Coca-Cola Company (The)

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 Ms. Robin Halpern, Vice President and Head of Investor Relations. Ms. Halpern, 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've posted schedules under financial information in the investors section of our company website. These reconcile certain non-GAAP financial measures that may be referred to this morning to result as reported under generally accepted accounting principles. You can also find schedules in the same section of our website that provided analysis of our growth and operating margins. 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 report. Following prepared remarks, we will take your questions. Please limit yourself to one question. Re-enter the queue to ask any follow-ups. Now I will turn the call over to James.

Thanks, Robin, and good morning, everyone. We're pleased with our 2024 results, which include volume growth, robust organic revenue growth, and comparable growth and operating margin expansion. This led to a 7% comparable earnings per share growth, despite nearly double-digit currency headwinds and the impact of bottler re-franchising. These results reflect the continuation of delivering on our long-term commitments Through our all-weather strategy, we've demonstrated we have agility to navigate what comes at us and continue to grow comparable earnings per share. Given the strong momentum of our business, we're confident we can deliver on our 2025 guidance and longer-term objectives. With that as context, I'll next provide perspective on our industry and review our business performance across our segments in the fourth quarter. Then I'll explain how we're executing our strategy by amplifying what is working and fine-tuning where needed. John will end by discussing our financial results in more detail and providing an overview of our 2025 guidance. One of our fundamental strengths is that we operate in a great industry with steady growth. No matter how you slice it by consumer, by customer, by beverage category, by geography, we have vast opportunities ahead of us. During the quarter, we leveraged the power of our portfolio and the local expertise of our franchise system to capitalize on these opportunities. We won overall share and had broad-based share gains across our global beverage categories. We're making progress across our total beverage portfolio, delivering ongoing growth in sparkling soft drinks as well as momentum in other categories like value-added dairy and tea. which are reaching global scale while remaining tailored to local consumer needs. And we're continuing to strengthen alignment across our system, and we believe our global franchise model, which operates locally, is an advantage to drive long-term balance growth. During the quarter, while our operating environment remained dynamic, consumer demand held up well, and our industry remained strong. Starting in Asia Pacific, In ASEAN and South Pacific, we grew volume during the quarter and benefited from successful integrated marketing campaigns like Food Marks, which was activated in over 7,000 outlets and led to trademark Coca-Cola volume growth. Our system also drove affordability by increasing refillable offerings and focusing on attractive price points. Refillable offerings contributed to approximately one-third of ASEAN and South Pacific volume growth in 2024. In China, despite continued macro headwinds, we grew volume during the quarter, and while early, we're seeing improved trends across our business. Trademark Coca-Cola continues to gain share, and Sprite, Fanta, and Minute Maid each improved volume performance. Our system is stepping up integrated execution in 2024 by accelerating placement of cold drink equipment and activating integrated marketing campaigns in key channels. In Japan and South Korea, we grew volume during the quarter. Innovation was a strong contributor to growth, led by resurgence of Ayataka and a number of other brands. We're continuing to benefit from steady performance from trademark Coca-Cola and stepped up integrated execution in key channels. In India, our business rebounded nicely during the quarter and we grew volume. We recruited consumers with innovative marketing campaigns that link Coca-Cola with music, Bright with travel and Thumbs Up with movies. And Mazza is now our 30th billion dollar brand. In 2024, our system added approximately 440,000 outlets to our digital customer platforms in India, which provides more opportunities to better tailor our product price and packaging offerings. Moving on to EMEA. In Europe, volume declined during the quarter with mixed performance across Western and Eastern markets. Despite volume pressure, we grew both revenue and profits. We're engaging consumers with experiential marketing campaigns like The World Needs More Santas for trademark Coca-Cola, and by linking our brands to new occasions like Sprite with spicy meals. Also, innovation velocities and multi-year innovation success rates both performed well in 2024. We're seeing good traction on Fuse T, Powerade Zero, Jack and Coke, and Absolute and Sprite. In Eurasia and Middle East, despite a confluence of continued macro headwinds, we returned to volume growth during the quarter. We're emphasizing the localness of our business and seeing positive responses. For example, the Made In, Made By campaign in Turkey led to strong volume growth for trademark Coca-Cola. Fused Tea also had good momentum across the region. Our system is driving affordability and stepping up integrated execution by increasing cooler placement and share of visible inventory during the year. In Africa, volume declined during the quarter, driven primarily by pressure in North Africa and Nigeria and partially offset by strong volume momentum in South Africa. We took action during the quarter by adjusting our pack price architecture to further drive affordability. Our system is investing for the long term, adding refillable offerings, placing more cold drink equipment, and increasing manufacturing capacity in 2024. In Latin America, despite some macroeconomic pressures, we grew volume, revenue, and profit during the quarter. We drove trial and recruited weekly plus drinkers for trademark Coca-Cola in 2024 by better linking the brand to the meal occasion. Also, to drive balanced top line growth, Our system focused on increasing single serve offerings. Over 90% of our fragmented trade customers are now on our system's digital customer platforms, allowing for greater opportunity to tailor offerings to customers' individual needs. Lastly, in North America, we grew both transactions and volume and had robust top line and profit growth during the quarter. Trademark Coca-Cola and Fairlife remain leaders in at-home retail sales growth. Sparkling flavors gained share during the quarter due to successful, limited-time innovations like Sprite, Winter Spice Cranberry, and Fanta Beetle Juice, and stepped-up integrated execution focused on increased point-of-sale messaging and increased share of visual inventory. Consumers responded well to value messaging in away-from-home channels, and we increased distribution of key affordable and premium offerings and benefited from product package and channel mix in the quarter to sum everything up we have good momentum in our business we're responding to the market dynamics locally to execute on our global While we're delivering on our near-term commitments, we're also investing to improve execution, build capabilities, and get more granular across our strategic growth flywheel. Our networked marketing model is integrating product, digital, live, and retail experiences, and we're harnessing passion points to connect with consumers in more personalized ways. One great example, Fanta Halloween was our first ever global Halloween activation and was scaled to nearly 50 markets. Partnering with Warner Brothers Pictures, we created a limited time Fanta Beetlejuice haunted apple flavor. Consumers scanned packages to access personalized experiences, and we replicated the Beetlejuice afterlife train taking over train stations, trams, and metros. The campaign was activated in-store with our largest customers, and contributed to sparkling flavors to share gain during the quarter. Our culture increasingly emphasizes acting boldly, learning, and scaling successes. This year, for the first time, our Coca-Cola Christmas ad was created with generative AI, combining emerging technology with human creativity, which allowed us to produce the ad faster and at a lower cost. The power of emerging technologies like genitive AI are still at early stages, and we will continue to lead and iterate our approach. We're seeing tangible results from our marketing transformation. Over the past three years, trademark Coca-Cola's retail sales have increased approximately $40 billion. According to Time Magazine, Coca-Cola, Minute Maid, and Fairlife were named world's best brands in their respective beverage categories in 2024. While we're building capabilities in marketing, we're also focusing on innovation that prioritizes bigger and bolder bets. Each of our innovations has a clear objective. Sometimes we innovate to create short-term buzz like Coke and Oreo or Sprite Winter Spice Cranberry. In other instances, we innovate for lasting impact. This year, we focused on sustaining investments behind key innovations to improve multi-year success rates and drive greater impact. This is paying off. as fused tea grew retail value three times faster than the tea category. Topo Chico's supporters continued its momentum, and Minute Maid Zero Sugar realized strong growth. In 2024, innovation contributed strongly to revenue growth, and our innovation success rates improved versus prior year. We're excited about our innovation pipeline for 2025. Moving across our top-line flywheel, our system is investing heavily in digital capabilities and sticking to the fundamentals of commercial excellence to accelerate consumer recruitment, increase consumption, and win in the market. Ensuring product availability is one of our system's greatest strengths, yet we still have tremendous opportunity. While our system improves share of visible inventory in 2024, and our brands are founded in 33 million outlets, there remains ample headroom to increase outlet coverage, reduce out-of-stocks, and better tailor our offerings with the right placements. Basket incidence is another opportunity. Winning just one point of global beverage incidence translates into over $40 billion in additional retail service. To drive basket incidents, our system is focused on better activating integrated marketing campaigns in key channels. Strong commercial execution is enabled by our revenue growth management capabilities, which fuel both top-line growth and margin expansion. We're driving affordability and premiumization across our total beverage portfolio. The strong elasticities we're realizing today are a testament to the progress we're making in this area. By focusing on availability, basket incidents and cold drink equipment, coupled with great marketing, innovation and revenue growth management, Our system recruited weekly-class drinkers, grew volume, and won one share in 2024. While we've made steady progress executing our all-weather strategy in 2024, we're operating with a mindset that we're only just getting started. As we turn the page to 2025, we anticipate the year will bring both opportunities and challenges. While we expect the external environment will be dynamic, several underpinnings remain constant. One, we operate in a great industry. Two, we have many opportunities available to us, and we're primed to capture these and deliver sustained performance. Three, our power Our full portfolio of brands, pervasive distribution systems, and the unwavering dedication of our system employees are clear advantages. Next Tuesday at Cagney, I look forward to sharing more about how we're leading to deliver results in all types of backdrops, and I encourage everyone to listen. With that, I'll turn the call over to John. Thank you, James, and good morning, everyone. We close the year with strong fourth quarter results, And as James said earlier, we delivered 7% comparable earnings per share growth in 2024, on top of 6% average comparable earnings per share growth over the prior five years. During the fourth quarter, we grew organic revenues 14%. Unit case growth was 2%, which is in line with our multi-year trend. Concentrate sales grew three points ahead of unit cases, driven primarily by two additional days in the quarter and the timing of concentrated shipments. Our price mixed growth of 9% was driven by two items. Approximately eight points of pricing split somewhat evenly between normal pricing actions across our markets and intense inflationary pricing in a handful of markets experiencing currency devaluations. and approximately one point of favorable mix. Excluding the impact of intense inflationary pricing, organic revenue growth was above our long-term growth algorithm. Comparable growth margin was up approximately 160 basis points, and comparable operating margin was up approximately 80 basis points. Butler Refranchising had a greater benefit to comparable growth margin and currency headwinds had a larger impact to comparable operating margin.

Putting it all together, fourth quarter initiatives partially offset by higher capital expenditures and higher tax payments. In 2024, adjusted free cash flow conversion was 93%, which is within our long-term targeted range. Our balance sheet is strong, and our net debt leverage of 1.8 times EBITDA is below our targeted range of two to two and a half times.

If you include our latest estimate of $6.2 billion related to our Fairlife contingent consideration payment, our expected net debt leverage would be at the low end of our target range. As James mentioned, 2025 will likely bring both opportunities and challenges. Enabled by our all-weather strategy, we have demonstrated our ability to deliver on our objectives and drive long-term growth. Our 2025 guidance builds on the enduring momentum of our business. Bottler Refranchising is expected to be a slight headwind to comparable net revenues and comparable earnings per share as we cycle the impact of Bottler Refranchising in 2024. We continue to invest appropriately behind our brands while also driving productivity across all areas of marketing. Next week in Cagney, we'll discuss further how our marketing transformation and enhanced resource allocation capabilities give us confidence in our ability to continue to drive more productivity. And we expect interest expense to be elevated versus prior year. We believe the step up is manageable. And we're not expecting significant leverage or deleverage in 2025. Our underlying effective tax rate for 2025 is expected to increase to 20.8%, which is driven primarily by the impact of several countries enacting the global minimum tax regulations. All in, we expect comparable earnings per share growth of 2% to 3% versus $2.88 in 2024. Excluding the Fairlife contingent consideration payment, we expect to generate approximately $9.5 billion of free cash flow in 2025. through approximately $11.7 billion in cash flow operations, less approximately $2.2 billion in capital investments. Included in this guidance are two items to highlight. One, a $1.2 billion transition tax payment, an increase of approximately $240 million versus 2024. This is the final year that we will make a payment related to the tax cuts and Jobs Act of 2017. Number two, we expect that part of the timing of working capital initiatives that benefited 2024 free cash flow will reverse and impact 2025 free cash flow. Driven by our underlying cash flow generation, we have flexibility to invest in our business and return capital to shareholders. A significant portion of our expected capital investment It's to build capacity for Fairlife and to continue to invest in our system in India and Africa.

With respect to acquisition and divestitures, we're making good progress on our agenda.

Since 2006, we've added $9 billion brands via acquisition. Importantly, only three of these brands were billion-dollar brands at the time of acquisition, demonstrating progress in scaling acquisitions. In 2024, we realized $3.5 billion in gross proceeds from re-franchising, bottling investments,

as a percent of consolidated net revenue is 13% down from 52% in 2015.

Return on invested capital is up six points over the same time. Related to capital return, we have an unwavering priority to grow our dividend as we've done for 62 consecutive years. Our dividend is supported by our long-term free cash flow generation in 2024 to driving the long-term health of our business and creating value for our stakeholders. There are some considerations to keep in mind for 2025. We expect bought or re-franchising to have a greater impact to comparable net revenues and comparable earnings per share during the first quarter, as we cycle the impact of re-franchising the Philippines, which closed during the first quarter of 2024. We expect the productivity benefits that I previously discussed to have a larger impact during the latter half of 2025. Due to our reporting calendar, there will be two less days in the first quarter and one additional day in the fourth quarter.

So in summary, we're successfully executing our all-weather strategy to deliver on our objectives our system remains incredibly focused and motivated we will continue to invest with discipline and believe we're well positioned to drive quality top line growth and deliver you'll need to press star one on your telephone to withdraw your question press star one again

In the interest of time, we ask that you please limit yourself to one question. If you have any additional questions, you may rejoin the queue. Our first question comes from Lauren Lieberman from Barclays. Please go ahead. Your line is open.

Great. Thanks. Good morning, everyone. The business seemed to buck the trend that we've seen from many other staples companies between strong 4Q results and the conviction in upper end of the sales algorithm for 2025. I'd just be curious to hear more from you about your perspective about the consumer environment globally, particularly in developed markets where U.S. sentiment has been so mixed. Western Europe, there have been some flags on certain markets lagging. So curious your kind of global perspective on the consumer environment. Thanks so much.

Sure. Morning, Lauren. I think the overall consumer environment is pretty... stable in the sense that there's good economic growth on a broad-based view around the world, and that includes both the developed and the emerging markets. If I look at the developed markets, whilst it is absolutely true that the lower income segments in the US and perhaps more notably in Europe and Western Europe are under disposable income pressure and have been in 24 and quite possibly will continue for some part of 25, the rest of the consumer base is actually still gaining in terms of disposable income and is spending, maybe spending a little more in the US, North America than Western Europe, whether there was more direction to saving, but a pretty strong sustained demand level across the developed world. And similarly in the emerging markets, yes, it's a little more volatile in ups and downs. But in aggregate, again, you see pretty robust or enduring consumer demand. In the quarter, we saw India rebound. We saw China get a bit better. The Middle East got a bit better. still doing pretty well in Latin America, a little softer perhaps in Africa, but overall we see continued robustness and growth across consumers that we need to respond to with all the strategies that we have. It's not going to be a one-size-fits-all. We need to focus on delivering for them with the marketing and the innovation and the execution, particularly the affordability and premiumization. So the demand's there. And I think what you see in the fourth quarter has added our ability to focus on what we have to do to get a good result for the company. And that's what we're confident in continuing for 2025.

from Morgan Stanley. Please go ahead. Your line is open.

Hey, good morning. So just on this 5% to 6% organic revenue growth forecast for 2025, can you just give us a bit more granularity on the balance between volume that you see as well as price to mix? And You just wanted to focus on your plans on the pricing component in 2025. You mentioned there's some stress on low-end consumers in a few markets after inflation in recent years. But clearly, with your Q4 results, the overall consumer seems to be handling pricing from Coke well. There's also FX pressures. So there's just a number of volatile external circumstances. Just how does that impact how you manage pricing in 2025 and how that might be different than a typical year, either on the pricing or the mixed front? Thanks. Yeah, sure.

Morning, Doug. Look, I think let's start from the top level down on 2025. Our long-term algorithm, we call that we want to be at The top ends of 5.6 and expect in the long term a balance between volume and price, so say two to three of each. It seems more likely in 25 there'll be a little more price and a little less volume. But there will be volume growth and obviously there'll be price growth, but perhaps a little weighted, a little more to price than volume than a long term year. But still solid, continued volume momentum, which has been an enduring feature of what we have pursued over the last number of years, which is not just keeping people in our franchise, but growing our franchise for the long term. And so that's the headline of what we expect to see. And I would say, like, if you take 2024, where you've got a kind of a headline price mix of about 10%, half of that is from these high inflation countries, which we expect to largely drop out in 2025. So another way of thinking of it is really X high inflation. You had about 5% price mix in 2024, and you're going to see that continue to moderate as inflation is moderated. down to a kind of a slightly lower number in 2025, and largely the drop out of these high inflation countries in 2025, if I help give you a factor. And so we feel we've got a level of actual pricing in the marketplace that is proportionate and reasonable relative to inflation and relative to what we can support through the actions we're taking across the whole flywheel from the marketing, the innovation, the execution, the RGM, through affordability and premiumization and all the commercial execution.

Our next question comes from Brian Spillane from Bank of America. Please go ahead. Your line is open.

Hey, thanks, operator. Good morning, everyone. Maybe just to pick up on Dara's question, maybe, John, and James, can you give us just two perspectives? One, as we think about the organic sales growth, for 2025, you know, just given some of the, I guess, some of the moving parts we saw in 4Q, just how should we kind of think about it from a phasing perspective?

Inside the quarter?

We do have two less days in the quarter. Coming out of 24, you know, decent momentum.

going into it. On the pricing front, some inflation from the more intense markets in Q1, which we expect to moderate throughout the year. And on the volume phasing itself, I think we're Q2, I'd say, is probably the more challenging uphill of the quarters ahead. On the intense inflationary markets that we've highlighted in 24, as James said, In fact, in the headline numbers, we see that moderating throughout the year. On the industry growth, if you take out the high inflation countries, It's kind of six or seven in the fourth quarter, and we were gaining shares. So, again, it's very consistent with this idea we've been talking about, which is as inflation moderates, we see and normalization of both industry growth rate, our growth rate, with us being the long-term winner in the industry with ongoing robust industry growth.

Our next question comes from Steve Powers from Deutsche Bank. Please go ahead. Your line is open.

Hey, guys. Good morning. Thank you.

I guess moving down the income statement, your outlook seems to imply some pretty strong underlying margin and profitability progress, just net of the FX pressures and the higher tax rates. So can you talk about some of the key drivers there and then I guess similar to Brian's question, any timing considerations we should keep in mind over the course of the year beyond just the number of days in each fiscal quarter? Thank you.

Sure. Maybe I'll start, and then John will weigh in on some of these considerations. Firstly, yes, there is some implied margin expansion in 2025 coming from some of the market expenditure and some of the SG&A. this is the culmination of many of the programs we've been putting in place over the last number of years uh to continue not just to get effectiveness but to get efficiency um and and the simplest example is the marketing transformation where it is helping us uh continue take the christmas adding in q4 last year which we which we made regenerative ai as a small example it was both quicker and cheaper to make the ad. And so what you're seeing come into 2025 is some of the fruition of work that's been going on across the organization, including the marketing transformation that is producing some productivity in 2025. But it is important to say that we are not backing off our bias to invest for growth. This is not less marketing. This is more productive spend. And so our mode of operation going into the year will continue to be, we believe there will be growth in 2025 in the industry. We are going to invest from the marketing all the way down through the system, into the commercial levers in order to continue to drive growth. As we find pluses and minuses around the world, of course, we will adapt and be flexible. But this is about leaning into growth, continuing to invest to drive the franchise, and being able to capture some of the benefits of the transformational work that's been going on over the years. John, do you want to add some considerations? Sure. Let me go off a little bit. And to talk about gross margin, Steve, so I can provide some additional commentary. We're not building an enormous amount of expansion on the gross margin front.

We're not building an enormous amount of expansion. Commodities will be in the low

single-digit range overall, some pressures on the agricultural, particularly juice and coffee that are a big part of our base.

We have the usual set of levers that we'll deploy to to cover those.

But for, as I say, for guidance purposes, you can assume modest expansion at the gross margin line.

And as James said, we've been anticipating for quite some time the 25 environment and the more for same

more for less mantra is certainly alive and well our next question comes from from city please go ahead your line is open hi good morning everyone um i wanted to ask

your thoughts on just the global trade environment, obviously with tariffs coming more into play here. It seems your supply chain is largely localized in most countries, but can you talk about some exposures in terms of imports or any other tariff-based or frankly weather-based or any other variation?

in the input commodities, we do a number of things. One, we have hedging programs in place that look to assure supply and price going out. Secondly, as the relative prices of different sources of ingredients and inputs change, of course, we look at mitigation, productivity, efficiency, adjusting where we get our materials from, all of that goes into the equation to constantly manage how this goes through. Net, as John just mentioned, we are expecting more variation in agricultural than industrials, notwithstanding recent actions. We will manage through it. As you said, We are predominantly a local business when it comes to making each of the beverages. The vast majority of everything that's consumed in the U.S. is made in the U.S., similarly with virtually every country around the world. And so while it's a global business, it's very global. local so yes you know every bottler will be importing something from somewhere um uh as a piece of the puzzle but the economics are more predominantly local than they are global and so it's a piece of the puzzle we need to manage through um as john said we we have that we believe under under control from a point of view of sustaining a gross margin. No doubt the environment will continue to be dynamic, but we will continue to manage and mitigate and adjust and be agile and flexible our way through the year. And just one additional comment. Your supply chain continuity continues to be, I think for many industries, an ongoing challenge for a variety of reasons. 24 was no exception. was no stranger to that. And our cross-enterprise procurement team are managing a vast network. And in addition to the economics, just making sure that we can continue to supply our markets around the world consistently is a key priority and an important advantage, I think, to enjoy as well in the many markets that we're in.

Our next question comes from Bonnie Herzog from Goldman Sachs. Please go ahead. Your line is open. All right. Thank you.

Good morning. I guess thinking about the new administration and some potential regulatory changes, what percentage of your domestic portfolio might be subject to potential changes? And then James, how quickly can you pivot or adapt your portfolio?

You win the prize for the Vegas question so far this year. What might happen subject to change? There are many things that could happen out there in the world. Of course, we do scenario planning on regulations, on economics, on all sorts of things. and we will adapt as and when they come. More specifically on the GLP-1s, as we've commented on previous calls, we continue to see anecdotal evidence of the impact of GLP-1s on consumption of food and beverages. So far... Our take is it's not a big aggregate factor for the beverage industry or the non-alcoholic beverage industry. We witnessed the volume for ourselves up 1% in the fourth quarter, whether it's GLP-1 drugs or changes and adaptations. to regulation ingredients, our objective is to have the biggest possible toolbox of ingredients of super high quality and safety, which we use to make a total beverage portfolio that works for consumers.

We believe we can adapt to anything that comes at us.

The next question comes from Kamil Gajrawala from Jefferies. Please go ahead. Your line is open.

Kamil Gajrawala Hi, everyone. Good morning. John, you laid out a long list of very substantial cash payments that have been made this year. last year, almost all of which will be behind you very soon. So can you maybe just talk about how you think about cash or capital allocation in two parts.

First of all, I don't foresee a substantial change in our focus to support the underlying business and the momentum that that has. And secondly, as we just talked about in our guidance, we will continue to support the dividend. So those two areas you can assume will remain top priorities. You know, as we get into 26, it's a little early to anticipate exactly what 26 will deliver for us. But as you say, clearly the transition tax will be in the rear view mirror. Some of the M&A payments likewise. And it will give us the opportunity to take a closer look at the M&A and the share repurchase agenda. So I think it's premature to to get too specific on what 26 might bring for us. But I'm looking forward actually to having to deal with that challenge in the next year or so. We also have, as you are well aware, we also have a keen focus on the overall health of the balance sheet and we'll take into account the puts and takes on that. We continue to have the tax case in the next couple of years to deal with. So the name of the game for me would be to have more to manage in a flexible manner some of the opportunities that may present themselves.

Our next question comes from Rob Ottenstein, from Evercore ISI. Please go ahead. Your line is open.

Great. Thank you. So Walmart has created now, I guess, what they call the modern soda shelves.

And I'd love to get your thoughts on that category, broadly speaking.

Is this still... something that is a fad in your view or is this something that you know represents a some kind of departure and is just very responsive to consumer needs uh is it something like fair life where you just have a better product and you know how do you look to play in in this so-called modern soda area that Walmart seems to at least have some confidence in.

Thank you.

Hey, Rob. Yeah, look, it's great news that people are innovating and willing to create new brands and dedicate more shelves, but it's really hard to look at it. But I think the most important thing to take away from this is the confidence in the overall industry of beverages to continue to grow. And as John alluded to, and we'll talk more at Cagney, when you look at the track record of the Coca-Cola company in terms of creating organically and scaling small bolt-on M&A into billion-dollar brands, we are by far and away clear leaders in the industry and the winners.

Our next question comes from Chris Carey from Wells Fargo. Please go ahead. Your line is open.

Hi, everyone. James, you mentioned agricultural commodities.

You also, I think, said something to the effect of industrial commodities are perhaps moving a bit less, but you're watching developments. I'm assuming you're speaking to aluminum.

Can you just maybe provide some context the system needs to respond to climbing inflation. So it's a little bit of a two-part question in the impact to the model, but also a bit forward-looking in what may be required to protect the model and the impact on the consumer in the coming months.

Thanks so much.

Yeah, sure. I mean, Firstly, this is predominantly an impact in the North American or in the U.S. business, let's say the North American business, which is obviously a piece of the puzzle. So from a total company perspective, bear in mind this is just one of the four segments, largely speaking, as we sit here today. And, you know, of course, as it relates to our strategies, around ensuring affordability and ensuring consumer demand. If one package suffers some increase in input costs, we continue to have other packaging offerings that will allow us to compete in the affordability space. So for example, if aluminum cans become more expensive, we can put more emphasis on PET bottles, et cetera, et cetera. So we will adapt the packaging strategy in function of changes in the relative input costs of what goes into that. So that is part of the total adaptation plan that we use around the world. Secondly, so I don't believe if part of the question in the second half is, do you think this is going to fundamentally undermine the ability of the system to do well in volume in 2025? The short answer is no. I think we control enough variables that we can adapt and mitigate to our way through what is happening, because it's a combination of hedging, which we use on the key materials. It's an opportunity to do mixed management between different packaging materials. And of course, we're going to look at where the supply is from, because it's all about relative pricing. To the extent relative pricing changes, we can seek to adapt and so i think this is mitigatable and manageable one of the dynamic elements of 2025 that i think we can get through our next question comes from andrea tishera from jp morgan please go ahead your line is open

Thank you, operator. And hi, James, John. I have a question on Mexico and then a follow-up on Mix. On Mexico, you have, obviously, managed cycles, regulation, taxes, well, in the slowdown. And then on the second point, you both spent a fair amount of time discussing the accelerating innovation results, which are remarkable. On the strong delivery in North America, I believe you posted like 12% growth in price mix. How much is that driven by fair life or away from home recovery? And should we expect some comparisons to lead to deceleration there, or do you still see a lot of potential for fair life distribution and potentially better execution on-premise ahead? Thank you.

Wow. Okay, that's a lot of questions. Let me try and pack it into two.

North American pricing, about half of the North American pricing that you see in Q4 is mixed. And therefore, you can basically kind of park that relative to 2025. you know, and it's not just fair life. But if you just take half of that and call that price mix, that is going to continue to moderate as you go into 2025 in the North American sense. And the mix will also moderate in 2025, which will obviously then moderate the mix. So much more normalization of U.S. price mix in 2025. And then Mexico, I mean, Unpacking the Mexican playbook is a longer conversation, but I think it is a place where, par excellence, we have had a dedicated and consistent execution of the overall playbook, whether it's great quality marketing, great quality innovation. great quality execution, great quality RGM, so pricing options. The one place you can go and find a package at almost every price point is Mexico. It's one of the broadest beverage portfolios in the world in terms of covering off all the categories. So it's been a long-term dedication by the system in Mexico to build the total beverage company with a product and a package and a price point for everyone everywhere. And of course, we commented just on the peso. We did call out FX headwinds in 2025, but they had taken on a different nature. that we're not expecting large impacts to come from the intense inflation countries. We're expecting the house headwinds to come from some of the more normal, let's say, emerging markets like Mexico. And that's part of the headwind you see on the peso conversion to the U.S. dollar for 2025.

Our next question comes from Peter Grom from UBS. Please go ahead. Your line is open.

Thanks, operator. Good morning, everyone. So, James, I was hoping to follow up on your response to Dara's question. And I apologize if I misheard this, but I think you mentioned organic growth would be a bit more weighted to price relative to volume, which isn't entirely surprising. And not to get too granular, but I wasn't sure if you were implying that you were expecting volume growth to kind of fall short of the 2% to 3% growth we typically see or just at the lower end of that range. I just asked that in the context of 2% unit case volume growth exiting the year. You touched on a lot of these more challenged markets getting better in the quarter.

So it would seem that you have some pretty nice momentum exiting the year. A good place to start. But I'm not sure if there's maybe some offsets or areas of concern that we might not be thinking about. Thanks.

Yeah, Peter. I think you go off. what i said to dara correctly um yeah i mean if you just take 2024 we did two percent in the fourth quarter we did one percent overall for the year um so yeah i mean what i was saying is is implying we're at the two one two kind of floating around that sort of range with a compensating after on the pricing side. So we still get up into the five to six range. I think you've got it clearly. And I think, you know, also I think John made a comment earlier in terms of the timing during the year that Q2 is clearly going to be a tougher cycling quarter. But overall for the year, we feel we're coming in with momentum. There are a decent number of unknowns and a dynamic environment we believe we can manage through. And from a volume perspective, I'd like to think it's going to be a little better than 24 overall, but it's in that sort of ballpark.

Our next question comes from Charlie Higgs from Redburn Atlantic. Please go ahead. Your line is open.

Hi. Thanks, John. I hope you're both well. I've got a question on India, please, which had a good 2024 and more broadly it's been a great market. Ambitious as we are to capture the opportunity to have the

the capital who have the ability to build capability over time. And we believe that our new partner there ticks the box very handsomely on all of these attributes. So you can just think of it as another chapter in the re-franchising program, not just for India, but for those remaining in our portfolio. And the Indian market has got a tremendous amount of runway ahead. The environment there is pretty vibrant. tremendous competitive set and we believe that the Jubilant group coming in is going to add tremendously to our abilities to continue to step change our execution in the marketplace. And as we continue to work on the re-franchising program, we'll advise in the coming in the coming months and into next year as to how that shapes out.

Our next question comes from Bill Chappell from Truist Securities. Please go ahead. Your line is open.

Thanks. Good morning. I just want to follow up on kind of the commentary on the hyperinflationary environment and your kind of comment of it moderating. And I understand moderating, but I believe the pricing, a lot of the pricing you took was kind of more of the second half, so that will carry through. I don't think these countries have really slowed down in their inflationary environment. So are you saying that you're kind of done with pricing there or that you would be taking price cuts? It seems like I understand you have a general guidance for this year, but it seems like the hyperinflation environments, there's not a real reason for them to moderate so much.

leads to the next couple quarters uh bill yeah though absolutely not taking um the foot off the pedal in terms of um passing through where we have a lot of uh input costs um uh coming in so it's not that we are not gonna be you know passing through the input costs in those marketplaces um there are, it was very concentrated, these high inflationary countries, and there have been inflationary moderation. I mean, if you look at Argentina for the sake of a singular example, the monthly inflation rate has dropped markedly through 2024. I think it's down to a few percent a month now, or 4% a month. So, definitely see a moderation. Yes, you're right that in a sense you'll see more of it in the first half and the first quarters than you will in the back end of the year. But inflation has definitively dropped in a lot of these countries because it was very concentrated in a handful. Argentina a couple of the African countries, and Turkey. And so the inflation has come down. We will continue. If it doesn't moderate, if there's other countries that fall into this category, because its input costs go up, we will pass those through in price. Even though we look to execute all our affordability strategies, we have to pass through the costs in those sorts of environments because it's just too overwhelming.

Does it really influence the cost structure, or does it have to be something much bigger than that?

I think we're in danger of exaggerating the impact of the 25% increase in the aluminum price relative to the total system. It's not insignificant, but it's not going to radically change a multi-billion dollar U.S. business. And packaging is a small component of the total cost structure. So firstly, it's not a multi-million dollar, billion dollar problem relative to the input cost. It's a much more manageable number. And so between mitigation of supply chain sourcing, weights to the cans, price increase of the cans at some level potentially switch to it's a manageable problem in the context of the total US business I don't think we should you should not conclude that this is some huge swing factor in the US business it's it's

It's a cost. It will have to be managed.

It would be better not to have it relative to the U.S. business, but we are going to manage our way through.

Our next question comes from Michael Lavery from Piper Sandler. Please go ahead. Your line is open.

Thank you. Good morning. I just wanted to unpack Asia Pacific a little bit more. You had price mix. down there partially off by some pricing. But in the full-year market share commentary, which I know is a little bit apples and oranges, South Korea and Japan grew or gained share, and then Indonesia and Bangladesh declined or lost share. That would seem like a positive for Mix. So maybe how do you reconcile those? What are some of the moving parts? And just help us understand that a little bit better.

Sure. I think the biggest factor here in Asia Pacific in Q4 is what we're cycling from last year. So I would encourage you as you look at Asia, it's true overall, but Asia Pacific in particular, for the reasons you called out, you've got some very developed markets like Japan and Australia and some very emerging markets like Bangladesh and Indonesia, and they're relatively volume performances can make a big difference to mix. So what you're seeing is a base effect from 2023 coming over. But I would encourage any analysis of price mix in Asia-Pacific to be multi-quarter, because it's just very choppy for the very reasons you just called out. OK. Perfect. Thanks very much, everyone. To summarize, we're winning in the marketplace. We're going to continue.