Coca-Cola Company (The)

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

Good morning and thank you for joining us today. I'm here with James Quincy, our Chairman and Chief Executive Officer, and John Murphy, our Chief Financial Officer. Before we begin, I'd like to inform you that we've posted schedules under the Financial Reports and Information tab in the Investors section of our company website at www.cocacolacompany.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. I would also like to note that you can find additional materials in the investor section of our company's website that provide an analysis of our margin structure. 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. If you have more than one, please ask your most pressing one first and then reenter the queue. Now let me turn the call over to James.

Thanks, Tim. Good morning, everyone. As you'll have seen from our earnings release earlier today, we continue to deliver strong results. We are part of a great industry with solid long-term growth potential. For our company, the power of an aligned and engaged system is driving solid top-line growth across all our operating segments. We see that innovation, revenue growth management, and improving execution, all supported by greater brand building, are helping us sustain momentum across our business. Our associates within the organization and across the system are responding to the cultural changes we are driving. So, through the three quarters of the year, we've gained global value share with a balanced contribution from both developed and emerging markets. We're sustaining that solid top-line performance with growth across all the operating segments, and we're on track to deliver our EPS commitments as momentum in the business has helped offset increased currency headwinds. And, as John will talk about, free cash flow is up strongly year-to-date, which is also encouraging. Looking around the world, as I said, all our operating segments delivered solid organic growth. In EMEA, we've seen sustained revenue growth up 7% year-to-date. Importantly, we're seeing contributions to growth come as much from developed markets as the emerging markets. This is partly due to our revenue growth management efforts over the last few years, and it's pretty encouraging as we continue to roll out these revenue growth management initiatives to develop markets in other areas of the world. In Asia Pacific, we've grown organic revenue 4% year-to-date. We're gaining horizontal distribution and recruiting new consumers in emerging markets like Southeast Asia, India, and China, leading to strong volume growth. In Japan, while we still have work to do, we're seeing sequential quarterly improvement in both volume and revenue. The system continues to rebuild manufacturing capacity, and we're adapting to fast-changing the consumer environment and evolving our operating model to drive efficiencies and effectiveness. Turning to Latin America, again, we're driving positive momentum despite a more challenging economic environment. and they're up 9% organic growth year to date. Brazil has sustained strong performance even as the macros have slowed a little in the third quarter. This has been driven by improved execution and consistent investment behind cold drink equipment. Our approach has enabled the business to grow twice the rate of consumer spending in the third quarter. Our business in Mexico has actively adjusted to a more challenging economic environment shifting the portfolio towards affordability with a push on returnable packaging. This has led to improvement in trends as we've moved through the year. In Argentina, though, a worsening economic situation and higher inflation has affected consumer spending, impacting our business and our industry. However, by following our playbook of carefully balancing price increases while also focusing on maintaining our consumer base, we have gained value share year to date. Finally, turning to North America, we saw strong marketplace performance driven by innovation in our sparking portfolio and improving performance in stills. We also continue to gain share and so far revenue growth, organic revenue growth is up 2% year to date. This growth was largely driven by continued strong consumer demand for no sugar versions of some of our best known sparkling soft drink brands, as well as for smaller packages with less sugar per serving. Of course, we always have the opportunity to get better. For example, our performance in the water category has not been as strong as we'd like. We're working on further plans to address this in the marketplace in the near future. Taking a step back and looking across all our markets, we are driving a platform for sustained performance through a disciplined portfolio growth approach, an aligned and engaged system, and collaboration with our stakeholders. Within our portfolio, we focus on operationalizing further our leader, challenger, and explorer framework to build quality leadership positions in more brands in more markets. While consumer behavior is rapidly evolving, we continue to find new ways to connect with consumers through our leader brands. For example, We see continued strong performance in our Sparking portfolio, led by trademark Coca-Cola, with 3% volume growth and 6% retail value growth so far this year. Our brand and formula has been around for more than 130 years, and we continually work to make Coke relevant to recruit new generations of consumers. In addition to great marketing campaigns, consumer-centric innovation has been a key factor, especially over the last few years. This includes smaller packaging such as mini cans, which are growing at a rate of more than 15% year-to-date in the U.S. It includes lower and no-calorie variants that help consumers moderate their sugar intake. For example, Coke Zero Sugar is growing globally 14% volume year-to-date. And most recently, it's included new launches such as Coke Energy and Coke Plus Coffee, which are designed for consumers looking for a little extra upliftment. We've launched Coke Energy in more than 25 markets and we're adjusting as we learn to how consumers are responding. As you know, we have plans to bring Coke Energy to the US in 2020. Overall, we're seeing more consumers drink products from our flagship trademark globally. Within Challenger and Explorer brands, innovation and sustained investment levels are helping drive performance across key geographies. In Asia, our authentic tea house brand is well ahead of the plan in China and across Southeast Asia. At the beginning of last year, we launched Fuse Tea in Europe. Now, entering its second year, we've seen positive momentum in both revenue growth and share gains, driven by marketing investments, innovation, and added distribution. Fuse Tea has gained three points of value share across Western Europe, showing the importance of sustained investment to build challenger brands into leaders. CHI, West Africa's leading value-added dairy and juice brand, continues to perform well in the marketplace and expand its footprint across the region. The disciplined approach we're taking is yielding results. Consumers have responded as shown by our sustained momentum. More broadly, we will continue to invest behind our brands. Of course, strategy and marketing are only one part of the equation. Daily execution in the marketplace is also a critical component. Globally, our bottling partners are aligned and energized. They're committed to building scale and investing for the future. We're working with them to collectively raise the bar on consistent execution. Key levers of growth include driving new pack price architectures, increasing the availability of immediate consumption packages, expanding chilled space with more cold drink equipment, and growing our customer base. In India, for example, immediate consumption transactions have grown double digits year to date, fueled by adding more than 650,000 new customer outlets during the year, and placing more than 25 additional coolers in the market. These initiatives are allowing us to grow at double the rate of personal consumption expenditure. Globally, this kind of action has helped lead to volume growth in immediate consumption packages of 4% year-to-date. Fundamentally, our business is driven by the ability to operate a more sustainable enterprise that makes a difference for all our stakeholders. And let me highlight one critical issue we, of course, see across the world, which is package waste. We first shared our World Without Waste goals in 2018, and we provided updates from time to time. I'd also like to share a recent example of initiatives around the world. In the US, we're working on a number of packaging plans for Dasani, including removing the equivalent of at least 1 billion virgin PET plastic bottles from the supply chain over the next five years. Dasani will introduce a lineup of recyclable, reusable, and package-free options, including aluminum packages and expansion of pure fill water dispensers which leverage our Coca-Cola Freestyle technology. In Great Britain, our system has switched Sprite bottles from green to clear plastic to make them easier to recycle into new bottles. And in 2020, we will double the recycled plastic in all of our bottles in Great Britain to at least 50%. In Australia, by the end of the year, all single-serve PET bottles will be made from 100% recycled plastic. Finally, We and our partners just unveiled the first sample bottle made with recovered and recycled marine plastics. This shows the future potential for ocean debris to be recycled packaging for foods and drinks. Of course, none of this would be possible without the people throughout our company and our system. They're taking an expansive approach to imagining what's possible. This is what gives me confidence that this company and system is building a better shared future. So in summary, we're driving a platform for sustained performance through disciplined portfolio growth, an aligned and engaged system, and by working with our stakeholders. For the first nine months of the year, we delivered strong underlying growth ahead of our initial guidance. This gives us confidence in our ability to achieve our full-year EPS target and drive showering of value. I'm now going to turn the call over to John.