Coca-Cola Company (The)

At this time, I would like to welcome everyone to the Coca-Cola Company's second quarter 2025 earnings and results conference call. Today's call is being recorded. If you have any objections, please disconnect at this time. All participants will be on a 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 provide an 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. Throughout the first half of 2025, the external environment has continued to evolve. To adapt, we've stayed close to the consumer managed our growth portfolio of brands and doubled down on our all weather strategy. After the first half of this year, we're on track to deliver on both our top line and updated bottom line guidance. We're confident we can navigate varying local market dynamics during the remainder of 2025 to deliver on our updated guidance. This morning, I'll provide details on the operating environment and our second quarter business performance. Then I'll explain how we're pivoting our plans and building new capabilities to deliver amidst the current realities. John will end by discussing our financial results and providing further commentary on the outlook for the rest of the year. Coming into the quarter, we expected the operating landscape to be choppy. Volume declined 1% during the quarter as we cycled a difficult comparison versus the prior year. Two year volume trends were on track in April and May, but decelerated in June in the face of adverse weather in several key markets and pockets of consumer pressure. Several markets that were weaker in the first quarter improved volume sequentially, including the US and Europe. In these markets, the plans we've implemented are working, providing further confidence we can influence the trajectory of our results. We also delivered 5% organic revenue growth and robust margin expansion. which led to 4% comparable earnings per share growth despite currency headwinds and the higher effective tax rate. More broadly, our industry remains resilient. During the quarter, we gained value share, which represented our 17th consecutive quarter of value share gains. Across the world, we're navigating complex dynamics across many markets by leveraging our global scale while stepping up local execution. Starting in North America, While volume improved sequentially, it declined due to the continued uncertainty and pressure on some socioeconomic segments of consumers. We continued to invest behind our brands, which led to value share gains and revenue and profit growth. Our price mix decelerated as growth in some of our premium stills brands moderated during the quarter. Our granular action plans to win back consumers with contextually relevant advertising more focused value and affordability initiatives, and close customer partnerships are working. Several bright spots in our total beverage portfolio include Coca-Cola Zero Sugar, Diet Coke, Fanta, Fairlife, Body Armor, and Powerade, which each grew volume. We're continuing to get good traction with our food service customers on both renewals and category expansion, and our system is stepping up execution and earning increased share of visible inventory. In Latin America, volume declined, but we grew organic revenue and profits. We benefited from the improving economy in Argentina, and Coca-Cola Zero Sugar had strong volume growth in Brazil and Mexico. In Mexico, despite cycling a difficult comparison versus the prior year and navigating a more difficult start to the year, two-year volume trends improved during the quarter until uncharacteristically cold weather and a major hurricane impacted the trajectory in June. To drive transactions, we're reprioritizing investments, driving affordability with refillables and premiumization with single serve offerings and scaling connected packaging and our systems digital customer platforms. In EMEA, all three of our operating units grew volume and we also had revenue and profit growth. In Europe, volume growth was driven by both Eastern and Western markets and was partially helped by cycling an easier comparison versus the prior year. Coca-Cola Zero Sugar, Sprite, and Fuse Tea each grew volume. We activated our Share a Coke campaign across 38 markets in Europe and included prominent musicians and influencers. The campaign leveraged a memory maker digital tool, which allowed drinkers in some markets to share personalized memes and videos with friends and family. We also tapped into Sprite Spicy Meals and Juana Fana campaigns. In Eurasia and Middle East, despite multiple conflicts in the region during the quarter, We grew volume and one value share. We're leveraging our learnings to emphasize the localness of our system, which includes local sourcing, production, employment, and distribution. We're focusing on locally relevant sparkling flavors, innovations, and affordability with attractive absolute price points, value packages, and tailored promotions. In Africa, despite a worsening macroeconomic growth outlook, we grew volume. Egypt, Morocco, and Nigeria each continued their strong momentum. Our systems actions are working. We've refined our pack price architecture, executed fewer but bolder integrated marketing campaigns, and accelerated cold drink equipment placement. Lastly, in Asia Pacific, after a strong first quarter, we had mixed performance across the region. Volume declined, but we grew both revenue and comparable currency neutral operating income. In ASEAN and South Pacific, volume declined as growth in Australia and the Philippines was more than offset by declines in Thailand, Indonesia and Vietnam. However, we won value share and our system is taking action by scaling refillable offerings, increasing outlet coverage and accelerating cooler placement. In China, we grew volume despite a cautious consumer environment thanks to stronger performance from trademark Coca-Cola and in the eating and drinking channel. Our system is developing more granular channel and customer-specific execution strategies, driving more tailored promotional campaigns and accelerating cooler placement. In India, after a strong start to the year, volume declined as our business was impacted by early monsoons and geopolitical conflict early in the important summer season. In response, we're engaging consumers with integrated marketing campaigns like Coca-Cola and Meals, supported by execution in the QSR channel Thumbs Up with Biryani, Sprite with Sparty Meals, and Mazza with Festivals, and tailing these activations to regional and local needs. Also, our system is adding customer outlets and recently surpassed 1 million customers on its digital ordering platforms. In Japan and South Korea, industry volume declined amid a challenging macro environment. Our volume was also down, reflecting industry dynamics and a strong prior year comparison. Nevertheless, two-year volume trends remain positive during the quarter. In response to the external environment, our system is refining channel and investment strategies to capture emerging growth opportunities. To sum everything up, while the external environment continues to evolve, we remain steadfastly focused on maintaining agility and we're taking the appropriate actions to deliver on our updated 2025 guidance. Critically, to deliver amidst the current realities, We're enhancing capabilities along each facet of our strategic growth flywheel by investing to drive transactions in the back half of the year. Our marketing transformation allows us to more quickly test ideas, share learnings and scale successful campaigns. For example, to mitigate consumer pressure in Mexico stemming from geopolitical tensions, our teams implemented tactics similar to those developed last year in Turkey, tailored to local needs. During the quarter, we launched the Juntos por Cien Anios campaign, which highlights our long-standing contribution to the Mexican economy. At the same time, we leaned further into consumer passion points and pulled forward our World Cup activation by giving away 1,000 tickets to next year's event. As a result of these initiatives, combined with strong local execution, monthly value share trends and consumer perception scores improved significantly in Mexico during the quarter. While we're lifting and shifting learnings across markets, we're also revamping and creating new campaigns and leveraging passion points. In April, we launched the return of the iconic Share a Coke campaign across more than 120 countries with over 30,000 names on approximately 10 billion bottles and cans tailored to local markets. Also, in North America, we launched the Bring the Juice campaign during the quarter. which featured a collaboration between Minute Maid and World Wrestling Entertainment that includes digital experiences, limited time-only packaging, and in-store activations. Our innovation agenda supports our overall growth strategy by focusing on understanding and anticipating consumer needs. To make a greater impact and improve return on investment, we're leveraging our portfolio of $30 billion brands. For example, during the quarter, we launched Sprite Plus Tea in North America, which contributed to increased share of visible inventory. This limited-time-only innovation blends the refreshment of Sprite with the flavor of tea and adds to the recent hits under the Sprite trademark, including Sprite Chill, Sprite Winter Spiced Cranberry, and Sprite Lemonade. Sprite Plus Tea started as an experimental project. We scaled the launch after seeing strong consumer demand and positive social media reaction. As a result of on-brand innovation, Sprite became the number three sparkling soft drink brand in the U.S., as Beverage Digest announced in April. We're always exploring ways to meet evolving consumer preferences for great tasting refreshment, including with our iconic Coca-Cola brand. As you may have seen last week, we appreciate the President's enthusiasm for our Coca-Cola brand. And as part of our ongoing innovation agenda, this fall in the United States, we plan to expand our trademark Coca-Cola product range with U.S. cane sugar to reflect consumer interest in differentiated experiences. This addition is designed to complement our strong core portfolio and offer more choice across occasions and preferences. Revenue growth management is a critical tool to segment our consumers and channels, and we're increasingly integrating the capability with our marketing expertise to drive transaction growth. To step up our capabilities, we're leveraging learnings across our markets and marrying digital investments with clear, compelling points of sale messaging in stores and on packs. While it takes patience and discipline to build a refillables franchise, we're tapping into learnings from our strong capabilities in Latin America to grow refillables over the long term in Africa, the Philippines, Thailand, and parts of Eurasia and the Middle East. On the premiumization side, we're leveraging our experience in North America to grow mini cans in Europe. And finally, last year, we piloted an AI-based pack price channel optimization tool in Mexico Results so far have shown this tool improves our offerings and speed to market. So far, we've scaled this platform to eight markets across four operating units. Lastly, robust local execution is key to ensuring the success of our top line initiatives. Our system is stronger than ever, which ultimately leads to commitments to further invest to drive growth. We've collectively ushered in a culture of learning from one another, and we aspire to improve every aspect of how we do business. To summarize, while the external environment continues to be dynamic, and there is no doubt that much uncertainty remains in the downhill, we remain growth orientated. We're continuing to pivot our plans as needed, and we're harnessing our all weather strategy to deliver on our growth ambitions. Before I conclude, I'd like to recognize the efforts and unwavering dedication of our system employees around the world. With that, I'll turn the call over to John.