Coca-Cola Company (The)

At this time, I'd like to welcome everyone to the Coca-Cola Company's fourth quarter and full year 2022 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 IR and FP&A. Mr. Leverage, you may now begin.

Good morning and thank you for joining us. I'm here with James Quincy, our Chairman and Chief Executive Officer, and John Murphy, our President and Chief Financial Officer. We posted schedules under Financial Information in the Investor section of our company website at Coca-ColaCompany.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 our gross and operating margins. In addition, this call may contain forward-looking statements, including statements concerning long-term earnings objectives, which should be considered in conjunction with cautionary statements contained in our earnings release and in the company's periodic SEC reports. Following prepared remarks, we will turn the call over for questions. Please limit yourself to one question. If you have more than one, please ask your most pressing first and then reenter the queue. Now, let me turn the call over to James.

Thanks, Tim, and good morning, everyone. 2022 was a strong year for us. We executed well and grew amidst a challenging macro environment. We did this in part by focusing on expanding the sphere of what we can control. We delivered on our top line and bottom line guidance, and we continue to create value by investing in our loved brands, even as we faced a very dynamic backdrop. Today, I'll reflect on our fourth quarter and the year's performance and set the stage for 2023. I'll also share how we're operating differently today, which makes us confident in our ability to deliver our 2023 guidance, and well-equipped for a future that continues to be volatile and uncertain. John will then discuss our results and our 2023 outlook in more detail. During the fourth quarter, the environment remained dynamic as inflation, geopolitical tensions, pandemic-related mobility restrictions, and currency volatility persisted. Despite this range of factors, consumer demand held up relatively well and our industry remained strong. In the fourth quarter, we remained focused on our growth strategy and continued to create value for our consumers and customers. We maintained agility to navigate this challenging environment and delivered 15% organic revenue growth in the quarter with strong growth across operating segments. This was driven by pricing actions across markets and revenue growth management initiatives to retain and add consumers. While we saw robust volume growth across many markets, this was more than offset by the suspension of our business in Russia and the impact on consumption driven by varying levels of pandemic-related mobility restrictions and the surge in COVID cases in China. Overall, throughout 2022, we have maintained consistent volume growth relative to 2019. We've gained both volume and value share for the consolidated business for both the quarter and the year. So far in 2023, the volume growth trends versus 2019 are in line with last year, and we are laser focused on executing on our growth plans. Our streamlined portfolio of global and local brands and stepped-up consumer-facing investments continue to fuel the competitive edge of the Coca-Cola system to deliver value in any environment. Our networked organizational structure enables this strategy We've connected our operating units, our functions, and our platform services organization for strong end-to-end coordination, which helps us identify key opportunities for meaningful long-term growth. And on top of this, we remain well aligned with our bottling partners, which further builds on our strength as a network system. As we look to 2023, many uncertainties remain in the macroeconomy, whether from economic policies, consumer demand, inflation, supply chain, war, and geopolitics. Instead of trying to forecast and predict the many directions things could move, we are focused on delivering on our key objectives. Firstly, pursuing excellence globally and winning locally through relentless consumer centricity to continue the top line momentum. Secondly, investing for the long-term health of the business and raising the bar across all elements of our strategic flywheel. Thirdly, generating US dollar EPS growth to deliver value for our shareholders. We continue to build the right capabilities and strengthen the system alignment to deliver in a dynamic world, and we continue to invest to raise the bar. We are executing more efficiently and effectively on a local level while maintaining flexibility on a global level. Throughout 2022, we saw many examples of harnessing our enhanced capabilities to win locally. Our new marketing model is working. We've linked occasions and passion points to drive engagement. We're experimenting to optimize marketing. This is driving deeper connections with consumers, reaching them in unique and new ways. We are tying our beverages to consumption occasions and engaging consumers through local experiences. For example, in Vietnam, to support the reopening of away-from-home accounts, we launched the pilot of Coke is Cooking campaign in October. In this month-long campaign to help drive traffic back to stores, we partnered with more than 700 food shops. We created thousands of food and Coke combo deals that consumers purchased at these food shops, along with Coke is Cooking merchandising and digital support by local influencers. This was the first time we used an on-ground event as a commercial asset, creating a social and digital content generator. The campaign resulted in more than 1 million combo transactions and 20% uplift for participating merchants. We're leveraging passion points locally to create immersive experiences and drive consumption. For example, in Latin America, our live music strategy created memorable in-person and digital experiences, elevating consumer engagement. We partnered with Rock in Rio, one of the biggest music festivals in the world, and created new opportunities for consumers to access content through live streams and in the metaverse. As a result, we boosted our reach from approximately 700,000 attendees to more than 45 million consumers across the region, and our sales inside the festival increased 23% versus the last festival. In India, the Thumbs Up Stump Cam was a never-before-seen activation for cricket fans where consumers could scan a QR code on product labels and get access to exclusive match moments of the ICC T20 Cricket World Cup through a camera installed on one of the wickets. Throughout the 45-day tournament, we use first-party data and artificial intelligence to send personalized content to consumers based on their favorite matches, and we amplify the experience through sports influencers. This campaign showed strong results with Thumbs Up growing volume ahead of our total sparking portfolio in India during the activation period, contributing to strong volume growth for Thumbs Up for the full year. This drove about one quarter of India's total volume growth for the year. Thumbs Up also experienced its highest monthly market share jump during the activation period. We are driving consumer interest and action through digital experiences using the power of partnerships across platforms. For example, in Germany, we partnered with our key online customer and created voice-based branded experiences with its voice assistant to drive engagement and grow positive brand perception. This allowed consumers to learn more about Coca-Cola products and shop on voice assistant-enabled devices using only their voice. The campaign delivered strong results with a reach of 11 million impressions. Additionally, consumers who engaged with this voice-based experience had a 25% add-to-cart rate. And lastly, we're delivering new and unexpected innovation by leveraging Gen Z insights. In the U.S., we launched Minute Maid Aguas Frescas. The product is made with real fruit juices, is non-carbonated, and comes in three exciting flavors. It was originally available as a limited launch in 16-ounce ready-to-drink cans. A disruptive end-to-end digital media marketing campaign created early momentum. which led us to quickly scale this experiment to our freestyle platform and other fountain offerings. In 2022, the product had a 60% repeat rate and won the Best New Product Award from Convenience Store News. We have been building our revenue growth management and execution capabilities for many years, and we've made good progress, as shown by our ability to offset much of the inflation we saw in 2022 and deliver strong volume and transaction growth. There is still much work to be done to maximize revenue by further segmenting our markets and consumers based on additional variables. We're leveraging digital and data-backed insights to better understand our consumers. This will help drive affordable propositions for basket incidence growth and recruit new drinkers. It will also lead to premiumization to drive price and mix. For example, in Europe, we grew both volume and value share for the last year. We partnered with key customers to drive growth through affordability and premiumization initiatives that tapped into the key consumption occasions of meals and breaks. This end-to-end execution resulted in higher basket incidents and buying households across all key channels in Europe. Globally, this strong system execution focus generated 80 million additional shopping trips for our products and added 17 million households to our base. Through our stepped-up capabilities, we are getting better at synchronizing demand creation and demand fulfillment, driving top-tier value creation for our customers. We measure success by the value we create for our stakeholders and by how we are creating a better shared future for people, communities, and the planet. During 2022, we made progress across these sustainability priorities. We leveraged our marketing power to drive growth of our low- and no-calorie beverages, and continue to provide smaller package choices to enable consumers to manage sugar intake. Approximately two-thirds of the products in our portfolio have less than 100 calories per 12-pound serving. On packaging, we've set a new industry-leading goal to have 25% of our volume globally be in refillable or reusable packaging by 2030. Additionally, we are continuing to increase cooler energy efficiency and the use of HFC-free coolers to make progress on our science-based targets while creating a clear roadmap with our system and suppliers to achieve our carbon emissions reduction ambition. On water, as part of our 2030 Water Security Strategy, we stepped up investments in nature-based water solutions, exemplified by the work we're doing with the Nature Conservancy and other partners. Globally, we are working to strengthen the links between replenishment projects and nature-based solutions. We further embedded sustainability into our strategy by linking diversity, equity, and inclusion performance measures to our Executive Annual Incentive Program and by linking water and RPET packaging measures to our Executive Long-Term Incentive Program. Overall, we continue to focus on using our leadership and scale to drive change while delivering results and building resilience. Finally, before I hand it over to John, I want to acknowledge that our strong results in 2022 reflect the collective efforts of our system partners and the growth mindset of our system employees. Guided by our purpose, we are investing behind our capabilities and further cultivating our growth mindset to be well positioned to create value and deliver on our objectives. While we have momentum in our business, we know uncertainty remains as we turn the page to a new year. We will continue to focus on expanding the sphere of what we can control to drive growth in 2023 and beyond. We'll talk about this in more detail when we return to CACMI in person next Tuesday and would encourage all of you to listen in. With that, I'll turn the call over to John.