Coca-Cola Company (The)

At this time, I'd like to welcome everyone to the Coca-Cola Company's fourth 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 would 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'd also like to note that you can find additional materials in the investor section of the company 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'll 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 re-enter the queue. Now let me turn the call over to James.

Thanks, Tim, and good morning, everyone. As you'll have seen from our results today, we're pleased to report another quarter of strong performance capping off a successful year in 2019. We delivered on our financial commitments for the year, even in the face of stronger-than-expected currency headwinds. We see the right strategies taking hold, supported by the right partners, underpinned by a growing and vibrant industry. But we're just getting started. This is what gives us confidence in our 2020 outlook, and we're optimistic about the long-term opportunities in front of us. As regards to 2019, Our business performed well. We gained value share globally. In addition to gaining share in each of our geographic segments, achieving our largest share gain in almost a decade, with 34 of our top 40 markets gaining share. Organic revenue grew 6%, two points ahead of our initial forecast and at the top end of our long-term growth model. Top-line growth was driven by strength across all the operating segments. Comparable currency-neutral operating income grew 13% versus our initial goal of 10% to 11% through accelerated top-line growth and delivering on our productivity targets. Comparable EPS grew 1% at the top end of our guidance despite a higher-than-expected 8-point currency headwind. Finally, we delivered $10.5 billion in cash from operations, up 37% from prior year earnings. and well ahead of our initial guidance. Our 2019 performance was the result of a broad-based success across the majority of our markets. Globally, we achieved high single-digit organic revenue growth within our developing and emerging markets, along with mid-single-digit organic revenue growth in our developed markets. So let me walk you around the world a little and touch on some of the strategic actions that we have been taking. In North America, we delivered a solid performance in 2019, and we are well positioned with a strong marketing and innovation pipeline heading into 2020. Organic revenue grew 3% for the year, and while we continued to gain overall value share too. Trademark Coca-Cola drove our performance with 4% retail value growth. Volumes in Trademark Coke were positive for the second consecutive year, even as we continued to execute on our smaller pack initiatives. Across our re-franchised North American bottling system, there is improved execution and continued conviction about the long-term growth opportunities for our business. Over the past few years, the system has invested nearly three-quarters of a billion dollars to support our innovation and revenue growth management agenda. This includes expanding availability of our popular mini cans, which again, grew in the double digits for the year. Turning to Latin America. Here we achieved 13% organic revenue growth while navigating a tough macro environment by focusing on the fundamentals. These included expanding cooler placements, acceleration of single serve packs, and increasing availability of returnable packaging in under-indexed markets. For example, in Brazil, we delivered the best performance we've seen in seven years, growing more than twice the rate of consumer spending. Our results were driven by high single-digit growth of single-serve packages, due in part to a more than 20% increase in cooler placements by our bottling partners. This aligned focus and investment is a testament to the long-term opportunities our system sees in this large and important market. The resilience of our Brazilian business helped deliver solid results in Latin America despite markets such as Argentina, where the economic situation continued to deteriorate during the year. In EMEA, organic revenue growth of 5% was balanced between solid industry growth and strong share gains. Growth was driven by strong results across developed, developing, and emerging markets, while innovations with Coca-Cola led to the best performance we've seen in the last eight years for the trademark. Our innovation with iconic brands also went beyond trademark Coca-Cola. Schweppes grew double digits during the year, boosted by our new adult mixer offerings. Fused Tea continued to perform well across the group, now fully lapping its 37 market rollout in January of 2018. We have strong plans in place for the brand heading into 2020, focused on new winter flavors and no-sugar, antioxidant-infused offerings. These results led to the strongest share gains we've seen in years across the region, supported both by sparkling and non-sparkling gains. Turning to Asia. A concerted effort to recruit new consumers and drive horizontal expansion helped deliver 5% organic revenue growth through the year. Across Asia, we added 1.4 million new customer outlets, led by our two largest markets in the region, China and India. Our success in China is not just solely based on increased distribution. In order to help expand the consumer base, we've been adapting to the new digital-first consumer landscape. For example, We launched an integrated cocoa meals campaign with a heavy focus on online food aggregators. This helped us recruit more than 20 million new consumers, boosting our share of online meal ordering to over 60%. Actions like these led us to be named the fastest growing FMCG brand in Asia by Kantar. I've also been encouraged by the system's response in markets where we face challenges. In Japan, for example, The system moved quickly to rebuild production capacity following natural disasters in 2018 and stepped up execution performance in order to support our innovation pipeline. Across the globe, we've seen that a constant focus on innovation, revenue growth management, and improved execution, all supported by integrated brand building, forms the foundation to deliver strong results today and in the years ahead. Although we have much room to improve, I'm pleased with the progress we've made across these areas during the year. On innovation, we've leveraged the strength of our flagship brand while continuing to innovate across the total portfolio. Coke with Coffee, launched in 35 additional markets in 2019, is satisfying a new occasion and recruiting consumers back into the brand, driving incremental sales to Coca-Cola trademark. We've also launched Coke Energy in select international markets. And while we've seen some success with the initial rollout, we'll continue to learn how to enhance the consumer proposition as we expand further into 2020, including our recent rollout in the U.S. that tastes a little more like Coke. We're putting the full marketing muscle behind our Coke energy launch in the U.S., turning to the juice, dairy, and plant-based portfolio. NutriBoost continues to grow strongly across Asia behind our new and innovative functional dairy products for kids and young adults. NutriBoost started as an internal innovation in Vietnam and continues to expand across the region, including its latest launch in Australia. We look to continue accelerating our innovation pipeline in 2020. And just touching on North America, our innovation plans include the launch of our hard sparkling water in March, with a distinctive edge in the sparkling water space, as two flavor offerings contain caffeine for a little morning or afternoon pick-me-up. We're innovating within our sports drink portfolio as well, with the rollout of Powerade Ultra, a breakthrough innovation for the sports drinks category with cutting-edge ingredients, including creatine and more electrolytes than original Powerade. We're also expanding our capabilities through the recent acquisition of Fairlife, giving us a strong position in the fast-growing value-added dairy space. We've also taken several steps in the ongoing evolution of our revenue growth management agenda. We're strengthening our competitive advantage by making better, more informative decisions and making them faster, translating data into insights and insights into action. Importantly, these insights equip our customers with a new view on how to create value in the beverage category. one not dependent on lowering prices to drive foot traffic. For example, working with one of our European bottling partners, we added an incremental 100,000 transactions per week for one of our largest customers through insights driven by our RGM capabilities. This kind of collaboration helps drive results, leveraging the power of our consumer insights to support growth for us, our bottling partners, and our customers. It's another example of how we create shared value for all who touch the Coca-Cola business. And we're still in the early stages of building out these capabilities and see this as a source of growth for a long time to come. In the end, ultimately, though, it comes down to execution, as you can have a fantastic brand, a compelling consumer proposition, but it must be available at the right place at the right time. And execution continues to be based on the fundamentals. For example, in the Philippines, Through the placement of more than 10,000 coolers and a 23-point increase in order fulfillment rates, we achieved double-digit volume growth per year, along with our highest availability coverage and market share in seven years. To support our growth agenda, we've always been clear that M&A serves as an enabler to our strategy rather than a strategy in and of itself. During 2019, we acquired Costa Coffee, which provides us a platform to create a world-class global coffee business. And we're moving with speed to build a strong foundation for long-term value creation under that brand. We started with the launch of Ready to Drink Costa across Europe, already achieving six points of value sharing in GB within the category. We've also accelerated placements of Costa Express, our premium self-serve coffee solution, including more than 700 units across key markets in the fourth quarter alone. And we're working closely with our bottling partners to accelerate the total cost of the platform in 2020. While I'm proud of our team in delivering strong results, I'm equally proud of the work we are doing to build a sustainable business for the future. Our initiatives address water stewardship, sugar reduction, women's empowerment, and climate. But I'll focus here on our World Without Waste initiative, which includes a number of goals to reduce packaging waste. We've made steady progress. For example, bottles made with 100% recycled PET are now available in 12 markets with more planned for 2020. Coca-Cola Sweden announced it would be the first market in the world to transition to 100% RPAT, 100% recycled PET, for all plastic bottles made in the country, a fully circular economy. In 2019, in Western Europe, we used nearly 30% recycled plastic across our total portfolio of PET bottles, and are accelerating fast in line with supply. By the end of the year, we project to reach 40% recycled plastics in our bottles in Western Europe, targeting 50% by 2023, and working to increase the recycled content steadily thereafter. Within our flagship US market, we team with partners and large competitors to launch every bottle back program, which is designed to improve sorting, processing and collection in areas with the biggest infrastructure gaps. This will help increase the amount of recycled plastic available to be remade into beverage bottles. Speaking more broadly, we are preparing our system for the future with a flexible packaging portfolio. We're investing in innovation to design in sustainable solutions and design out waste, while also reducing our carbon footprint in line with our science-based targets. We're also maintaining a portfolio of aluminum and glass packaging and creating package-less solutions like Freestyle and Dasani Pure Fill to provide more choice. As we look forward, I'm encouraged by the progress the organization is making, progress that gives us confidence in delivering consistent and sustainable financial performance. It's clear that our culture shift is gaining traction as we continue to raise the performance bar across the organization. Looking at the bigger picture, Our success comes down to our ability to craft the beverage brands that people love and to refresh them in body and spirit. We strive to do this in ways that create a more sustainable business and a better shared future that makes a difference in people's lives, communities, and our planet. Simply put, it's about love brands done sustainably for a better shared future. And I look forward to sharing more with you at upcoming CACNI. So with that, I'm going to turn over to John.