We have also expanded on the B2C place to actually add other categories of other FMCG partners so now you can place an order at the mom-and-pop for a whole series of categories not just beverages, so getting lots of interesting data and insights on that. The other thing that we are doing with B2B with a number of the bottlers is using it to accelerate the digitization of one part of the relationship particularly with the fragmented trade, whether it be the mom-and-pops or restaurants and cafes around the world, which is of course, now that the rollout of smartphones and smart devices everywhere is expanding, you don’t necessarily need the sales person to turn up at the store in order to capture an order. And so we are blending the use of the sales force to drive account development and drive all of the in-store activations that we know create impulse purchases and give us advantaged execution, but leverage the platforms to drive order taking. And again, we are getting a lot of learnings with the bottler on how that improves not just efficiency, but just as importantly, the effectiveness of the selling and the execution process. Again, there are, depending on where you are in the world, sometimes that’s just a beverage approach, but we have also got some experiments where it’s a multi-category approach through the platform and links to either wholesalers who deliver either all or the non-beverage categories, et cetera. Anyway, standing back, the net of it is, we continue to see the ongoing digitization of the interaction both at the consumer with the retailer and the retailer with the suppliers. And we think that the Coke system globally with our bottling partners is in a tremendous position to expand the depth of our relationship with the retailers and we are being open minded as to exactly what format takes and working with them to drive a whole set of experiments to see what works, more to come. Operator: Our next question comes from the line of Bryan Spillane with Bank of America. Bryan Spillane: Hey. Good morning. So I think just a follow-up to Lauren’s question earlier around margins and then just two items, John, if you can provide. One is just in terms of marketing for this year, I think, I heard, the way I read it was that you have actually increased the spend or plan to increase the spend now more versus, I guess, what was in your original plan? And then the second, if I don’t know if I missed it, but just can you give us kind of where we stand today in terms of how much of the savings from the reorganization have been captured and how much more there is to go? John Murphy: Thanks, Bryan. Yeah. On the first part, I think, again, looking at the year-to-date, I think, we saw a big rebound in the second quarter. We are doubling our spend on consumer facing activities and for the rest of the year with an eye to both delivering the year, but also being well-prepared for 2022, we have a very robust investment agenda that will see us getting back to 2019 levels and that’s just comparing dollars. When you look under the hood though, I think, one of the big changes we have made in recent months is to improve the quality of that spend. And so my working with Manolo, our objective is to be able to actually generate more with the same and we are pleased with the progress that we are making in that space, particularly as you think about some of the newer areas, digital media, et cetera. Regarding the savings, it’s a piece of the overall equation, and I think, for me, rather than provide hard numbers, it gives us a degree of flexibility to invest behind some of the bigger bets to think about our ongoing ability to pivot as market conditions dictate. And so it’s really less around taking those savings to the bottomline and much more around having to flex to be well-positioned to go after opportunities as we see them. Operator: Our next question comes from the line of Steve Powers with Deutsche Bank. Steve Powers: Thanks and good morning. James, maybe John wants to answer too, but following up on where you started with Dara and panning out globally, the updated guidance from today seems to call for a further acceleration in underlying growth on a two-year basis in the back half versus 2019, especially at the top end of the range? And I guess, I am curious where you see that most being sourced from a segment perspective, but also whether you have a bias as to that acceleration and sequential improvement being more volume led versus 2019 or price/mix led as the system fights through inflation or whether you see a bit of both, just how you are thinking about the mix of revenue in the back half? Thanks. James Quincey: Yeah. Sure. So our expectations for the year, obviously, we said we wanted to get back to 2019 levels and we made good progress and we believe we are emerging stronger, and we are obviously raising the guidance. As we look into the back half of the year, as John said, we are being clear eyed about the puts and takes that exist out there. I think the first thing I would suggest to you is really take a look at the 2021, whether it’s whichever quarter you want to look at and have it on a two-year stack basis, whether that be the volume or the price/mix. Obviously, you have got to look through the stocking and destocking of the gallons, because obviously, this time last year, we were de-stocking gallons rapidly and then notwithstanding the extra days in the first quarter, we have been restocking gallons in this second quarter. But if you look at volume and price/mix on a two-year basis, what we are expecting to see is, yes, some continued improvement into the back half of the year on a two-year stacked volume basis as more countries get more vaccinations done and more restrictions come off. Clearly, there’s plenty of room for different things to happen, the famous asynchronization because markets go up and markets go down. But generally speaking, we expect to see steady -- some steady, although, very moderate, sequential improvements on a two-year basis. And similarly on a price/mix basis, we are looking, actually, we start looking at price/mix on a two-year basis in Q2. You see it in the sort of ballpark we have always talked about. We have always talked about in the long-term growth model that we are kind of expecting two to three on price on any average year and when you start looking on an annual, on a two-year basis and taking the annual increase, you start to see that in the second quarter. And so our expectations of price/mix are not to see something radically different, notwithstanding the 11 you saw in the second quarter. Clearly it’s not going to continue at 11 because it’s cycling a much more negative number in Q2 last year, which is heavily driven by package and channel mix. But once you look through all of that, we -- in underlying terms essentially maintaining the same approach that we have had historically pre-COVID during this kind of re-opening. Operator: Our next question comes from the line of Bonnie Herzog with Goldman Sachs. Bonnie Herzog: Thank you. Good morning. I actually had a question on your guidance. You raised your full year outlook given the strength you saw in the quarter, but you didn’t flow through the entire beat especially on the bottomline, given your new guidance now suggests EPS growth in the second half will be negative. So I was really hoping to understand the drivers behind this, is it cost pressures that might have gotten worse in the last few months versus the planned stepped up investments that you called out ahead of the recovery? Thanks. John Murphy: Thanks, Bonnie. A couple of comments, one is, the first half of the year, we saw gallons ahead of cases, which we would expect to normalize in the second half of the year. So I think you have got to factor that into account. Secondly, in the first quarter we had a few extra days and they would come off in the fourth quarter. So that’s a big piece of the equation that we have designed for the full year. And then secondly, as we have already discussed, in the investment space too, we look to sort of end the full year with our marketing investments continuing to step up and margins back to better than 2019, but not as strong as 2020. So that’s all factored in. Operator: Our next question comes from the line of Kaumil Gajrawala with Credit Suisse. Kaumil Gajrawala: Hi. Can you -- just maybe over simplifying it, but can you maybe help us, your business has changed a bit in recent years? And maybe if you could just help us with what operating leverage looks like, does a 5% revenue mean a 7% profit growth, does 6% revenue mean 10%? Can you just give us an idea where leverage lives down the P&L? John Murphy: Yeah. I’d say that refer us back to our long-term algorithm. We are managing to as we have been discussing a very interesting period. We still think that the, when you take all of the puts and takes with the businesses that we have at the moment that the long-term algorithm is still one that best reflects what we can deliver over the coming years. Now, clearly, as the business mix changes, we would need to review that. But I think the -- I’d just refer you back to the algorithm and we don’t see that changing in the foreseeable future. Operator: Our next question comes from the line of Andrea Teixeira with J.P. Morgan. Andrea Teixeira: Hi. Thank you so much. So I just wanted to go back to the how the on-premise has been tracking as you exit the quarter. So I was hoping to see if you can, it sounds, James, is sounds that you are confident that we are seeing that lapping, and obviously, looking at the U.S. as an example, as you mentioned, you were quite confident that worldwide we are going to see that adding to the recovery and adding to the at-home consumption. So I was hoping to see how you exit the quarter in places where infections have come back on a global basis and how can you quantify how volume sits relative to 2019 levels? I think you called out in developed coming back to the same levels, but -- and how your mix in terms of finished goods and single serve is relative to the 2019? James Quincey: Sure. I will try and offer a few thoughts there that might help. Clearly, when countries have gone, when infections go up and greater restrictions have come back in during the course of the second quarter, you do see negative impacts on the business. Now over the last 15 months, we have worked very hard to make our business more adaptable and more agile and able to pivot in the restrictions to help the consumers get the beverages they love, but often in the very short-term it impacts the business. So if you look at places where infections have spiked up recently in the second quarter, so Vietnam went into some restrictions. They have done a good job of avoiding large restrictions and so they were doing fine the first few months of the year and then all of a sudden they have had some restrictions and they were negative in June. Similarly, India, earlier in the quarter, brought in a strong set of restrictions and the business went negative, but then when they reopened, they bounced back. So clearly, while we have adapted the business and made it more resilient to levels of lockdown, when these do occur, wherever they do occur around the world, it’s going to impact the business. We are going to bounce back quicker and we are going to suffer less, but it is going to impact the business. And so as you think about the outlook, clearly, the direction of travel of COVID, its variants, the levels of infections and the levels of restrictions are going to make a difference to the business. And then as it relates to immediate consumption and future consumption, if I look on a worldwide basis and I look on a two-year stack rate, what you can see is that now we have steadily improved through the course of the pandemic such that the immediate consumption of volumes are now slightly ahead of 2019 levels as we exited the second quarter in June. So and as I said in the opening or in the reflections on that first question from Dara on the U.S., that has not been followed by a mirror image decline in the at-home. Clearly, some of the at-home on a two-year stack basis goes down because people are now out and about and at work, and so you now see the two of them tracking, you see the at-home tracking at the 2019 levels as well. So that’s why we feel that there’s some sequential improvement coming in the downhill, moderate but some. Operator: Our next question comes from the line of Rob Ottenstein with Evercore. Rob Ottenstein: Great. Thank you very much. Can you please talk maybe a little bit more about headline pricing and promo intensity? I think I heard you say that in Q2, your pricing was sort of at historical levels of 2% to 3%. I also heard you say that in the second half of the year you would look to address higher input costs with revenue growth management initiatives. So maybe kind of talk about your thoughts on pricing in an environment where we have seen more inflation than we have in many years and how able the consumer is in your key geographies to be able to take additional prices? Thank you. James Quincey: Yeah. So, clearly, obviously, the comments I made about pricing are on the two-year stack basis and we kind of see when one takes out the effects of channel and geography, what you would see if you had all of the data, but what I am saying is that over the course of the pandemic, we have taken a steady approach to pricing to continue to price for our brand strength and RGM, and then of course, we manage input costs increases over time. And we use our hedging strategies to not have to try and minimize the amount of sudden bumps, because our overall belief is that, if we focus on creating the growth of the beverage category for our retail customers ahead of their overall business then that will be good for them and then we will do and gain share within that overall strategy and that is best executed through steady investment in brands, steady investment in execution, and the use of RGM to meet the consumer with the pack size and the price point that they want. And that includes, then, managing through the increases in input costs in a rational and staged way and we obviously leverage hedging to make that easier for us to do. And so we do believe that categories, well, those people who have brands that have strong consumer resonance will be able to pass through costs, as we have done historically. We have -- whilst in the U.S. inflation has been very moderate for an extended period of time as it has been in Europe, we have plenty of other country in the world which experience high or double-digit levels of inflation. And so the strategy on how to manage through that and stay engaged with the consumer to keep the momentum in the business and keep the margin structure steady or improving is a capability of the system. Operator: Our next question comes from the line of Carlos Laboy with HSBC. Carlos Laboy: Yes. Good morning, everyone. James, about three years to four years ago you said you wanted more robust experimentation and small experiments become big experiments, drive collaboration and revenues, and we see this thriving in America. But might you share with us perhaps in some developed markets where we don’t have as clear line of sight, how this is coming along and maybe are there some wins that really stand out in this area? James Quincey: Sure. Thanks, Carlos. I mean, we continue to drive the collaborations and the innovations. If I just pick up a few of the ones that we have sort of elliptically connected to today. WABI, which started in Latin America both as B2C and B2B. We have used the platform to work with our bottlers in other parts of the world, whether that be Europe or beyond, on helping us work together to improve the digitization and the B2B capability beyond that. So you are seeing expansions of those experiments out of Latin America. You will see expansions of experiments in the U.S., whether it be AHA, which has continued to perform very well in the U.S. so far this year. We have launched that in China or in fairlife, which has done very well in the U.S. We are taking that to China as well. And so there’s some kind of moving from the west to the east. You have got experiments that were taking place on Topo Chico Hard Seltzer which kind of started in a way as a global idea. It’s now in each of the continents and we have continued to expand it. There are some things going on in Asia in the kind of non-black tea segments where we experimented in some of the ASEAN countries and is expanding round. So there really are some great experiments out there. You could even go to some of the packaging ones like the use of rPET, 100% recycled PET, which is really a key factor in driving a circular economy around packaging materials, started really in Europe, coming to the U.S. recently with the 13-ounce bottle that we have put into the market. So we are never satisfied as a kind of philosophical starting point, but they are certainly starting to see more experiments happen out there and more discipline in working, which aren’t working and stopping them and which have legs to be taken to the next place. And interestingly, you are starting to see those experiments move in all directions. It’s not just developed -- to developing or west to east or any one direction. It’s actually really starting to be ideas coming from all around the world and really having to go through and work out, which ones deserve the shot at expanding globally. John Murphy: And if I may, James, I think, in the supply chain also there’s over the last 12 months to 18 months it’s a tremendous amount of partnership collaboration that is delivering results in the individual entities across the world that I think will continue. Operator: Our next question comes from the line of Kevin Grundy with Jefferies. Kevin Grundy: Great. Thanks. Good morning. A question for James, just picking up on the last line of questioning there around innovation, my question specifically for hard seltzers and some of the early success that you have had there. So, James, you mentioned some of the early learnings. I was hoping you could perhaps share those with us, particularly as it pertains to the seltzer category? And then more broadly, James, whether the success that you have had in the alcohol space emboldens the company a bit for further exploration in alcohol sort of outside non-alcohol? Your comments there would be helpful. Thank you. James Quincey: Yeah. Sure. So we are still very much in the learning phase. It’s not a category we are familiar with, particularly with the alcohol. It’s got a number of important characteristics and regulatory characteristics and business characteristics that we need to learn about. So we have not got to a stage of concluding anything more strategic or coming to the point of view that there is a bigger vision for us out there in the flavored alcoholic beverage space. We want to learn and understand more before we decide anything one direction or the other. As it relates to some of the learnings so far, I mean, clearly, what we have discovered is obviously it makes a difference if the category exists or doesn’t exist in any particular country. I mean, we are in 17 markets to-date. We are on track to be in 28 markets around the world by the end of the year. We are learning what it takes to compete where the category exists. We are learning what it takes to help grow the category where it doesn’t exist. So we are pleased, for example, in Latin America, where for example, in Mexico, we are the number two hard seltzer and getting some good traction and good velocity in Brazil, where it’s more of an undeveloped category. There’s more kind of development needed as we are trying to work out how that happens. Similarly in Europe, it’s the number one or two performer in terms of rates and velocity in Europe and so I think it’s very interesting what’s happening there. And obviously in the U.S., it’s got a lot of good traction, while it’s still of course relatively small overall nationally, it’s done particularly well where we have focused or where Molson is focused to launch, which is in Texas and it’s done very well in Texas, looking good in kind of the southern states, California, in Florida too. Retail customers, we understand they are very bullish, lots of display activity and activity. So we are looking to see that continue to expand. Of course, we are conscious that the overall hard seltzer category has come down in terms of its overall growth rates in the U.S. That’s not ultimately that big of a surprise to us, because it is a category that has been predominantly an at-home channel category, much less bars and restaurants category. And so as people have gone back out, clearly, some of those occasions have moved from at-home to away-from-home. So it’s not too surprising that some of the strong tailwinds the category got in the lockdowns have lessened. But we still think it’s very interesting. It’s got some long-term potential in the U.S. It’s very on-trend for a lot of consumers. And so we are continuing to look at that and push on that and invest to see where we can go. Operator: Our next question comes from the line of Sean King with UBS. Sean King: Great. Thanks for the question. How do you stand to benefit from the Olympics starting later this week, really given a pandemic driven disruption around the world? Can you shed any light on any marketing activation plans or just a general outlook on this opportunity given the pent-up sort of excitement for this type of event? James Quincey: Yeah. I mean, in terms of kind of two ways of looking at it, one, those countries where the Olympics are broadcast too and then the actual activation in Japan itself. I mean, clearly, in Japan, given the restrictions, we have dialed back all the physical activations and are supporting appropriately, keeping supply of beverages to the athletes, et cetera. But the physical activation is essentially not going to happen. And then -- and so really it’s as much as anything, it’s about leveraging the airtime that the Olympics are going to get in places like the U.S. to market our programs. But very specific marketing activation at a large galley isn’t going to happen in part because of the slight uncertainty of whether they were going to happen or not led us to move away from having any large extra fixed cost investment in activating the market, the Olympics for this year and so we will leverage the airtime to market our brands. You can still note even today the deputy, one of the people in Tokyo said that, who knows what’s going to happen whether it will actually start. So we very much are taking the approach of take away the physical activation, take away any fixed cost that can only be used in the event of the Olympics and use any rights and times we have for the general marketing of our brands. Operator: Our next question comes from the line of Laurent Grandet with Guggenheim. Laurent Grandet: Hey. Good morning, everyone. Thanks for squeezing me in. Got a question on Coca-Cola Zero, please, you had the market to re-launch Coca-Cola Zero with new packaging and recipe both for Coke Regular, so in countries where it has already been launched, is the value you are seeing coming from Regular actually or Diet or competition. So any color would help. Thanks. James Quincey: Yeah. Laurent, I mean, we are -- obviously, the answer is it depends in a way, because each country has a slightly different mix from the starting point of Zero or depending if you are in a country that still has got Diet or Light and the size of Classic. So the starting point matters. Two, clearly it’s a mix of everything. What we like most about driving Coke Zero Sugar is we get a lot of business that is not self-cannibalization. If it was all just coming from Coke and Coke Light, it would be perhaps necessary, but not very exciting. What’s exciting about it is that we are helping expand the Coke franchise. So, in other words, if you start standing back and looking at it globally, you can see both the growth of Coke Original, the very fast Coke growth of Coke Zero, only some of which is coming from the cannibalization of Coke Light or Diet Coke depending on where you are in the world. So it’s a net accretion to the Coke franchise. Operator: Ladies and gentlemen, this concludes our question-and-answer session. I would now like to turn the call back over to James Quincey for any closing remarks. James Quincey: Thanks very much everyone. As we said at the beginning, look we are delivering on the priorities we set out for ourselves to emerge stronger. Hopefully you could see that in both the results and our guidance. And we just want to take the opportunity to thank once again the extraordinary effort of our associates, of our bottling partners and all our partners that have allowed us to deliver these results and to raise our guidance for the outlook. Our system is strong. Our bottling partners are strong. We continue to invest behind momentum and the huge growth opportunity ahead of us. Thanks for your interest, your investment and for joining us today. Operator: Ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may now disconnect.
Coca-Cola Rises 3% on Strong Q4 Earnings, Pricing Strategy Boosts Demand
Coca-Cola (NYSE:KO) delivered better-than-expected fourth-quarter earnings, as strategic pricing and product innovation helped drive an unexpected rise in global volumes. The results lifted the soda giant’s stock more than 3% intra-day today.
The company’s focus on higher-priced beverages and packaging adjustments—such as slimmer 12-ounce cans—has helped maintain demand, particularly in the U.S., where budget-conscious consumers have been more selective with their spending. This strategy supported growth in premium offerings like sparkling flavors, juices, plant-based drinks, and value-added dairy.
North America unit case volume increased by 1%, with regional revenue surging 16%. However, this strength was partially offset by flat volumes in Europe, the Middle East, and Africa, where supply chain disruptions—particularly in the Middle East—posed challenges.
Globally, unit case volume expanded by 2%, defying expectations of a slight decline. Notably, China, which has struggled with sluggish post-pandemic consumer demand in recent quarters, contributed to the volume growth.
Financially, Coca-Cola posted comparable earnings per share of $0.55, marking a 12% increase from the prior year and beating analyst estimates of $0.52. Revenue climbed 6% year-over-year to $11.50 billion, also surpassing expectations.
Looking ahead, Coca-Cola projects organic revenue growth of 5% to 6% for fiscal 2025, slightly below the 7.09% analysts had anticipated. Comparable EPS is expected to grow 2% to 3%, reaching a range of $2.94 to $2.97, aligning closely with Wall Street estimates of $2.95.
Coca-Cola Upgraded to Buy as Growth Potential Aligns with Attractive Valuation
TD Cowen analysts upgraded Coca-Cola (NYSE:KO) to Buy from Hold, maintaining a price target of $75 on the stock. The upgrade reflects confidence in Coca-Cola’s ability to sustain strong performance across multiple markets and capitalize on long-term growth opportunities, particularly in international markets.
The analysts raised the fiscal 2025 organic sales growth estimate to 6%, at the high end of Coca-Cola’s long-term growth projections. This optimism is based on the company’s exceptional execution in key regions, even amidst temporary challenges. The recent pullback in Coca-Cola’s stock, driven by concerns over a temporary slowdown in third-quarter volumes and uncertainties around new U.S. trade policies and foreign exchange impacts, is seen as an overreaction.
According to the analysts, Coca-Cola remains well-positioned to benefit from increasing per capita beverage consumption globally, offering significant growth potential in emerging markets.
Coca-Cola (NYSE:KO) Surpasses Earnings and Revenue Estimates
- Coca-Cola reported an EPS of $0.77, beating the estimated $0.746 and marking a 5% increase year-on-year.
- The company's revenue for the quarter was $11.95 billion, surpassing the estimated $11.61 billion.
- Adjusted operating margin improved to 30.7%, despite challenges from currency headwinds and a decline in unit case volume.
Coca-Cola (NYSE:KO) is a leading player in the global beverage industry, known for its iconic soft drinks. The company operates in the Zacks Beverages - Soft Drinks industry and competes with other major brands like PepsiCo. Coca-Cola's financial performance is closely watched by investors, given its significant market presence and brand recognition.
On October 23, 2024, Coca-Cola reported earnings per share (EPS) of $0.77, surpassing the estimated $0.746. This marks a 5% increase from the $0.74 EPS reported in the same quarter last year. The earnings surprise for this quarter is 4.05%, as highlighted by Zacks. In the previous quarter, Coca-Cola also exceeded expectations with an EPS of $0.84, resulting in a 5% surprise.
Coca-Cola's revenue for the quarter ending September 2024 was approximately $11.95 billion, exceeding the estimated $11.61 billion. However, this represents a 1% year-on-year sales decline. The revenue performance was characterized by a 10% growth in price/mix, although there was a 2% decline in concentrate sales due to shipment timing. Despite this, Coca-Cola has consistently surpassed consensus revenue estimates over the past four quarters.
The company's adjusted operating margin improved to 30.7% from 29.7% the previous year, despite a $919 million charge related to the remeasurement of contingent consideration liability from the 2020 acquisition of Fairlife and currency headwinds. Coca-Cola's strategic pricing adjustments helped offset a decline in unit case volume, which saw a 1% decrease. Growth in markets like Brazil, the Philippines, and Japan was offset by declines in China, Mexico, and Turkey.
Coca-Cola's stock experienced a downturn despite surpassing profit expectations, largely due to a significant price increase that counterbalanced the unexpected decline in unit case volume. The company's financial metrics, such as a price-to-earnings (P/E) ratio of 27.39 and a debt-to-equity ratio of 1.69, provide insight into its market valuation and leverage level. Looking ahead, Coca-Cola anticipates a 10% organic revenue growth in the fourth quarter.
Jefferies Maintains "Hold" Rating on Coca-Cola (NYSE:KO) with Increased Price Target
- Jefferies has raised its price target for Coca-Cola from $65 to $73, maintaining a "Hold" rating.
- Coca-Cola reached a 52-week high, indicating strong market performance and potential for future growth.
- The company's market capitalization stands at $310.53 billion, reflecting its significant presence in the beverage industry.
On August 29, 2024, Jefferies, a well-known financial services company, decided to keep its "Hold" rating on Coca-Cola (NYSE:KO) but increased its price target from $65 to $73. This decision was based on their continuous evaluation of Coca-Cola's standing in the market and its potential for future growth. At the time of this announcement, Coca-Cola's stock was trading at $72.05, as reported by TheFly. This adjustment by Jefferies indicates a positive outlook on Coca-Cola's performance and its ability to maintain a strong market position.
Coca-Cola, a global leader in the beverage industry, competes with other major companies to dominate the market. Its ability to reach a 52-week high, as highlighted by Zacks Investment Research, has sparked a conversation among investors and analysts. This milestone is significant because it reflects the company's current strength in the market and its potential for future growth. The stock's peak at $72.215, surpassing the previous year's low of $51.55, showcases Coca-Cola's recovery and growth amidst market fluctuations.
The trading session that saw Coca-Cola's stock reach its 52-week high was marked by a trading volume of approximately 14.79 million shares. This level of activity indicates a strong interest in Coca-Cola's stock, further supported by its market capitalization of $310.53 billion. Such financial metrics are crucial for investors to understand the scale of Coca-Cola's operations and its significance in the market.
Jefferies' decision to raise the price target for Coca-Cola to $73 reflects an optimistic view of the company's future prospects. This is supported by Coca-Cola's recent performance, reaching a 52-week high and demonstrating a solid market position. The increase in the price target suggests that Jefferies believes Coca-Cola has the potential to grow further and strengthen its market presence.
Overall, the adjustment in Coca-Cola's price target by Jefferies, coupled with the company reaching a 52-week high, paints a positive picture of Coca-Cola's market position and future prospects. Investors and analysts will likely continue to monitor Coca-Cola's performance closely, considering these developments as indicators of the company's potential for sustained growth and profitability.
Coca-Cola Beats Q2 Earnings and Revenue Estimates, Raises Full-Year Outlook
Coca-Cola (NYSE:KO) shares rose more than 1% in pre-market today after the company reported its second-quarter 2024 earnings, surpassing analyst expectations with an adjusted EPS of $0.84, which was higher than the Street estimate of $0.80. The company also beat revenue forecasts, posting $12.4 billion compared to the anticipated $11.77 billion.
Net revenues for the beverage giant increased by 3%, while organic revenues jumped 15%, driven by a 9% rise in price/mix and a 6% increase in concentrate sales.
Operating income grew by 10%, and the operating margin improved to 21.3% from 20.1% in the previous year. The comparable operating margin (adjusted) also increased to 32.8%, up from 31.6% last year. Despite these gains, reported EPS fell by 5% to $0.56, although the comparable EPS (adjusted) rose by 7%.
James Quincey, Chairman and CEO of Coca-Cola, expressed satisfaction with the results and confidence in meeting the raised 2024 guidance and long-term goals.
For the full year 2024, Coca-Cola updated its outlook, now expecting an organic revenue growth of 9% to 10%. The company anticipates a 5% to 6% currency headwind on comparable net revenues and an 8% to 9% currency headwind on comparable EPS growth.
Despite these challenges, Coca-Cola remains optimistic about achieving a comparable currency-neutral EPS growth of 13% to 15% and a comparable EPS growth of 5% to 6%, compared to $2.69 in 2023.
Coca-Cola Announces Leadership Changes and Financial Health
The Coca-Cola Company's Leadership and Operational Excellence
The Coca-Cola Company (KO:NYSE) has recently announced a series of significant corporate changes and financial updates that reflect its ongoing commitment to leadership and operational excellence. Among these changes, Brenda Hofmann's election as the new Senior Vice President and Chief of Internal Audit marks a significant transition in the company's audit department. Hofmann, with her extensive experience within Coca-Cola since 1994, is set to bring a wealth of knowledge in finance, procurement, and general management to her new role. This leadership change comes as Barry Ballow retires after a commendable 34-year career, highlighting Coca-Cola's dedication to maintaining a strong and experienced leadership team.
In addition to Hofmann's appointment, Coca-Cola has made strategic moves in its supply chain and information security departments. Leonardo Zei's new role as Vice President and Head of Strategic Ingredient Supply is crucial for the company's supply chain sourcing activities, especially for flavor and non-agricultural ingredients. This position is vital for Coca-Cola's global operations, ensuring the company continues to meet its high standards for product quality and sustainability. Similarly, Derek Benz's election as Senior Vice President while continuing as Chief Information Security Officer underscores the importance of cybersecurity in today's digital age. Benz's nearly three decades of experience in the cybersecurity industry are invaluable to protecting the company's information assets.
Ellie May's appointment as Chief Accounting Officer, in addition to her role as Senior Vice President and Controller, further strengthens Coca-Cola's financial leadership. May's extensive background as an audit partner at Ernst & Young LLP for over 20 years equips her with the expertise necessary to oversee Coca-Cola's accounting practices and financial integrity. These leadership changes are complemented by Coca-Cola's declaration of a regular quarterly dividend of 48.5 cents per common share, demonstrating the company's financial health and commitment to returning value to shareholders.
The backdrop of these corporate and financial updates is Coca-Cola's solid performance in the stock market. The company's stock price recently reached $62.17, reflecting a modest increase and showcasing the market's positive reception to Coca-Cola's strategic decisions and leadership appointments. With a market capitalization of about $268.03 billion and a trading volume of 10.97 million shares, Coca-Cola continues to be a dominant player in the global beverage industry. This financial stability and market confidence are crucial as Coca-Cola navigates the complexities of the global market, aiming to refresh the world and make a difference through its sustainable practices and community contributions.
Coca-Cola Reports Better Than Expected Q1 Results
The Coca-Cola Company (NYSE:KO) kicked off 2024 on a strong note, outperforming market expectations for the first quarter. The company recorded adjusted earnings per share of $0.72, above the consensus forecast of $0.70. Its revenue for the quarter also topped expectations at $11.3 billion, compared to the predicted $11.02 billion.
The beverage giant achieved a 3% year-over-year increase in net revenues, while its organic revenues rose by 11%. This growth was largely driven by a 13% increase in price/mix, although it was offset somewhat by a 2% drop in concentrate sales. Global unit case volume also saw a slight increase of 1%. However, Coca-Cola’s operating income declined by 36%, impacted by charges related to its fairlife and BODYARMOR trademarks and adverse currency effects.
For the full year of 2024, Coca-Cola revised its guidance, now anticipating an 8% to 9% increase in organic revenue. The company expects a 4% to 5% impact from currency fluctuations on net revenues and a 7% to 8% impact on comparable EPS growth. Despite these headwinds, Coca-Cola is projecting an 11% to 13% rise in comparable currency neutral EPS and forecasts a 4% to 5% increase in comparable EPS from the $2.69 reported in 2023.
