Coca-Cola Company (The)

At this time, I'd like to welcome everyone to the Coca-Cola Company's Second 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 of Investor Relations, Financial Planning, and Analysis. 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, please note that we've posted schedules under the financial information tab in the investor 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. You can also find schedules in the same section of our website that provide an analysis of gross and operating margins. 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, and if you have more than one, please ask your most pressing ones first and then reenter the queue. Now let me turn the call over to James. Thanks, Tim, and good morning, everyone.

In the second quarter, thanks to the tremendous efforts by our associates and our modeling partners, we executed on our key emerging stronger priorities as many parts of the world gradually reopened. As we continue to deliver on our transformation, we are encouraged by our results and are raising our top line, bottom line, and cash flow guidance, even as we are accelerating investments for the future. At the same time, we also recognize the trajectory may be dynamic and understand that we must remain flexible to respond to changes in the environment. This morning, I'll provide a business update and discuss how disciplined innovation and more effective and efficient marketing are driving broad-based share gains and are delivering enhanced value for our system. Then I'll hand the call over to John to discuss our financial update, including our improved outlook for the year. Last year, in the face of a global pandemic, we laid out a path to emerge stronger across five strategic priorities. We are delivering against those priorities and this quarter demonstrates the power of our system. We started 2021 with promising results. Mobility and business levels improved in the first quarter and this trend continued in the second. Consumer mobility increased in markets where vaccination rates are reaching meaningful levels. And our business has recovered as we lap last year's biggest lockdown impacts and see our strategies in motion. Consumers have started to return to many prior routines. And as a result, our away from home volumes steadily improved as a percent of our business this quarter, driving strong price mix and margin acceleration across the enterprise. However, the recovery remains asynchronous, and several parts of the world have dealt with further waves of infections, leading to delayed openings and, in some cases, heightened restrictions. India and Southeast Asia were our only areas that did not see sequential volume acceleration on a two-year basis this quarter. Despite the asynchronous recovery, our revenues and earnings in the second quarter surpassed our 2019 results. We also made progress on share this quarter. We've said many times that gaining share is a key objective in our emerging stronger agenda. And I'm pleased to report that we have achieved that objective with broad-based share gains across categories, as well as in both our at-home and away-from-home channels in the quarter. And importantly, despite away-from-home channels not having fully recovered, our value share today is higher than the 2019 levels. confirming that our effective brand building and innovation, along with our advanced revenue growth management and market execution capabilities, are working. So let me dive a bit deeper into the key drivers across our geographies. In Asia-Pacific, China saw continued momentum across categories, driven by both volume and improved mix with trademark Coca-Cola, We outpaced the overall macroeconomic recovery by strong performance in away-from-home channels and business-to-consumer e-commerce. Australia and New Zealand were bright spots, performing at or close to 2019 levels, but they are currently seeing renewed lockdowns. While Japan is struggling to come out of lockdown, there have been tangible successes with consumer-led innovation, small-pack initiatives, and improved customer execution of key initiatives. As I mentioned earlier, in India and across much of Southeast Asia, resurgence in the virus impacted further recovery. As India's restrictions have eased a bit, we're encouraged by the level of resilience in both the business as well as our system associates as they have navigated this resurgence. In EMEA, Europe is still being impacted by some level of restrictions, but vaccination rates and consumer confidence are improving. Because of this and our strong bottle alignment and marketing investments, we are seeing a much improved away-from-home mix, even as at-home volumes continue to grow. Great Britain and Russia, where mobility was at the highest, show notable volume outperformance relative to 2019, and sparkling soft drinks gained or maintained share in most of the top 10 markets in Europe. Eurasia and the Middle East are performing well despite a diverse recovery landscape. In Turkey and Pakistan, Strong execution during the key Ramadan holiday and emphasis on snacking and meal occasions drove new consumers to the Coke brand. Africa delivered a strong first-half performance with affordability packages delivering good results despite tightened restrictions heading into the winter season and vaccination rates that are behind the rest of the world. In North America, the consumer environment improved through the quarter as many states lifted restrictions and consumer mobility increased. More frequent social gatherings and rising travel and event activity drove significantly higher demand for our brands in away-from-home channels, while at-home volumes remained robust, leading to broad-based share gains in the quarter. Within away-from-home, eating and drinking was the strongest performing channel, with travel, hospitality, and at-work training. In Latin America, lockdowns eased as vaccination programs rolled out in countries such as Mexico and Argentina, and stimulus programs in Brazil and Chile also helped drive recovery. Our results and year-to-date share gains in the region continue to be driven by commercial initiatives to improve execution, as well as a focus on affordable packs like refillables. Costa's UK coffee shop revenues recovered almost entirely to 2019 levels through the reopening phase, despite ongoing capacity restrictions. Increased consumer traffic and digital momentum are also sporting recovery as restrictions ease in other countries where we have a retail presence. Our bottling investment group faced pandemic-related challenges, particularly in India and Southeast Asia, but managed to sequentially improve or gain share in India, Vietnam, the Philippines, and South Africa. DIG also made great progress against its growth and productivity agenda, increasing year-to-date comparable operating margin approximately 300 basis points from the 2019 level. Our category teams are collaborating with a global lens, enabling us to move even faster towards our Beverages for Life ambitions. are continuously engaging consumers around their passion points and testing ideas in a coordinated and increasingly digital way, we're getting even better at what we've always done best, building love brands around the world. For a few examples, the Coke trademark portfolio is experiencing robust growth, led by brand Coke and driven in part by Coca-Cola Zero Sugar, which has contributed double-digit growth in value and volume year-to-date. The new Coca-Cola Zero Sugar recipe has already launched in nearly 50 markets across six of our operating units, including last week's announcement in the U.S., with more to come this year. Early results indicate the recipe and simplified packaging design are resonating strongly with consumers. In sparkling flavors, we are accelerating our Zero Sugar offerings and executing global campaigns that focus on key occasions. Sprite has done well globally, benefiting from the Let's Be Clear campaign, which has led to improved share gains. Likewise, I want the Fanta mystery flavor campaign in Europe for accelerated growth and improved share. Dairy remains an opportunity for their overall portfolio, with premium offerings in key brands like Hollandia Drinkable Yogurt and Santa Clara's Flavored Milk showing healthy growth. We continue to leverage Fairlight's great success in the U.S., with a recent expansion in Canada. There are many bright spots in hydration, sports, tea, and coffee. You see momentum across brands in the US, including good results from a renewed focus on smart water, a new brand bundle from Gold Peak Tea, exciting flavor innovations in Dunkin' Coffee, and continued growth from expanded distribution of Topo Chico sparkling mineral water. We've had early success with Costa ready-to-drink launches in Asia, with meaningful share gains in key markets in China, and has already voted a hit product in Japan. The rapid consumer traction and attractive proposition of healthy indulgence by AHA, which began as an intelligent local experiment in the U.S., led us to believe it can transition to be a bigger bet and travel internationally. The recent launch in China, with the local name of Little Universe, has been encouraging, with meaningful value share gains in a short period of time. We continue to build on momentum with the launch of AHA's first 360-degree marketing campaign with a significant digital emphasis titled, Can I Get an AHA? Finally, last summer, we announced more exploration in the dynamic flavored alcoholic beverage category with the launch of Topo Chico Hard Seltzer. Topo Chico Hard Seltzer is now in 17 markets worldwide, and we've authorized Molson Coors the right to produce and sell Topo Chico Hard Seltzer in the United States. Launching a global brand in markets where the category is at different stages of development comes with many learnings, and our local knowledge allows us to adapt with speed to win or, in some cases, develop this new category. From strong performance in Europe where available to a top two position in Mexico to the U.S. where velocity is robust and the product has enjoyed positive consumer reaction, we are encouraged by recent trends and are gaining valuable insights along the way. We continue to make progress with our consumer-facing digital propositions. Internally, we are building out our platform services organization to support the enterprise as we have a sizable opportunity to become a holistic digital leader. Digital is of the utmost importance, and we're also building an integrated ecosystem of platforms that create value across the digital and physical worlds. We are partnering with our bottlers to leverage the power of the system's physical footprints online, creating enhanced value for customers across the globe through a best-in-class eB2B platform. With pockets of excellence in many regions, we are working with our bottling partners to evolve and streamline our approach. Working together as a system allows us to improve distribution economics, solve unmet needs of outlet owners, and opens new revenue streams by providing other CPG brands access to our deep customer relationships and global distribution network. We are building a digital one-stop shop for customers, seamlessly offering most of the products they need to stock their shelves and operate their daily business. We're also ensuring consumers get the frictionless experience they demand with more availability and assortment of the products they need and love. On top of the initiatives discussed today, We also continue to work with our bottlers to embed RGM principles and integrate execution capabilities into our processes to continue driving basket value and incidence as the world reopens. Through enhanced execution, we have an opportunity to win with more consumers and grow share by having the right products in the right channels at the right price, supported by the right activations. We also continue with our sustainability agenda to create shared value for our stakeholders and communities we serve. In addition to integrating ESG considerations into our daily business decisions, during the second quarter, we released our business and ESG report, highlighting progress across all our goals, as well as our world without waste report, which focuses exclusively on our work to create a circular economy for our packaging materials. Highlights include the continued rollout of 100% recycled PET with 30 markets representing approximately 30% of our total sales, offering at least one brand in 100% our PET packaging. We've continued the expansion of refillables and dispense packaging and ultra-lightweighting technologies, and we delivered a 60% global collection rate for packaging in 2020. We are proud of these achievements, and we know there is more work to be done Recently, we announced that we've become a global implementation partner for the Ocean Cleanups River Project, supporting the deployment of cleanup systems across 15 rivers across the world. We will embed our marketing capabilities into this partnership to create consumer awareness of the issues and the actions we're all taking. Putting it all together, we realize there's a range of possible outcomes when it comes to the pandemic in the second half of the year, given the asynchronous recovery. While we're over-delivered relative to our expectations in the first half and have raised guidance for 2021, we are biased towards a growth mentality and will invest behind this momentum going into the rest of the year. Our networked organization is beginning to help us move faster to capture opportunities and create value for our stakeholders. As a system, we are increasingly equipped to win and we're excited about the future. Now I'll turn the call over to John to discuss our second quarter results and the drivers of our updated outlook.