Release Date: July 23, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Coca-Cola Co (KO, Financial) raised both top line and bottom line guidance for 2024.
- The company achieved 7% comparable earnings per share growth despite 10% currency headwinds.
- Strong performance in Asia Pacific, particularly in India and the Philippines, with double-digit volume growth.
- Successful marketing and innovation initiatives, including the relaunch of Ayataka tea in Japan and the partnership with Marvel.
- Robust performance in Latin America, driven by strength in Mexico and Brazil, with Coca-Cola Zero Sugar achieving over 20% volume growth.
Negative Points
- Currency headwinds and bottler re-franchising negatively impacted earnings.
- Consumer confidence remains subdued in China, affecting overall performance.
- Pressure in the away-from-home business in Europe due to reduced foot traffic and adverse weather.
- Geopolitical tensions and economic uncertainty in Eurasia and the Middle East continue to impact business.
- Volume decline in North America driven by softness in away-from-home channels.
Q & A Highlights
Q: Can you discuss any demand impact you're seeing on your North American business, any variance in channel performance, and your perspective on a more sustained price mix run rate going forward?
A: James Quincey, Chairman and CEO: Overall consumer sentiment is strong, though there are soft spots, particularly in away-from-home channels with lower traffic and increased value-seeking for combo meals. At-home channels show a greater focus on value deals. Despite these challenges, we saw strong growth across our portfolio, including Fairlife and trademark Coke, and we won value share. Regarding price mix, only half of the 11 points in North America is actual price; the other half is mix, driven by the growth of premium categories like Fairlife and Topo Chico. We expect inflation to land soon, and our strategy remains to earn any pricing through marketing, innovation, and execution.
Q: Could you provide an update on Western Europe, particularly given the slowness in away-from-home channels and adverse weather?
A: James Quincey, Chairman and CEO: Europe overall is not where we'd like it to be, with more pressure on away-from-home in the West. Sporting events have helped, but adverse weather has impacted some countries. The lower-income consumers are seeking value and making fewer away-from-home trips. Despite these challenges, we are investing in marketing and innovation to drive growth.
Q: Can you explain the factors driving the concentrate shipment timing and its impact on margins?
A: John Murphy, President and CFO: Several events affected the relationship between unit cases and concentrate, including restocking after floods in Brazil and stocking up in India. Our guidance assumes a more normal second half of the year, but we remain prepared for unforeseen events. The impact on gross margin was slight, around 10 basis points, and is reflected in our guidance.
Q: How did your away-from-home business perform in Q2, and what initiatives are you implementing to accelerate growth in this channel?
A: James Quincey, Chairman and CEO: The deceleration in away-from-home has been a slow build from the back half of last year through Q2. We are focusing on providing value through meal combos and other offerings to keep consumers within the category and channel. These initiatives are rolling out and expected to make an impact.
Q: Can you provide more details on the strong performance in Latin America and the consumer behavior in key markets like Brazil and Mexico?
A: James Quincey, Chairman and CEO: Latin America had a strong quarter, driven by Mexico and Brazil. Our success is broad-based across categories, including Coke Zero with over 20% volume growth. We focus on affordability and premiumization, executed by our bottling system. The price mix is heavily affected by Argentina's high inflation, but overall, the region performed well.
Q: Can you comment on the performance of the energy drinks category and your outlook for it?
A: James Quincey, Chairman and CEO: The energy category, particularly in the US, is evolving with new innovations. We are working with Monster to respond to these changes. Internationally, the energy category is growing robustly. Overall, we see good growth potential and are addressing different needs in different markets.
Q: Can you discuss the performance in Asia Pacific, particularly the volume growth and price mix?
A: James Quincey, Chairman and CEO: The negative price mix is driven by geographic mix effects, with core pricing positive across operating units. India had a strong quarter with double-digit growth, and Southeast Asia, Japan, and South Korea also saw volume growth. In China, volumes were negative due to deprioritizing low-margin water, but sparkling volumes were slightly positive.
Q: Can you provide an update on the timing of potential bottler refranchising and its impact on EPS?
A: John Murphy, President and CFO: We are not giving specific dates but are staying disciplined in recruiting new partners. The mechanical impact on EPS is part of our broader strategic decisions, which we believe are right for the Coca-Cola company and the system. The refranchising work has demonstrated long-term benefits for the overall system.
Q: Have there been any changes to your marketing investment plans for the year?
A: James Quincey, Chairman and CEO: Our bias is to lean in and invest where we see opportunities. We continue to invest in marketing to drive top-line growth, and there are no radical changes in our guidance. We remain flexible and will adjust investments based on market conditions.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
