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spk_0: at the time i like to welcome everyone to the coca cola company second quarter earnings were about conference call could a call into reported if you have any objection will disconnect at this time i'll participants will be on the listen only mode until the former question and answer portion of the call i would like to remind everyone that the purpose of the conference as to talk with investors and therefore questions from the media will not be addressed media participant should contact coca cola's media relations department if they have any question our now way to introduce mr kim leverage vice president investor relations officer little leverage you me now begin
spk_1: good morning and thank you for joining us today i'm here with james quincy or chairman and chief executive officer and john murphy or chief financial officer before we began on like inform you that we posted schedules under the financial information tab and the investor section of our company website at www dot coca cola company dot com the scheduled reckons i'll certain i get financial measures which may be referred to bar senior executives during this morning discussion short result as reported that are generally accepted accounting principles i'd also like to know that you can find additional material in the investor section of our company website that provide the accompanying supplies for today's discussion and an analysis of and mark and 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 as he see report
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spk_1: following prepared remarks with morning will turn a call over to your questions recognize or maybe lot of questions please limit yourself to one question if you have more than one with after most pressing question first and that be the que now let me turn the color were to james thank him and good morning everyone we just close the books on what has arguably been the toughest and most complex quarter in coca cola history and given the global pandemic of course with comes with no surprise
spk_4: from the initial locked down and closure of hundreds of thousands of our customer outlet
spk_1: the gradual reopening and now another round of by embarrassed countries the impact of been prepared in a challenging environment we see them remarkable actions rather world and i'd like to express my thanks to the countless people on the front line who are working to improve our communities worldwide and i don't like to recommend my colleagues across the coca cola company and eyeballing system that at pilot efforts in price we're talking with think about people ensuring the resiliency about supply chain supporting our millions of customers globally and for being a force for good in their communities as we navigated dakota we use a combination of focus of flexibility the managed through what we believe will be the peak levels of global lockdown john will this got a result and further detail but as you think about a quarter and consider the future i like to highlight the strong relationship about performance with the intersection of two key factors
spk_4: the trajectory of up the strength in the near term is closely linked to the size of our away from home business in any given country and the level of locked down in the market for example market like western europe which had high levels the restrictions and a meaningful away from home exposures and india would have an intense lockdown experienced significant impacts however many of our lap in america markets with less restrictive measures and a lower away from home prices that better burger and we went through the quarter and restrictions generally eat globally our business or improvements from the twenty five percent volume decline in april two the single digit declines we're seeing now in july
spk_1: the lockdowns also affected i share performance in the corridor are online performance in any rpg was positive and benefited from strong share game in the at home channel however this was entirely off that by whole point of negative channel makes due to the away from home preshow where we have strong shares and as on premise begins to revive we fully expect return to share growth of will already seeing sequential improvements in multi trains
spk_5: moving forward
spk_4: we are maintaining that same level of focus on flexibility that how to navigate the quarter as we focus on winning during the reopening faces
spk_1: thankfully a good starting point matters at the system we went into the the crisis in a strong position and the system has rallied there's a sense of optimism about what is possible as we move forward importantly we are leveraging the crisis and the catalyst accelerate the does this transformation that was already under way
spk_4: and we remain guided by a purpose which is the refreshed the world and make a difference a we're clear on how we will emerge stronger will win more consumers gain share maintain strong suit economics strengthen our impact across our stakeholders and equip our organization to winning in the future
spk_1: and as we think about that feature there it's too important point i'd like the might in addition to the near term realities of the pandemic and consumers sheets the uncertainty around the trajectory of the macro economic environment is significant we generally line with for path that imply the global economy could take two to three years fully recover notwithstanding the macros and no thought it to return the creek oh good level and the do this ahead of economic recovery
spk_4: taken with the the underlying structure reason that beverages alive strategy with the consume at the heart of everything we do remained essential
spk_1: the commercial beverage industry will remain vibrant in the it become we know consumers will continue to spend more on commercial beverages and they will continue to immigrate a choice the drive the neighbor a broad strong portfolio and a powerful scale distribution system supply that the model ah beverages for like beach and began a transformation the organization supported by refresh culture focus on a growth mindset we are already well on our way down this path and seeing good results the pandemic is prompting us the movie and faster i cagney earlier this year we introduced the key elements that strategy to accelerate top run growth and maximize return we recognize some elements need to evolve and other need to be pushed harder to reflect the new reality
spk_4: celebrating our strategy across by priorities
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spk_4: good your party eating a portfolio to combine strong global run love regional and scaled local grounds to address critical age cohorts leap days and reputation
spk_1: beckett we're establishing a more discipline innovation framework and a new path forward recruit marketing effectiveness and efficiency hey ya strengthening our gm and execution capability drive relevant and responsiveness at the to capitalize on with initiatives we i'd have thing as in collaboration and capturing supply chain efficiencies the field grow
spk_4: and as a result will continue to evolve our organization to support accelerated strategy and invest in new capabilities to accomplish these objectives john will discuss how we are leveraging each of these initiatives he grog improve return and prioritize that capital allocation the most attractive opportunities
spk_1: and need to the portfolio at the outset of the pandemic i goal was to ruthlessly prioritize paul brown and if to use to strength and resilience that supply chain in china we played a big emphasis on a party portfolio during the height of a lotta and as a result the category group forty percent in volume this quarter led by trademark coke with strong growth in zero to the office the learning from the last several months and the inside my already accelerated fk ewe rationalization as convinced us to go even deeper on this opportunity by streamlining grounds we are shifting to prague has a you are but bigger and stronger brands across various consuming
spk_4: at the same time we need to do a better job nurturing and growing smaller more enduring proposition and exiting some zombie grounds not just some beers for you
spk_1: as a reference point about four hundred master browns more than half of single country grams a little to no scale the total come by revenue those grounds is approximately to be said about they're growing slower than the country average but each one still requires resources and in bit during the case with brown like on waller and it chilled direct still deliberate which has struggled over last several years we started to stop operations effected july thirty first this gives us the flexibility to support our investments and brands like minute maid and simply and to continue to scale rising star laptop a cheap that it innovation a innovation remains critical to our beverages are like strategy and launch activity had been on the rise of the several years while this expansion of innovation has been a considerable growth driver for the coke system many launches fail to escape the tail and struggled the grub we can do better we believe the best way forward is to be more choice for and target bigger more scalable bed and be disciplined in our experimentation overtime or leader challenger and explore a brand's can grow to positions that deliver scale and profitability we are raising the bar and adding more discipline to our innovation pipeline against the fine criteria is he the recruiting new consumers increasing the frequency the existing consumers and all being margin agree to we are leading with global events like the continued opportunity with richie sugar operate the brand coke will also continue a high potential regional and local bands like a hawk flavored sparkling water and us a hawk actually double digit retail value shared his birthday the week and had even more potential given it's wide appeal we consume is prioritizing health safety and hygiene even more there is a runway for innovation and functional benefits and contact with solutions will provide our guys innovation said lump products packaging and equipment last week resemble we announced the introduction of touch list resell machines in the us which allows consumers to choose and poor drinks from the iphone in just a few seconds without the need to create an account or download an app
spk_4: this is an example of leveraging increase fix ability to create a solution
spk_1: tested and roll it out in a few months
spk_4: in addressing our marketing effectiveness and efficiency yeah calgary several there is to improve how we do thing in effect taking a fresh approach to show all our veterans have a future role
spk_1: we are increasing our focus on the cut through quality of our messages and their alignment with a market execution plans through purpose driven occasion by finished
spk_4: the next phase like global campaign
spk_1: i've started with a pandemic it going live now with a large programme pairing coca meal together cake batter will kick off in the us that will be rolled out globally
spk_4: open to that another holiday program in buys the world to enjoy the simple an important things in life i will also be introduced this summer across multiple media channels
spk_1: these campaigns are designed to be flexible of a creative a coca cola things around the world taylor and localized their markets and platforms their prime examples of how driving maximum impact of rates with focus investments further on the efficiency side we are pushing on marketing ratios i reassessing our overall marketing return on investment on everything from and viewership cross additional media to proving effectiveness in digital
spk_8: only two things are forever lost and liberty mutual customizing a conscience i only pay for what you need
spk_4: turning to our gm in execution
spk_1: the on the brand and innovation and issues we are deploying i capabilities a revenue growth management and execution to adapt to changing channel dynamics providing beverages people desired a price they can afford is increasingly important given the macro economic pressures could be substantial and enjoy a segment the is to provide solutions to feed every budget revenue growth manhood also create opportunity deliver value through more profitable channels and bring it back our gm is not just about price it is about offering a range of solutions to the seems at every part of the value chain and balancing the ability to maintain and grow apples you know the case of latin america the moving quickly to increase our refillable offerings the dresser pull a bit and the same time in japan were working to decouple the five hundred ml coke offering to a larger and smaller pack options the help drive but transactions and in hard i read the the case beyond our gm we are working with about life partners to improve execution by addressing changing channel dynamics and supporting our customers eat through periods of elevated demand like with seen in grocery a modern price or the lockdown related challenges with seeing and on premise in europe will launch a new campaign open like never before has the means to support on premise reopening as well a smaller independent outlets and at home occasions
spk_4: in the us we've helped over three hundred thousand about food service outlets managed to the lockdown and now we're there to help them get back and be stronger than ever to initiatives like our rapid response results we're continuing to bet heavily in executing digital strategy to drive sales efficiency and vader analytics across our business
spk_1: we recently appointed a global bp of offline the online digital transformation to work closely with leaders across the system to unify and scale at economists a digital strategy we aggressively going after the only channel opportunity with the consumer at the center partnering with a largely commerce platform in china recruit that system revenue through that caught them a by sixty five percent during a recent six one eight festival the largest media shopping festival in china ah partnerships with third party aggregators are driving incidents as consumers quickly migrate a mobile deliberate the groceries and prepared meals for instance working with large restaurant delivery intermediaries in north america he added value bundles to over four thousand five hundred restaurant menus in the corridor
spk_4: but also not writing happy to be platforms to streamline the value chain with month right
spk_1: in the us we've added more than eight thousand outlets the my michael digitized orders platform justice quarter allowing contact less relationship with our customers
spk_4: finally with them and you the direct to see him about finding platforms like coca cola into over throughout latin america with web based solution delivers the homes as quickly as the next day and currently enjoys one million households used as a healthy double digit growth
spk_1: black secure these initiatives with speed and effectiveness we work closely with appalling partners through the crisis the conductivity across the system has been extraordinary and the last few months without global and regional system meetings with leadership allowing us to come this even more than we thought possible
spk_4: we will continue this increased engagement and sharing of best practices without borders from top to bottom i was pandemic of we recognize the opportunity to collaborate even more closely across the supply chain at the leverage our collective global scale
spk_1: ultimately we aspire to grow faster system wide and deliver strong the results that will enable us to continue investing and putting our purpose into action
spk_4: then if the organization this we set out on the beverages for like jersey with have evolved our organization every step of the way and we continue to do so to ensure structure volatile strategy
spk_1: the focus on a growth portfolio a profitable grounds with quality leadership positions that he supported by an efficient and effective marketing model we need to be flexible a system it continue to move further away from a complicated three dimensional organizational structure the more of a net worth of model improving our
spk_4: jealousy and maximize his staff
spk_1: as a pandemic acts as a catalyst accelerate our strategy our organization is moving into the future faster too and we must set up properly in power as it into with this will require us to reallocate people resources i couldn't mean some reductions due to are evolving approach there's no doubt that we face significant pressure in the second quarter we exited the corner with promising sign the most challenging period is indeed behind see much of the world
spk_4: there's still a lot of work to do there's no doubt the world will be different pulling the crisis
spk_1: in many ways the future is coming out as faster than ever we are embracing the changes and pivoting our business to take advantage of new opportunities we are poised to the system to accelerate our transformation to return to driving growth the years to come
spk_4: the whole the i hand the cool love the john i'd like to take a moment to comment on the social justice movement that has significant impact around the world
spk_1: let me be clear as dances with there is no place racism or institutionalized inequality in the world we're taking an active approach and focusing our efforts on listening leading investing and advocating were engaging stakeholders employees and other business leaders and we call social media for the time being while review our policies ensure a high level of accountability and transparency recently committed to spend an incremental five hundred million dollars with black own suppliers and are actively contributing to communities on this important issue with that job will discuss our results and provide more details on how we plan to drive returns as are increase focus provide the flexibility we need
spk_9: take his hands and good morning everyone i'd like to spend my time the forty focused on three things one from commentary on the quarter and the rest of your outlook
spk_4: two thoughts on the broader and longer term implications to value creation
spk_9: for our company and our system and finally on our capital allocation priorities
spk_1: as expected or second quarter was one with significant hurdles to overcome as lockdown and social distancing requirements place for fun pressures on our customers and consumers
spk_4: in the second quarter volumes were down the same present driven by declines in higher revenue case away from home channels organic revenues declined twenty six percent driven by a twenty two percent decline in concentrate shipments and a four percent decline and price makes
spk_1: the gap between concentrates shipments and you kansas is quarter is attributable to cycling the timing of shipments from last year primarily and mere and latin america
spk_4: along with rationalization of stuff levels after some safety stock filling in the first quarter the majority of the price makes pressure during the quarter was driven by segments makes from meaningful declines in our customers and global ventures as well as bottling investments underlying gross margin was down approximately three hundred basis points primarily driven by volume decline
spk_9: in capital intensive finished was businesses like casa to service the north america and are battling investments
spk_4: in addition to negative package and channel mets pressure despite the significant pressure of top line and gross margin in addition to the currency headwinds comparable operating margins are only slightly lower than last year
spk_9: given the effective management of as soon as census
spk_1: by we had a considerable amount of leverage during the quarter from cost management part of as is attributable to timing to to modify our full year marketing spend four test which included an adjustment
spk_10: from the first quarter
spk_9: as we look to the remainder of the year we will continue to hold off on providing for your guidance given the amount of some certainty that remains
spk_11: that said
spk_9: the fighters worth highlighting as you think about the second half
spk_4: while we believe the second quarter will be the most severely impact as we do expected to top line trajectory to continue to correlate closely to the level of mobility of consumers and the house of the away from home channels and said discussed earlier the pandemic is not behind us there is still good reason to be cautious of global covered in sections continue to increase with case growth generally shifting from developed to emerging markets
spk_1: while we are seeing sequential improvement recovery will likely not to be linear
spk_9: damascus the were recovering are having a second spike in cases like we're seeing in iran australia romania and here in the united states depending on the trajectory of recovery and away from home
spk_4: channel and package makes will continue to put pressure on are gross margin at the same time while we do expect continued cost savings in the back half the amount of leverage should moderate as we look to accelerate our marketing investments
spk_12: given improving
spk_13: our like characteristics
spk_9: in a number of markets
spk_4: i'd also add that if the top line improves faster than expectations we are prepared to reinvest more aggressively to further strengthen our position heading into twenty twenty one
spk_1: and finally moving to below the line in an effort to extend the duration of are outstanding that in the first half we should eleven and a half billion dollars of long term to as a result in higher interest expense while we firmly believe this is the right thing to do longer term
spk_4: you will continue to see a year over year increase in interest expense in the back half of the year dans les that the approach we are taking on the portfolio innovation marketing execution and system efficiencies to return our company to top line growth at the high end of our growth algorithm we believe strongly in our future been proposed by topline growth but we also appreciate the top line must ultimately create value that meets or exceeds our shareholder expectations the descend we are focused on the following political objectives first we are defining even more sharply the optimal said of our out and balances
spk_9: we have developed a clear mission to teach drivers and financial expectations for each of our business segments
spk_4: and a said object is to improve margins and free cash flow across the board we leverage these improve returns and invest what is the to fund continued growth while ensuring our balance remains fit for purpose for a future needs
spk_9: beckons opportunities abound to cause of is more efficient growth
spk_4: a sense discussed earlier we are moving with speed to optimize marketing stunt consolidated behind our growth portfolio and business segment priorities using our productivity mindset we are continuing to uncover cost saving opportunities across the supply chain and operating expenses by the hallmark of our business is winning locally with our consumers and customers we continue to see opportunities to scale beverage services across the system to unlock synergies it is as soon as we evolved the organization to follow the strategy this to was drive better resource allocation
spk_1: the things mentioned a global system will continue to collaborate as a strategy accelerates and evolves and together we are working to be nimbler is the same the growth that follows
spk_4: as a pursue these objectives are capital allocation priorities remain the same
spk_9: reinvest for appropriate in the business to drive momentum
spk_4: and continue to grow this evident returning cash to our shareholders emily and share repurchase are unlikely to play a prominent role in the near term or balance sheet a strong and we remain confident in our liquidity position as we continue to navigate to the crisis as we work as a system to manage to the current challenges cause i over nineteen are boxers are not immune to the effects of the business disruption that said approximately eighty percent of our business volumetric lee is in the hands of our top fifteen butters a run through our boxing investment group the remaining twenty percent a small to mid sized or large public potter's or was about companies with healthy balance it's nearly all of a small to mid sized offers are the stable position and taking practiced that and efficient working capital management expenses and capital to manage the situation as we close the books on the second call her there is no doubt that this has been a challenging time for the for solar system throughout our system has remained focused on the journey ahead
spk_8: only two things are forever lost and liberty mutual customizing a cancer and single the case or what's a need
spk_4: pivoting and adapting to ensure the the accelerator transformation allowing our system to emerge with an operator we're ready to take questions
spk_0: thank you ladies and gentlemen to ask a question the when you depressed star one and your telephone to withdraw your question press the pound and the interest of time we ask that you please limit yourself to one question if you have any additional questions you may need to join that you think you are first question come from brian still in the bank of america please go ahead to align yourself and i thank you and good morning everyone
spk_14: do i guess my question is is just around the balance between efficiency and growth you know we have one way the last couple years that exit last year to be you know at the top end of the that the revenue growth algorithm and vegas now we're contemplating trying to get back that level but the same time with a focus on efficiency so james brady to get talk a little bit about organization we how you're just going to balance try to which he both of those things
spk_15: yeah thanks bank fraud
spk_4: look you're clearly gotta you gotta do about it we just aim for top line growth we i'm sure we'll get back up at the top end of the algorithm where we were the last few years but if we if we do that without focusing on efficiency about not going to work the company or over to the bottom over the shareholders an alien vs to produce
spk_1: you know stop worrying about the top line of focus on efficiency
spk_4: what will do well for a year or two but that the wheels and to we've gotta do both on the on the way we're gonna approach it is the real world attack the priority with told that you know in the in the good years the pre coby is we got up the top end of the revenue growth thing we were doing a lot of innovation we were you writing a lot of bronze we knew we had those things that were working really well on all the grounds that was struggling and and and as we were at the top eighty two not just removed the zombie sk use that pruned down some of the explore brown see refocus on those of you're not when time to go well you use that a certain pace for that's the of activity
spk_1: and now in in in the colby times than in these more ah impaired economic times to the least in the near future are you know we need to accelerate that so that's why with them
spk_4: but we need to let that's really bring forward the agenda or which every wave of it you need to converge on the best
spk_16: let's accelerate on that good read about it
spk_4: to get more focused on more efficient on how we do the math of thing where we direct marketing thing about the the two things will work together the both be more able to drive the top line because or more able to get back to the before the growth rate the want
spk_1: all the top line and the able to win new consumers them when share in the marketplace and yet to
spk_4: by we'll that we've also seen over the last number of years as we've moved out the platform services the as as we've evolved the that we had a thing that were ahead of us can also be done and we're going to accelerate those not just as the company but will keep away out the system for how can we build on some of the great collaboration that already exist like the crop and the bride vehement group
spk_1: where we buy collectively ah poor poor impulse are cool commodity how can we take that next level so we're really looking for the the really at the build on the learning to the pre call with out we knew we had things them with that the had to be done let's excel right down so that we can generate the efficiencies that we're both your the growth and getting the cop top line backup and allow us abridge or in terms of resources are given that that revenue is still impacted in the nathan south it's gotta be gone and we're gonna
spk_4: is really it is gonna feel on the called for work on a growth mindset
spk_1: poaching not idea i keep looking for what's working and
spk_4: brandon the idea the project that are working and follow them back to those with the muslim faith so it's really an end to end idea from the from the consumer backwards through to the structure and the culture of the organization so that actually you end up with an agenda that not just
spk_1: a mix of two things strategy and growth and and efficiently but actually each of those components is necessary and enables the other
spk_0: your next question confirm the line as a lawyer they don't have a track with barclays please go ahead you have i missed our then
spk_17: great thanks to morning
spk_18: i'm hoping he touched a third quarter
spk_17: an area where i'm with all then i think well educated and on revenue growth management as a great tool to drive growth in an accomplice mostly economic expansion am and then you know in an economic downturn still probably a bit less explored on the price next performance in latin american and your highlighted next concrete click on a passerby it's was really notable to you talk a little bit about where you are into the implementing revenue growth management strategies to benefit you are to help support citizens in a downturn on his neck he simply elite market and there's much more to come on that find that are you know additional color that i could be helpful thanks
spk_4: sure sure yeah i mean
spk_1: interestingly the the whole approach for revenue growth monitored certainly one of his early interactions of the campus the with it actually came a at times of economic difficult to the are particularly in latin america i'm so it is an approach that is a capability a way of doing things that is just as useful in the good times as it is in the bad times as or what you see as the flying that capability which the company together with the bombers and spent the last few years refreshing it's now being directed at the new challenges and as the side whereas we might have been putting more emphasis on using it to the develop the premium opportunities in the last two years i will get happy happy it to to to focus on some of the affordability a opportunities are examples of those you know is really
spk_4: for example in mexico but also places like brazil at a number of others
spk_1: really focusing down on refillable packaging the benefit of refillable packaging in the context of our gm is of course you can as the economic allow you to offer the a product at a lower price of we can really connect to what is likely to be some economic stress or on disposable income and therefore the need for portable products of refillable nothing you know that works enough to america that works in africa that what's a number of at the complex but it also can have the capability our gm can work in countries like japan or in japan we sell a lot of half later pt bottles with something like coke and and and in it's you know currently bottom of what we're going to do is try and like that up though have one slightly bigger package one slightly smaller package with smaller package or obviously will allow us to offer a lower price point
spk_4: and the slightly bigger package will be a sharing package or which will offer you more advantage of a leader and so we could really use this capability to call me an hour and adapt the football or not just in emerging markets but also in the developed markets knowing them yes that will still be people are looking for premium products and stock up or but they're also be people on the lama disposable income pressure on their the number
spk_1: one objective at least in the beverage caddick read ross is to bring down or the entry price by what's the lowest price at which you can buy coke
spk_0: your next question comes from the line as their my and him with morgan stanley please go ahead your line is now open
spk_19: a good morning guys
spk_20: don't have
spk_21: just taking a step back
spk_3: obviously the june or july today you to chase volume trans showed a significant sequential improve their april a bay to feel like you have enough visibility that it's reasonable destroy to generally expect sequential progress from those july numbers as as we look at the balance for year and the remainder at the back at us and are you obviously will give us a
spk_19: pacific number but you know more conceptually perhaps you could talk about mad as and that's a global question but within that answer i was hoping you could parcelled thoughts by region of a more and imagine the answer may be very different in asia and europe first with us a black america just given the relative the differences we're seeing in sequence
spk_22: yo kobe case counts
spk_4: sure i think the simple answer is now ah and by know what i mean is there are too many
spk_1: i use the famous rumsfeld little framework there too many known unknowns ahead of us because while yes we have seen sequential improvement
spk_4: through the second quarter get into the beginning of july in all geography or major geography is around the world the principal or are now is the degree of lockdown going forward as we talked about it in the second quarter
spk_1: the biggest variables
spk_4: testing the business world won the degree of locked down and to the degree of away from home business or in that country with the lockdown and of the simple fact remains that one thing have got better undoubtedly
spk_1: july that of the june june with that the may may was better than april the written the reality remains that the virus is not completely under control to have been out countries which have repeated lockdowns all all all cities and states within countries that have ah
spk_4: in repeated lockdowns on and so honestly i think we could ah
spk_1: if we saw the virus time to be on the control how we would we would imagine yes we would see sequential improvement or through the mud supporters go forward we cannot discount there might be further waves of lockdowns a partial or four having said that i am pretty confident that second quarter will ultimately prove our to have been the most difficult and the most are impacted quarter principally because i think that that the governments are getting smarter about how they apply public health major been getting them the could fall as such that way i'm unlikely to see the whole world and for in a locked down at the same point in time
spk_5: the have i'm not sure that completely help but unfortunately that the outlook we see with a with
spk_0: the strong degree of uncertainty
spk_23: he next question comes from the line at mcmurdo with i be so please go ahead the line is now open yeah thanks to the the morning everyone at mit to take another spin on gas question and ask specifically on areas where we seen the the virus kind of comeback so you think about australia are parts of hong kong be no taxes etc james may i mean it's very very helpful on
spk_24: understanding car the july trends but things have been moving so quickly perhaps you can talk about maybe what you're seeing are just give some context are on some of those markets to so we can get a better understanding of how things have have shapes and served in the end of june
spk_4: sure
spk_1: i'm mess
spk_4: but the the the i think that fairest thing would be to say that those markets where we've seen a repeat lockdowns they have never all the have not yet i've gone down
spk_1: the same sort of the grade they went down in the first round of their lockdown out whether that be february march or april and on a global basis of the april was the most difficult month and to we are not saying ah round two is is is that as bad as as radmanovic that that you take somewhere like japan which started off with locked down and they opened up a bit than they look against yeah the number started getting negative again ah but they weren't really is as bad as they had been at the initial stage south you do get out of a bit of a weekly lines a car that's why i made the point or there's a question you can't assume
spk_4: that on a very big you are you can't assume it was a straight line where we are now to good i think there's going to be some variations as you start to look across the months
spk_0: i'm i'm but the second wave have not yet
spk_1: look as bad as the first persuades whether i look across any of the country he rarely mentioned or some of the other ones
spk_25: your next question comes from the line of rob martin thing with quiet please go ahead your finest hour them
spk_1: great thank you very much i'm james i'd like liked the focus on on the chart that you had on the four hundred master brands ah with fifty percent accounted for ninety eight percent of revenue and fifty percent justice two percent of revenue i and i and others a very big question on that you could probably talk
spk_4: about for for a long time but correct high level ah you know how wet what do you think the right mix is and how do you get to that right max presumably there were certain incentives relationships with a bottlers they got you where you are now on how how do you see that evolving over time and what do you how do you think the the financial impact will be out when you get to a more optimal next thank you sure
spk_1: i'm not sure there isn't
spk_4: a destination where there's one right number of the mix between leaders challenges and explores ah are we will always have a tale of small a brands that not the issue that we're after and actually it would probably be a sign of weakness the have no
spk_26: a smaller brands
spk_1: in the pool follicles it would mean when not nurturing the future will not nurturing the explores that will be challenges the will be leaders in the future what we wanna see is a steady pipeline a progression of creating ever stronger a brands of real quality you obviously they gonna pass through the challenges phase or that where you got a launch a whole series of explorers small brands the trying that knowing that most of them will not make it what we're looking at here is that we have not been as assertive enough and and directed enough weeding out of the explorers that have not work and are unlikely works work the weekend redirect the resources onto the explorers and the challenges that have the most opportunity into the future so it's not a question of a certain number of explores or right or wrong it's a question of are all they
spk_4: succeeding on not and we we talk to the best i did that that that in here is this the success criteria for explorer ah is is very fast growth and starting to gain a pool of
spk_1: or of are very engaged and loyal consumers and that you're really starting to ah
spk_27: make waves in the category even though small under the success criteria for challenger was being able to gain enough market share that over time you could believe you're gonna get the leadership of because i'm leadership you have both scale and disproportionately more favorable economic the margin versus the
spk_1: other two categories know what we're looking at here it is in a way the result of lots of experimentation explosion which is a good thing
spk_4: real cowboys customize the same liberty i'm a we're looking at an incomplete pass of weeding out the ones that work and so what we're looking at particularly in in in a large bucket of the smaller browns is a states small up with some good period of time and they're not growing ah
spk_1: so the not meeting the that success criteria for saying ah ah
spk_0: and their as an explorer about and that's true across all categories and an our objective remains to create a broad portfolio of leaders across the results also categorized as a really good just accelerating the world that we knew needed to happen on all those explore a bronze the one not meeting our own success cry
spk_28: of they were going somewhere they were growing up
spk_3: and that will allow us to redirect resources to those that have the best position to grab them again will be fueling top line growth more efficiently allowing us to get back to where we were twenty ninth the ah and emerged stronger ahead of the packed with we'd better margins raw system
spk_28: your next question come from the line as in power that deutsche bank please go ahead airline is now open
spk_9: yes hi everyone good morning
spk_4: i get a question for me on capital occasion i'm john you're pretty clear on the priorities entered the near term the emphasis on emanating share repurchase but the implication their that you have i confidence in your ability to both he to reinvest steadily in the business and also continue to maintain even grow on the dividend where's the markets been in
spk_1: chris me concerned about your ability to do just that in recent weeks or months the can you may expand on what drives are comp unfair and is there any set of circumstances that you can vision in the near the medium term that my son in a better challenge ability to defend the dividend again given the president's that healthy business reinvestment takes in your position thanks
spk_9: i think steve the first and foremost i think the decisions on capital allocation we take into account not just the the short term but also
spk_4: the second of us to where we think the business will be over the next couple of years
spk_9: and as we as we look at that even though it's and said there are a number of known unknowns with a guy i think you've got to divide the calendar into into a few parts one is what's happening in here and now number two is the to the length and say thousand recovery and then number three is is getting back to
spk_10: some degree of of what people and that a calling a new normal
spk_1: so we week we've got tremendous confidence in the in the beverage industry in in general
spk_9: we think that the fundamentals far
spk_4: both going forward the longer term remained remain the same i'll as with the the challenges in the in the near term
spk_9: and we think that we can and will get back to
spk_1: a high end of a long term growth algorithm overtime so so with that thought the context of we're we're comfortable in maintaining our position or and
spk_4: or capital allocation power his first and foremost continue to support the business ah as we go forward in in terms of capital and martha the investments and then number to continue to support the dividend as is and in that period
spk_29: yeah wrapped around doesn't courses art is our overall that strategy
spk_1: we are confident with the decisions have taken yesterday for the balances is strong enough to withhold the the near term pressures on them
spk_4: and we're fine we may go slightly outside of our arrange this year
spk_0: we see that been been a short term blip so no also say of
spk_30: the have confidence in the industry in our ability to emerge stronger and and with doesn't mind the the priorities of really as we think are are achievable other say is james this hitters there are lots of an unknown unknowns an aneurysm the will continue to review and adapters
spk_4: those are known become become more non
spk_30: here next class come from the line of for long gone day with guggenheim please go ahead of line is now open
spk_23: yes hi good morning everyone
spk_1: james and i guess my question on the on police channel i'm kenny pleased and double the employee's performance and trying to whether you see us ours that is casual dining contract cutters or spots concert venues or problem trying to figure out on the pace of the recovery by those sub channels
spk_4: i did it fair to assume that the piece that it's recording the like us are is probably not good most cookie the them thank you
spk_1: shaw i'll i'll try and add a little bit of texture on this one point that the first thing to bear in mind
spk_31: is the predominance ah
spk_4: a fact is the degree of locked down in the country as it relates to those channels so the cat there isn't really a way to describe the global trends by those are different channels because it very much depended on does depend still on what sort of measures governments have put in place to for for for health reasons i saw this that that the global trend is not really that many meaningful our i would just urge you to look more at the degree of locked down on the total business we take one the country and look at what we see as to happen then take the us are which the one you're probably our most familiar with if we look at
spk_32: the do
spk_1: away from home or channels are first point park or to now is that was sick when she'll improvements far as the way from april may june and so things got better
spk_4: clearly the the the biggest a determinant of how a channel did was what percent of his business needed people to be inside the building the you mentioned qs are actually qs are was one of the in aggregate us was that the bad or end of the impact why because many of them have well developed drive through our and digitally enabled take away businesses will actually late as they went they are they not only improve but they were not the most affected of the
spk_1: eating away channels
spk_4: the chat the of channeled the were most impacted by the lockdowns ah were bars of all service restaurants
spk_1: work locations
spk_0: ah some of these places where were simply for there was no the declines whoa whoa what was most significant and given that many
spk_33: offices are still not are going back for working in if people at all for example at work remains one of the most affected channel much more so than that and qs all other casual dining or even a bars and restaurants thought that the simplest way to think about or to allies on ah
spk_34: the away from home channels it is simply it look as good the grey the the restrictions in place at any moment in time ah as how that affects their business be a good way or business the can leave the location until one that they depend only on people being in the location
spk_9: your net income from a lot bonnie her back with goldman sachs please go ahead your line of our open combining and outside a question i'm the ramping of your marketing spend in the second half as it sounds like like it started to accelerate standing i had the recovery so i really wanted to understand how quickly you expect the spanning to impact the top line in have given there's a kid
spk_1: glee lag and then i assume that will be a big a drag on your march and from the stuff that setting the second half like know maybe clarify that and then maybe highlight any assets you might have her lovers you can call them and by the impact on this banks
spk_4: thanks bye let me take on
spk_9: i event have i as a messenger i think i think it's important to to kind of devised the calendar off
spk_1: the of as you know for the second quarter we did take a a significant step back from marketing because
spk_4: they could was and without effective and as a lot to the second half of the year as a the name of the game is to stay flexible and them and and be able to adapt as quickly as possible with that in mind as we as we see the the sheriff of the recovery a taking place around the world there are opportunities to
spk_9: to to step up to set back off for our investment levels
spk_1: and i think there's also an opportunity to use this time to and
spk_9: please a rethink the amount of investment and marcus actually needs and an optimal levels going forward so
spk_1: so that's that's very much a a key priority for the second half of the year terms of of of specific numbers i don't i don't have specific numbers to provide because i think it's a yeah it's again to by to put a set of have been flexible it's a function of a been able to adapt and react as mark it's demonstrates the trajectory that they're that they're on
spk_4: and as a as we go forward has begun going to the into twenty twenty one
spk_1: your t a key priority is to is to emerge stronger as james alluded to earlier and to emerge stronger faster and so with that in mind
spk_4: it's it's it's it's a key objective in the second half of the year is to position ourselves well for twenty twenty one and particularly in the markets that are really important to us and the market for the competitive the competitive pressures are our strongest so
spk_0: the stepping up on a on a case by case basis in the second half of the year
spk_35: and been ready for twenty one and for sure as a certain the in this script
spk_1: as we as we luck into the second half of the year you're not going to pretend to see the same cost efficiencies that draws the is or the operation operating margin impact in the second quarter
spk_35: in the in the second half year as we as we continue to lock us at our at our marketing needs an unsafe decisions accordingly
spk_36: your next question come from the line at the top center please go ahead your line is now open
spk_1: hey thanks good morning
spk_4: he
spk_1: games are just wanted to you know the back trying to understand like how we should look at the does a slide deck the announcement today because i mean on one side you can say look we're trying to be more nimble were trying to be a stronger coming out the other side you could say look earnings don't matter this year the my not really matter this year let's let's not waste a good graces let's step up all our spending and move forward and and we can really accelerate everything over the next the year and if it's the latter then in out you didn't really talk about kind of how much this is gonna cost and whether it's gonna impact this year and next year in terms of course
spk_4: so maybe own more color on which which way it is and and and what you're expecting to stand
spk_1: the i'm not sure whether you are referring as much did the emmy or any additional costs because they change your approach that but let me let me try out a couple of things and then the weather them the question may post let me just on the line what what john said you know we are gonna be good stewards that capital i'm and yeah cause we could just pile on the marketing span because the though a birdie commerce no one cares about your name is it yeah that still comes my bottom line a lack of little available and you know if you look if you'd know calendar years and just think about the business why would i want to spend our money in a period if i can get the return to take leave it on lockdown sox we we don't take an pro soldier of overly thinking in the the calendar years when cows marquee we're about generating the main some for the brands on the business center and as john said if we see her opportunities to invest and jan right and and accelerate the top line growth that's what would i do out which using which is the murder what we sort of the that because we thought no no marketing's gonna make much difference in the second quarter so we pulled that we pull back heavily and then you will have to gauge of be adaptable as we work through the uncertainty in these known unknowns as to where our which countries which categories vs which lockdown is gonna make sense to of we are going to be judicious or in i use a marketing in i use of capital expenditure
spk_4: we much as you can see the sailed trained improving through the courts light our expectation is that the general direction that probably sequential improve and therefore we expect the come back on spend mobile marketing that we're gonna be focused on getting that right but instead more generally you know if we're going to emerge stronger we need to get the is the fact that the right level of investment to drive without my role that's what's gonna create the the profit growth for the cover got company are not that that is gonna go behind the revamped approach the court follow the revamp approach the how are we continue to do marketing know if we do have the not let go of some brands are potentially the ones with a quad like oglala
spk_0: we may need to take some charges
spk_18: i'm you know even that wouldn't affect the cash flow of because we're using it
spk_37: will be perhaps we converted the brand something else or maybe was like any money but there might have to be some some charges at for obviously aren't
spk_38: if possible
spk_4: i don't recognize them as as soon as that the of college your question
spk_1: your next question comes from the line of andrea textile jp morgan please go ahead your linus help him thank you go morning on so on if you can elaborate more on they see cents an hour like when on charity added crisis need on if you can feel pretty margins in fact reading the third quarter he over a year or more of a fourth quarter aspiration and a clarification on zones comments about application is that any iran
spk_9: goodbye pressures of the balcony investments that he was done so far and become even more acid lie to a purpose the sun's into evidence and by taxi
spk_1: you
spk_39: so on a site or the other second question
spk_4: as we talked and free just cause i think we have a very
spk_34: a very open open book with respect to the balances and right sizing and optimizing the balances as we go forward
spk_40: and and there's no there's no investment on that island see that does not get a a regular review and and determination as to whether it should still be there
spk_4: with respect to that that part of the decision making a bossing investments group is is an important an important piece of the equation we don't have a timetable for
spk_9: for further reference i a but it certainly is our be more acid life
spk_0: just as we have their i think there's them on a previous occasions and of have acted accordingly with with previous we franchising effort so that will and continues to be a perfect timeline on us
spk_41: the comet an operating margins a clear or ah i'm but it it goes without saying is that as we as we looked at the opportunities at present themselves
spk_4: we're not necessarily as focus on the months or more focus on building momentum for the business and sustaining as in the particular in the markets that i've got as size important to us so ah
spk_1: we make those decisions as a as a common as they appear to be the right ones to make a the right time and and the consequences of was so through accordingly
spk_42: your next question come from the line of
spk_43: tyler flamboyant hsbc please go ahead the line is now of him
spk_1: yes good morning everyone
spk_4: you are you know pig sparkling declines in india western europe and fountain in the us
spk_1: have have deep structural changes such as heavy client turnover in any of those three situations
spk_4: prompted you to move toward a reset of the model and and those three business i'm
spk_1: adult i don't think when i would describe any of those as a deep structural change that is it has driven
spk_4: some sort of said
spk_44: out the model again a very direct link to the degree to lock down
spk_1: how's that had been with it and
spk_9: navy just take that they both i'm in fountain of food service and on promised in the us and a lot of a mere tp the western europe have a lot of away from our business i'll the outlets were shot
spk_4: and what we found a that as the outlet that opened a business starts to flourish again and and and india simply put the reason a modern trade as you'd understand it in the developed markets are a large scale
spk_9: and so when they had a lockdown in lockdown the small schools are at though either literally the whole whole marketplace was closed down at that point in time you what
spk_13: would have been peak season in the south it's it's really lockdown related
spk_0: and and i think as they come off you'll see the be out name's here we are social creatures as humans and you like expenses people will want to go out and about there will be ah
spk_45: the know habits that will have changed that we will go out and experience the world and these channels will bounce back
spk_46: don't their next
spk_45: as and says the as if i could just as i think i cause i think what we will see both in the some of the developing markets like india and even here in the united states is i think there will be a higher turnover particularly of small customers and both the sort of more modern away from home as well as the traditional away from home so
spk_47: i think we expect to see that have had i don't think means a as structural reset is necessary
spk_48: i just may not be more more new ones coming along and
spk_4: and for system estimate of so it'll be a key area focus as we as we come out of the recovery period
spk_49: your next question comes from the line of kevin granted jeffrey they go ahead carolina falcon
spk_50: a good morning everyone and i thank you taken a question i'm i'm i wanted to come back to our investment levels was talk about the for a couple different park was for as the department and really focused on north america
spk_1: my question too much about couldn't really more that are quick to be arm and a concert that you're keeping predator hurts committed to supporting it's grants if you don't know that stuff up investment levels last year the not send had an external earn number marketeers increasing focus if i'm not mistaken for arcola bigger part of our that the comp intercourse snack that of the this is driving which gives them some flexibility to lenient on beverages so sudden cyber covered related pressures the new comment on what you're seeing comparable in north america become at that moment ago that there's also a willingness internally the coca cola company the for the answer proper targets for the lean and and made sure that your adequately reinvestment key markets present with the us would be included in that nobody does can confirm and the baby talk little bit about some of the governors and key metrics that you guys who are looking at brand equity markets year after we levels again i'm starting to encourage your brand's argue that it i couldn't supported and that you don't end up president to your and and and looking at the next year falling sure that you that you're under vested thank you
spk_4: i'm gonna go on
spk_1: it was the other has
spk_4: out that the need each of it not that it
spk_1: know clearly we all got i mean we've done a lot of emerge stronger which is
spk_4: game more or engage engaging more game or drinkers game share a reestablish
spk_1: mm system economics grass and and the ballot to that is where we're headed and and i very clearly have we got if we have to choose between investing and not investing and make more money but damaging the top line we're gonna win back fundamentals of the concert
spk_4: the where we were pre crisis which was the top end of the growth algorithm are on the top line or not then for
spk_1: oh through with the leverage or is about stop globally and in north america we need to make sure that happens and clearly we're going gonna do that
spk_0: in a flexible way the john talked about who they make having said that we we fully expect to be spain being a sequential a more the emmy or a north america include three and an interview for a obviously you know we have a we have team
spk_51: metrics by grand this that out what we expect from each brand on what they're doing ah ah i'm going for that i'm on and and what what we see in the marketplace is
spk_1: again a bit like the total volume performance
spk_4: the terms of share
spk_0: what we say is that where where where the world is open at we've been able to gain share the predominant negative effect his channel mix and it's worth remembering that our we have a half as much a gain market share in away from home channel as we have in at home channels
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