COCA COLA CO Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Global Consumer Landscape: Global consumer sentiment and spending held up well, industry expanded. Delivered robust organic revenue growth with value share gains in at-home and away-from-home channels, and expanded comparable margins. Despite currency headwinds and bottler refranchising, achieved 5% comparable EPS growth.
• Marketing and Innovation: Refreshed marketing model integrates digital, live, and retail experiences. Examples include Olympic/Paralympic Games activations, Topo Chico's experiential campaigns in U.S. and Mexico, and innovations like Fuze Tea scaling across over 80 markets, Sprite Chill achieving over $50M in retail sales, and plans for Bacardi Mix with Coca-Cola in 2025.
• Execution and Growth Flywheel: System is step-changing execution by integrating marketing and commercial plans, leveraging data/digital solutions (AI), increasing availability via cold drink equipment, and creating $11B in incremental retail sales for customers over 12 months.

Segment Performance

• North America: Generated robust top line growth, with Trademark Coca-Cola and sparkling flavors growing volume. Trademark Coca-Cola and fairlife were leaders in at-home retail sales growth. Consumers responded well to value messaging in away-from-home channels.
• Latin America: Volume flat in the quarter, but solid revenue growth led by Coca-Cola Zero Sugar and Powerade. Benefited from integrated marketing activations across the region, e.g., Rock in Rio in Brazil boosting Trademark Coca-Cola's presence on TikTok.
• EMEA: Improved performance in Europe, strong growth in many parts of Africa. However, Eurasia and Middle East/North Africa faced volume decline due to confluence of headwinds. In Europe, grew volume during the quarter, benefiting from Olympic and Paralympic Games.
• Asia Pacific: Grew organic revenue and comparable operating income despite weakness in China and some Southeast Asian markets. ASEAN and South Pacific gained value share, with Philippines and Australia leading. Japan and South Korea had solid volume growth, while China faced challenging environment due to strategic reprioritization and operating conditions.

Guidance

• 2024: Expect organic revenue growth of approximately 10% and comparable currency-neutral earnings per share growth of 14% to 15%. Anticipate ~5-point currency headwind to comparable net revenues and ~9-point currency headwind to comparable earnings per share for full year 2024. Continue to expect comparable EPS growth of 5% to 6% versus $2.69 in 2023.
• 2025: Expect pricing from intense inflationary markets to moderate, industrial materials prices to remain stable while agricultural commodities face volatility. Anticipate elevated net interest expense, low single-digit currency headwind to comparable net revenues, and mid-single-digit currency headwind to comparable earnings per share, with many factors potentially impacting the outlook between now and guidance in February.

Risks

• Currency Fluctuations: Impact on net revenues and EPS due to currency devaluations in emerging markets and macroeconomic uncertainties.
• Bottler Refranchising: Impact on earnings per share as seen in the third quarter.
• Regional Headwinds: Challenges in China, Eurasia, Middle East, and India monsoon effects affecting volume.
• External Events: Potential impact from events like McDonald's food contamination on business relationships and performance.

Question and Answer

Q: Steve Powers from Deutsche Bank asked about confidence in returning to positive unit case growth in Q4 and control vs. macro backdrop.

A: James Quincey responded that it's within control to return to growth, with macro environment showing resilience, and focus on marketing innovation, price pack, and system execution.

Q: Dara Mohsenian from Morgan Stanley inquired about sustainability of mix component in price mix.

A: James Quincey explained enduring mix drivers include affordability and premiumization, with temporary effect from emerging markets growing slower than developed economies in Q3.

Q: Lauren Lieberman from Barclays asked for tangible examples of quick adaptation.

A: James Quincey mentioned investments in cold drink equipment, adjusting marketing messaging, and tailoring strategies to local markets.

Q: Bryan Spillane from Bank of America asked about softness in discretionary spending in North America.

A: James Quincey noted mixed consumer sentiment, marginal softness in aggregate, but beverage industry remains robust with value-seeking behavior offset by strong purchasing power in some segments.

Q: Bonnie Herzog from Goldman Sachs asked about North America organic sales growth and pricing sustainability.

A: James Quincey explained price/mix in North America was half price and half mix, with mix driven by brands like fairlife and Topo Chico, and outlook for normalized pricing aligning with CPI trends.

Q: Filippo Falorni from Citi asked about margin outlook and productivity levers.

A: John Murphy responded on continued gross margin expansion, managing agricultural commodity volatility, and leveraging RGM and cost efficiency levers.

Q: Andrea Teixeira from JPMorgan asked about Q4 trends and Mexico CSD ban.

A: James Quincey stated Mexico CSD ban impact likely small, and Q4 outlook strong with less impact from high inflation markets.

Q: Kaumil Gajrawala from Jefferies asked about McDonald's contamination impact.

A: James Quincey stated limited impact at this stage, with focus on helping McDonald's resolve the situation.

Q: Robert Ottenstein from Evercore asked about U.S. CSD business drivers.

A: James Quincey attributed growth to marketing transformation, execution by bottling system, and RGM/pack mix improvements.

Q: Charlie Higgs from Redburn asked about unit case volumes and Trademark Coke growth.

A: James Quincey explained volume trends were atypical with developed markets growing and emerging markets facing pressure, and Trademark Coke growth including Coke Zero and Diet Coke.

Q: Bill Chappell from Truist Securities asked about fairlife's impact.

A: James Quincey stated fairlife is a $1B brand, contributing to mix and growth, with ongoing capacity expansion.

Q: Kevin Grundy from BNP Paribas asked about alcohol strategy learnings.

A: James Quincey mentioned alcohol strategy is early, with measured approach and focus on portfolio of choice.

Q: Robert Moskow from TD Cowen asked about price/mix deceleration and volume elasticity.

A: James Quincey explained 2025 expected to have more normal volume growth and pricing, with emerging markets returning to traditional growth rates.

Q: Carlos Laboy from HSBC asked about North America digital capabilities for bottlers.

A: James Quincey discussed enhancement of digital engagement for retailers, including 24/7 ordering, service requests, and AI-driven suggested orders.