Coca-Cola Company (The)

At this time, I'd like to welcome everyone to the Coca-Cola Company's first quarter 2019 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 Leverage, Vice President and Investor Relations Officer. Mr. Leverage, you may now begin.

Thank you. Good morning and thank you for joining us today. I'm here with James Quincy, our Chief Executive Officer, and John Murphy, our Chief Financial Officer. Before we begin, I'd like to remind you that 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. We posted schedules under the financial reports and information tab in the investor section of our company website. 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. Finally, during today's calls, when our senior executives refer to comparable performance, they are referring to comparable performance from continuing operations. Following prepared remarks this morning, we will turn the call over for your questions. Please limit yourself to one question. If you have more than one question, please ask your most pressing one first and then reenter the queue to follow up. Now let me turn the call over to James.

Thanks, Tim, and good morning, everyone. 2019 is off to a good start with strong underlying performance as we leverage our transformation as a total beverage company. We continue to win in a growing industry. The non-alcoholic ready-to-drink beverage industry grew value 4% in the quarter, and we gained global value share, with a balanced contribution from both developed and emerging markets, led by strong performance within our sparkling soft drink business. During the quarter, we delivered 6% organic revenue growth, cycling 5% last year. Growth was broad-based, with positive performance across each of our operating segments. Of course, there are often timing impacts on a quarterly basis, and we did see a net benefit in this quarter, which John will cover in more detail. But to be clear, we delivered strong top-line growth in the quarter, which we converted into 16% comparable currency neutral operating income growth, and comparable EPS was up 2%, which was comprised of 13% comparable currency neutral EPS growth, partially offset by an 11% currency headwind. So, our discipline growth strategies are working well and we're on track to deliver our full year guidance. As you know, our industry continues to evolve and our approach to addressing this encompasses our system acting with discipline to drive growth. First, innovating and investing in our core categories and brands as well as in emerging spaces. This encompasses everything from massive categories like hot beverages to emerging ones like kombucha. And it allows us to proactively address innovation opportunities that stem from blurring category lines. Second, we're looking at how we operate as a company, from our existing geographic segments to our new global ventures segment. Third, our system is aligned and engaged with improved execution, Our bottling partners are investing for growth, including cold drink equipment and incremental feet on the street, as well as implementing more segmented revenue growth strategies. At the same time, we're investing in digital capabilities to engage with consumers, interact with our customers, and reduce costs across our enterprise. So, starting with our brands. Constant innovation is crucial for sustained growth. Brand Coke. which includes our flagship product and its many variants, has momentum because it has been continually updated to maintain its relevance. Over the past three years, innovation has helped accelerate global retail value growth each year, including up to 6% growth in 2018. This growth is in large part because of the success of Coke Zero Sugar, which didn't happen, of course, overnight. We've refined and expanded zero sugar over time, and we see more growth ahead. Coke Zero Sugar succeeds because it builds on the brand edge of original Coke, on its taste, its upliftment, on the energy boost that the product provides, all this in a product that doesn't have calories or sugar. So what's next for Brand Coke? You'll see us continue to innovate to capture additional consumption occasions and need states. One example that I talked about before is Coca-Cola coffee, which we tested in several Asian markets last year. Coca-Cola coffee was designed to reach consumers during specific occasions and channels, like the mid-afternoon energy slump at work. We've learned from these pilots, and we now plan to launch in more than 25 markets around the world by year-end. We're also pursuing another logical extension on the Coca-Cola brand with our tests of Coca-Cola energy. This takes one of the original brand edges of Coke, its energy boost, to a new level and a new taste. This product is designed for the white spaces where the energy category isn't well developed. But our approach to innovation is not limited to brand Coke. We're taking other brands and pushing into new spaces to offer consumers what they want by leveraging the brand edges. For example... Innocent, our leading juice business in Europe, expanded into plant-based beverages. And within our challenger brands, Simply, our premium juice brand in the U.S., recently launched a new line of smoothies. We're also improving the way we operationalize our innovation pipeline. Within our explorer brands, almost half of our country category combinations are growing volume double digits, which is up from about a third a year ago. While we often talk about innovating in products, our evolution is just as much about changing how we work. Our organizational needs are ever-changing, as our portfolio and competitive environment become more complex around the world. So we're adapting. One example is the creation of a new operating group, Global Ventures. The goal is to accelerate some of our businesses, like Innocent and Costa Coffee, that have the potential for growth across traditional borders. While the acquisition of Costa Coffee plays a significant entry point into hot beverages, it's also more than that. Costa is a platform in coffee overall. This requires more and better connectivity than ever before. We spent the first three months ensuring the transition from whipped bread went smoothly while building connections within our existing business units, and Costa is performing in line with expectations. As we look to the second quarter, we'll be launching our first ready-to-drink cost of products. Expect to hear more about that in the weeks ahead. Turning now to our geographic performance, we saw good results in many markets around the world. Our emerging and developing markets are growing organic revenue double digits, and our developed markets are performing well, delivering mid-single-digit organic revenue growth. In EMEA, we grew organic revenue 14%. driven by continued growth in Europe and Turkey and improved performance in Russia. We also benefited from our European bottlers increasing their inventory levels as a safeguard to a potentially disruptive Brexit. Across Europe, revenue growth management initiatives and zero-sugar innovations are creating sustained momentum in the majority of our markets. Not only has this benefited price mix, but Unicase volume was up 4% for our European sparkling soft drink portfolio. This performance was balanced with growth in our tea and hydration categories as we broadened out the portfolio. Turning to North America, our results continue to mark steady progress, driven by strong marketing and execution. Organic revenue was unfavorably impacted by two points for one less day in the quarter and the Easter shift and grew 1% driven by disciplined price pack management and solid value growth within sparkling soft drinks, juice drinks, and value-added dairy. Our sparkling portfolio benefited from the continued strong performance in Coke Zero Sugar and new flavor innovations like Orange Vanilla Coke, which helped drive 6% retail value growth for brand Coca-Cola in our flagship markets. In case volume declined by 1% in North America, we continue to focus on providing consumers with smaller pack sizes. For example, minicans grew 14% in the quarter, contributing to transactions, outpacing volume, while driving significant value for our system and our customers. In Latin America, we delivered 6% organic revenue growth in an increasingly difficult operating environment. Argentina's economic environment worsened. High inflation increased the salary gap and impacted private consumption. Volume here declined double digits. but we gain value and volume share by adjusting the price pack architecture to focus on transactions and maintaining our consumer base. In Mexico, we're working with our bottling partners to ensure our revenue growth management initiatives continue to drive momentum. And Brazil, Brazil is on an upward trajectory. Our turnaround plan is working with volume up 5% and transactions up double digits in the quarter. Incremental cooler placements, and increased availability of our refillable packages are helping to drive this acceleration. Finally, in Asia Pacific, we saw good performance in China and India, along with accelerating momentum in our Southeast Asia business unit, which drove 4% organic revenue growth for the segment overall. Execution around Chinese New Year was strong, contributing to 9% volume growth and double-digit transaction growth in China. In Japan, our system continues to deal with the supply chain impact from natural disasters last year. Manufacturing capacity remains tight, but it's improving, with additional lines ramping up in the second quarter. So we expect this to ease the capacity shortage, but full recovery will take until next year. In Japan, unicase volume was even. New product launches drove momentum in tea and coffee during the first quarter, while we cycled the benefit of a strong innovation pipeline in sparking soft drinks last year. So, in summary, we had a good start to the year. Our strategy of being more consumer-focused and creating value for our customers is working, and we are confident we will deliver our full-year targets and drive share-owner value. I'll now turn the call over to John.