The Coca-Cola Company (KO) - Indtjeningsrapport for 2. kvartal 2023

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Operatør:
At this time, I’d like to welcome everyone to The Coca-Cola Company’s Second Quarter 2023 Earnings Results Conference Call. Today’s call is being recorded. If you have any objections, please disconnect at this time. [Operator Instructions] 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.

Jeg vil nu gerne præsentere Robin Halpern, Vice President og Head of Investor Relations. Fru Halpern, du kan nu begynde.

Robin Halpern:
Good morning, and thank you for joining us. I’m here with James Quincey, 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 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 growth 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 report. Following prepared remarks, we will turn the call over for questions. [Operator Instructions].

Now I’ll turn the call over to James.

James Robert B. Quincey:
Tak, Robin, og godmorgen, alle sammen. Efter en stærk start på året fortsatte vi vores momentum i andet kvartal. Vores kombination af stærke, elskede brands og et afstemt, gennemgribende distributionssystem gør det muligt for os at vinde i mange forskellige driftsmiljøer. På baggrund af vores stærke resultater i første halvår og vores virksomheds modstandsdygtighed hæver vi både vores forventninger til toplinjen og bundlinjen i dag.

To give you the full picture of our results and our raised guidance, I’ll start by discussing second quarter performance and provide perspective on the current business and consumer environment. Then I’ll highlight our performance across categories, including how we are driving quality leadership throughout our portfolio. Finally, I’ll touch on why we’re confident in our ability to deliver our long-term objectives. And then John will end by discussing our results for the quarter and our revised guidance for 2023.

I andet kvartal var der konkurrerende makrokræfter på spil på tværs af vores markeder. På den positive side lettede presset på mange forsyningskæder, bekymringerne omkring stabiliteten i banksektoren blev mindre, og energipriserne fortsatte med at falde fra rekordhøjder. Den globale inflation var dog stadig høj, og der er fortsat geopolitiske spændinger på nogle markeder. På trods af dette sammenfald af faktorer leverede vi en organisk omsætningsvækst på 11% i dette kvartal.

Volumen var flad, og efter en langsommere start blev den sekventielt forbedret med juni som vores stærkeste måned i kvartalet. I første halvdel af 2023 leverede vi en volumenvækst, der var i overensstemmelse med vores underliggende resultater siden 2019. Mere generelt er vores branche stærk, og vi mener, at vi har et betydeligt råderum til at øge både volumen og værdi. Og vi fortsætter med at vinde andele. I løbet af kvartalet vandt vi værdiandele i både hjemme- og udendørskanaler.

As we look towards the second half, the global inflationary environment is impacting consumers and our business differently across geographies. In developed markets like North America and Western Europe, inflation is beginning to moderate, and labor markets remain strong. Our elasticities continue to be relatively low. However, we have seen some willingness to switch to private label brands in certain categories. Across the sector, consumers are increasingly cost-conscious. They’re looking for value and stocking up on items on sale. In these markets, our pricing is largely in place and is expected to moderate as we cycle pricing initiatives from the prior year.

It’s more important than ever to be consumer-centric and to partner with customers to provide affordable and premium propositions, which deliver value through basket and incidence growth. In many developing and emerging markets like Latin America, the Middle East and Africa, consumers are more accustomed to persistent inflation. However, the number of markets with intense inflation has expanded.

Five of our top 40 markets are currently experiencing over 20% annual inflation. In these markets, it’s equally important to leverage revenue growth management capabilities to balance affordability with premiumization to be able to take price with local market inflation, which helps offset the currency pressures. There are, as always, a few markets affected by specific local factors. In China, economic recovery slowed in the second quarter, and inflation has declined. Consumer confidence is below pre-pandemic levels. And we continue to monitor our leading consumer indicators and take action to win in the market.

I Indien blev forretningen påvirket negativt af regn uden for sæsonen og køligere temperaturer i kvartalet. Vækstudsigterne er dog fortsat intakte. I en verden med et bredt spektrum af markedsdynamikker, fra inflation til valutadevaluering og skiftende forbrugerbehov, viser vores forretning sig at være meget modstandsdygtig. Vi har mange håndtag at dreje på for at klare os igennem forskellige driftsmiljøer. Og vi forbliver forbrugercentrerede og fokuserede på vækst. Vores opskrift på succes er uændret. Vi fortsætter med at levere på vores strategi gennem en kombination af markedsføring og innovation i verdensklasse, fremragende styring af omsætningsvækst og stærk eksekvering. Vi hæver barren og øger kvalitetsledelsen på tværs af vores portefølje.

Vi starter med Coca-Cola. Vi udvider vores base af Gen Z-drikkere, vinder andele og udnytter vores størrelse til at skabe effektivitet på tværs af vores system. I løbet af kvartalet har vi vundet volumen- og værdiandele ved at knytte Coca-Cola til forbrugsmuligheder og engagere forbrugerne gennem lokale oplevelser. Et godt eksempel er Recipe for Magic, som blev aktiveret på mere end 50 markeder og hylder indtagelse af Coca-Cola i forbindelse med måltider. Kampagnen blev understøttet af oplevelser med lokale kokke og ca. 750 influencers globalt, og den blev bragt til live via sociale medier og billboards med fokus på opskrifter.

Coke of Meals-kampagnen gjorde det også muligt for Coca-Cola at styrke sin lokale relevans. For eksempel har Coca-Cola i Italien, hvor man spiser uden for hjemmet, øget forekomsten af pizza, som er det #1 måltid med ca. 3 milliarder pizzaer hvert år, fra 10% til 20% i løbet af de sidste 4 år. Mens Coca-Cola-brandet er allestedsnærværende, skræddersyr vi vores prispakkearkitektur til forbrugsmuligheder og fortsætter med at drive både overkommelige priser og premiumisering. I løbet af andet kvartal øgede vi kurven og volumen pr. tur med tocifrede tal, samtidig med at vi øgede prisen pr. liter.

Nu til de mousserende smagsvarianter. Vi oplever et stærkt engagement fra forbrugerne på tværs af vores varemærker, som omfatter Sprite, Fanta, FRESCA og Thums Up. Samtidig har vi et betydeligt råderum til at drive yderligere kvalitetslederskab på tværs af udviklede markeder og markeder under udvikling.

With Sprite, we are driving brand awareness by connecting consumers to passion points and personalized experience at a more granular and locally relevant levels through our global Heat Happens platform. In North America, Sprite celebrated hiphop’s 50th anniversary with the launch of Sprite Lymonade Legacy and sponsorship of concert tours, exclusive experiences and collaborations with prominent artists.

Vi samarbejdede med lokale popstjerner og en Grammy-producer i Kina ved hjælp af vores Global Sprite Limelight Music Program for Gen Z-drikkere på 1.500 colleges. I Sydkorea skabte Sprite WaterBomb Festival ligeledes stærke resultater.

I Indien gav Joke in a Bottle-kampagnen forbrugerne mulighed for at scanne pakker og modtage tilpassede og lokaliserede vittigheder via WhatsApp for at komme varmen i forkøbet. I juni blev Sprite udnævnt til det mest modstandsdygtige brand af Kantar for at tilføje det største antal nye husstande i 2022 af alle FMCG-brands.

Vi vender os mod vand, sport, kaffe og te. Vi segmenterer de bredere muligheder og bruger vores opdaterede ressourceallokeringsfunktioner, prioriterede markeder og underkategorier, der giver det højeste afkast af vores investering. Vi opbygger vores forspring gennem forbrugercentrering ved at fremskynde markedsføringen af vores innovation, måle resultater i realtid og skalere succeser.

Vi fortsætter med at skabe begejstring for Fuze Tea gennem udrulningen af grøn te i Mexico, sommer limited edition i Tyrkiet og udvidelse af 0 sukker-tilbud i hele Europa. De første resultater viser lovende hastigheder, og Fuze Tea havde en tocifret volumenvækst i kvartalet. vitaminwater er et andet eksempel. I løbet af kvartalet relancerede vi vitaminwater zero i Nordamerika med et nyt sødmesystem med munkefrugt og stevia, som gav en øget værdiandel. Vi kapitaliserer på forbrugernes behov for hurtig hydrering, et hurtigt voksende undersegment inden for sportsdrikke, med lanceringen af BODYARMOR FLASH I.V. i USA og Flashlyte i Mexico. Selvom det stadig er tidligt, oplevede begge produkter stor forbrugerinteresse i løbet af kvartalet og har vist lovende indledende resultater.

Vores juice, værdiforøgende mejeriprodukter og plantebaserede drikkevarer har leveret tocifret vækst på toplinjen i ni kvartaler i træk og har vundet både volumen- og værdiandele i kvartalet. Vi fortsætter med at innovere og drive premiumisering under Simply-varemærket. Simply mixology, som giver forbrugerne velsmagende blandinger og drikkeklare mocktails, startede en oplevelseskampagne, der fejrede starten på sommeren og den nationale udrulning.

Fairlife havde også endnu et exceptionelt kvartal, hvor både Core Power og fairlife nutrition plan fortsatte deres stærke momentum. I maj annoncerede vi en investering på $650 millioner til at bygge et topmoderne produktionsanlæg, der skal være med til at drive den næste bølge af vækst. Endelig er vi opmuntrede over det, vi ser på tværs af alkoholholdige ready-to-drink-drikkevarer. Vi fortsætter med at have en afmålt tilgang ved at udforske og anvende vores erfaringer. Selvom det stadig er tidligt, har Jack and Coke vist lovende resultater. I Filippinerne gav kombinationen af Jack and Coke og Lemon-Dou en stærk stigning i markedsandelen.

Udrulningen af Schweppes Mojito i Indien er også kommet godt fra start. Og disse eksempler illustrerer, hvordan vores marketingtransformation er ved at komme til live. Styrken i vores samlede drikkevareportefølje giver os yderligere tillid til, at vi kan fortsætte med at levere ved at give forbrugerne drikkevarevalg til enhver lejlighed.

Vores formål er at opdatere verden og gøre en forskel. Og vi er fortsat forpligtet til at opbygge en mere bæredygtig fremtid for vores virksomhed og planeten, mens vi stræber efter at udvide vores forretning. Vi fortsætter med at gøre fremskridt mod vores vision om en cirkulær økonomi for emballage gennem innovation og partnerskaber. I USA har vi f.eks. for nylig indgået et samarbejde med Republic Services for at sikre, at vi har en tilstrækkelig forsyning af genbrugsplast til vores emballage. Samtidig omfavner vi genopfyldelige produkter. Vi startede for nylig et program med kunder i fire amerikanske byer for at teste genopfyldelige drikkebægre med planer om at udvide til andre steder.

Vi kom godt igennem første halvdel af året, hvilket understøtter vores beslutning om at hæve forventningerne til hele året. Og i stedet for at forsøge at forudsige de mange retninger, tingene kan tage, forbliver vi fokuserede på at levere vores vigtigste mål, som vi skitserede i februar. Med andre ord, nummer et, at forfølge ekspertise globalt og vinde lokalt gennem ubarmhjertig forbrugercentrering for at drive toplinjemomentum; to, at investere i vores virksomheds langsigtede sundhed og hæve barren på tværs af alle elementer i vores strategiske svinghjul; og tre, at generere EPS-vækst i amerikanske dollars.

Vores system har aldrig været stærkere, og vores globale netværksmodel gør det muligt for os hurtigt at tilpasse os skiftende miljøer. Vi mener, at vi er godt positioneret til at levere vores opdaterede retningslinjer og mål, takket være vores utrolige system og medarbejdere over hele verden.

With that, I’ll turn the call over to you, John.

John Murphy:
Tak, James, og godmorgen, alle sammen. Vi er glade for fremdriften i vores forretning og vores stærke resultater i andet kvartal. Vi starter med toplinjen. Vi øgede den organiske omsætning med 11%. Enhedssagerne var flade. Som James sagde, fik volumen i andet kvartal en langsommere start, men sluttede positivt. Salget af koncentrat var 1 procentpoint højere end salget af kasser i kvartalet, hvilket primært skyldtes timingen af koncentratleverancerne. Væksten i pris/mix var på 10% i kvartalet, drevet af overførselspriser fra sidste år sammen med nogle nye pristiltag på tværs af driftssegmenterne, herunder virkningen af hyperinflationære markeder.

Den sammenlignelige bruttomargin for kvartalet steg med ca. 40 basispoint som følge af den underliggende ekspansion og en lille fordel fra refranchising af flasker, delvist opvejet af valutaeffekter. Den sammenlignelige driftsmargin steg med ca. 90 basispoint i kvartalet. Det skyldtes primært en stærk vækst i toplinjen og effekten af at flytte aftapningsaktiviteterne, delvist opvejet af en stigning i marketinginvesteringerne og højere driftsomkostninger i forhold til året før samt valutamodvind.

Sammenlagt var den sammenlignelige EPS i andet kvartal på $0,78 en stigning på 11% i forhold til året før på trods af en højere end forventet valutamodvind på 6%. Det frie cash flow var ca. $4 milliarder år til dato. Det kan i høj grad tilskrives stærke underliggende driftsresultater og arbejdskapitalfordele, delvist opvejet af en overgangsskattebetaling på $720 millioner, som blev foretaget i andet kvartal, samt M&A-relaterede betalinger.

Vores balance er stærk, og vores nettogæld på 1,6x EBITDA er under vores målsætning på 2 til 2,5x. Vores prioriteter for kapitalallokering forbliver de samme, og vi fortsætter med at investere for at skabe langsigtet vækst. Som James nævnte, er vi opmuntrede over det, vi ser på markedet. Mens vi fortsætter med at dreje vores strategiske svinghjul hurtigere for at skabe vækst på toplinjen, har vi også gjort fremskridt med vores marginagenda, som det fremgår af vores konsekvente track record med at udligne modvind på omkostningssiden for at opretholde stabile bruttomarginer.

Vi har mange muligheder for at skabe vækst på toplinjen og forbedre effektiviteten af vores udgifter på lang sigt. Vores all-weather-strategi kombineret med de gode planer, vi har for at fortsætte med at skabe kvalitetslederskab på tværs af vores portefølje, giver os god mulighed for at levere på vores forhøjede 2023-forventninger.

Det består af en organisk omsætningsvækst på 8% til 9%, som omfatter positiv volumenvækst, mens den fortsat er drevet af pris/mix. Der er et par overvejelser, man skal huske på. Vi forventer, at prissætningen på de udviklede markeder vil være moderat i løbet af året, da vi fortsætter prisinitiativerne fra året før. På udviklings- og vækstmarkeder sigter vi mod at tilpasse priserne til inflationen på det lokale marked.

I det omfang intens inflation på markederne driver forhøjet pris/mix, udlignes effekten ofte af valuta, da det ofte er svært at afdække vores eksponering. På grund af vores rapporteringskalender vil der være 1 ekstra dag i fjerde kvartal. Vi forventer nu en komfortabel valutaneutral vækst i indtjeningen pr. aktie på 9% til 11%. Baseret på de nuværende kurser og vores afdækningspositioner opdaterer vi vores valutaprognose med en modvind på ca. 3-4 procentpoint for sammenlignelige nettoomsætninger og en modvind på ca. 4-5 procentpoint for sammenlignelig indtjening pr. aktie for hele året 2023.

Inflationary pressures are beginning to moderate in some ways, including freight rates that are favorable compared to last year. That said, several commodities that are prevalent in our baskets like sugar and juice remain elevated. And we have some hedges that we’ll be rolling off to less favorable rates. Based on current rates and hedge positions, we continue to expect per case commodity price inflation in the range of a mid-single-digit impact on comparable cost of goods sold in 2023. Our updated underlying effective tax rate for 2023 is now 19.3%.

Alt i alt opdaterer vi den sammenlignelige indtjening pr. aktie til en vækst på 5% til 6% mod $2,48 i 2022. Vi forventer fortsat at generere ca. $9,5 mia. i frie pengestrømme i 2023 gennem ca. $11,4 mia. i pengestrømme fra driften minus ca. $1,9 mia. i kapitalinvesteringer. Hvis man ser bort fra betalingen af overgangsskat i andet kvartal og forskellige betalinger i forbindelse med M&A-transaktioner, vil vores implicitte konvertering af frie pengestrømme ligge inden for vores langsigtede forventninger. Disse forventninger omfatter ikke betalinger i forbindelse med vores igangværende tvist med det amerikanske skattevæsen om indkomstskat.

Når vi går ind i andet halvår, fortsætter vi med at opbygge en kultur, der lægger vægt på at hæve barren i alle aspekter af vores forretning. Takket være det enorme engagement fra vores systemmedarbejdere over hele verden er vi overbeviste om, at vi kan leve op til vores forventninger til 2023 og skabe værdi for vores interessenter på lang sigt.

Med det, operatør, er vi klar til at besvare spørgsmål.

Operatør:
Vores første spørgsmål kommer fra Bryan Spillane fra Bank of America.

Bryan Douglass Spillane:
Jeg tror, jeg har et spørgsmål, når vi kigger ind i den sidste halvdel af året og ser på det organiske salg, de implicitte forventninger til det organiske salg, som jeg tror ligger i intervallet 5% til 6% i den sidste halvdel af året. James og John, kan I måske tale lidt om, hvordan makromiljøet eller driftsbetingelserne er i dag i forhold til, hvad I troede i starten af året?

And given that there’s more of these markets where — or countries where hyperinflation is an issue, is price a little bit more of a driver in terms of the organic sales comp in the back half of the year relative to volume again versus kind of what you were thinking at the start of the year?

James Robert B. Quincey:
Yes. Well, let me try and unpack that a little bit. I think the headline part of the answer is there’s a little more pricing in Q2 and in the downhill than we had expected at the beginning of the year, principally around that basket of countries where inflation is high, above 20% and a little more persistent. That’s the short answer.

The longer version of the answer is, look, we’re executing the strategy we’ve talked about consistently over time and again, in CAGNY, the real focus on upping the bar on marketing, upping the bar on RGM, the commercial strategies and the execution of the marketplace. All with the intent about delivering a good, strong top line-led growth algorithms. And obviously that — we’ve talked historically that in normal times, that 5% to 6% would be split between volume and price on a roughly equal basis. And so what you’re seeing in the back half of the year, which I think is important to note, is we’re expecting volume to be consistent in the second half with the way it was in the first half, which in the end is running our trend, if you like, a CAGR versus 2019, similar to what we did last year.

So we see sustained positive volume growth coming out of ’22. And we’re looking for volume growth in the second half in a very similar way to the first half whether you’re comparing to prior year or to 2019. So we want a business that is growing consumer base for all the right, appropriate strategic reasons. Then what’s going to happen to revenue in the second half is we’re going to see the impact of 3 buckets of price/mix.

The first bucket is the carryover of pricing from prior year. Obviously, there was more cost inflation last year. But logically, that is a set of numbers that is going to tend to 0 by the end of December. And so that is going to step down as we go through Q3 and Q4. So bucket one, carryover. That’s going to step down.

Bucket two is price increases we’ve made so far this year that are leaving aside the large inflation countries, look much more like a normal year in terms of what we’ve taken this year, both in terms of timing, number of price increases and relative level of price increases. So we…

Operatør:
Mine damer og herrer, vi oplever tekniske problemer. Bliv venligst på linjen.

James Robert B. Quincey:
Hvornår stoppede jeg? Operatør, ved du, hvornår linjen afbrydes på mit svar?

Operatør:
Desværre ikke, sir. Vores næste spørgsmål kommer fra Lauren Lieberman fra Barclays.

James Robert B. Quincey:
Operator, let me just finish the other question. I was going to back up. Apologies to everyone for the technical trickiness. I’m just going to back up and if I’m repeating something I said apologies. And if there’s a gap in the logic, apologies again. I think we talked about volume second half similar to first half, whether you talk in prior year or 2019. Pricing, 3 buckets. The bigger piece of the pricing of the 3 factors, which is the carryover, is obviously stepping down through the year towards 0 by the end of the fourth quarter.

The new pricing that’s come in, in ’23 being very consistent with the kind of a normal level of pricing that we would see, and it’s kind of in place already for the year. And that obviously then continues at the same rate through the rest of the second half. And the third piece, which is about 1/4 of what’s happening on PMO at the moment, this bucket of higher inflationary countries and as I said earlier, there was a little more inflation from those countries in the second quarter than we had previously expected. Obviously, that then comes back around in a little more ForEx headwind.

We are assuming that some of those inflation rates will moderate in the balance of the year in the second half and likewise moderate in the ForEx, although it’s very uncertain. So we’ll have to see what happens, but that’s basically the composition of how to think about the effect of our strategy delivering good top line growth in the second half.

Operatør:
Vores næste spørgsmål kommer fra Lauren Lieberman fra Barclays.

Lauren Rae Lieberman:
Can you hear me okay because like my line’s got crackly now. That’s okay. Great.

James Robert B. Quincey:
Ja, vi har dig, Lauren.

Lauren Rae Lieberman:
Fedt nok. Okay. Jeg ville faktisk spørge lidt ind til Costa og kaffe generelt i lyset af ressourceallokeringsmodellen og identifikationen af de vigtigste profitpuljer og så videre, som ikke blev nævnt i de forberedte bemærkninger, men som helt klart blev nævnt i pressemeddelelsen her til morgen med særlig styrke i Storbritannien.

So I guess broad question would be how coffee overall is kind of fitting in on this thought process and resource allocation models if they are getting their particular differences by geography or is it for different emphasis on the category by different bottlers. And then specific to the numbers called out in the release and Costa U.K., should we think about that as recovery with mobility, COVID or tweaks or adjustments to the strategy you’ve made that are beginning to come through in performance?

James Robert B. Quincey:
Yes. Sure, Lauren. Let me do it in reverse order. The Q2, I think, is more recovery than new stages of growth. Having said that, the Express machines have continued to expand numerically in terms of numbers of placements all the way through COVID and including so far this year. So the Express business, the B2B business, the U.K. is — has been strong, remains strong and still growing, still gaining share. The retail — the store numbers are much more about a recovery kind of completing the play on mobility perhaps and gain share a little bit. And obviously, we’re focused on how to drive growth going forward, and we see plenty of headroom in the U.K. market.

But I would characterize year-to-date more on — more of a biased recovery on stores than new and the bias on Express on new. Internationally speaking, in — if you just break it down into — there’s a couple of different buckets, the ready-to-drink bucket, we’ve made some good progress in China. We made some good progress in Japan with launches of ready-to-drink Costa in the case of Japan complementing Georgia. And actually Japan had a pretty good start to the year growing both Georgia and Costa. So kind of a full coffee strategy in the ready-to-drink looking good, and that’s still the most important ready-to-drink coffee market for us.

And then the B2B, which is a mix of Express along with kind of we’re serving to providing machines and beans, starting to see that getting some traction in Europe with the bottling partners there and starting to kind of find its feet in the U.S., too. And those are the ones I’ve called out as the most — as at the front of the program in terms of geographic expansion.

Operatør:
Vores næste spørgsmål kommer fra Dara Mohsenian fra Morgan Stanley.

Dara Warren Mohsenian:
So I just wanted to follow up on Bryan’s back half question. You did mention a weaker start in April post the Q1 call and then the stronger June volume performance, obviously, on this call. Is that engendering additional confidence internally around top line? And the reason I’m asking is it sounds like conceptually, you’re not necessarily guiding to the June volume strength continuing in the second half. I’m just trying to understand that. Is that more just prudence, given the inflationary environment you mentioned and consumer volatility? Or are there other factors there?

Og når vi tænker på dine forventninger til organisk salgsvækst for hele året som en del af det spørgsmål, var det så kun stigningen i 2. kvartal? Var noget af det måske en opjustering fra 1. kvartal? Har du overhovedet ændret dine forventninger til den sidste halvdel af året i forhold til den øgede organiske salgsvækst for hele året?

James Robert B. Quincey:
Jeg tror, Dara, du kan få prisen på disse spørgsmål i ét spørgsmål. Det er klart, at i andet kvartal, som vi havde forudset i det forrige opkald, startede april svagt. Men så normaliserede tingene sig hen mod slutningen af kvartalet, og juni var en god, solid måned med vækst.

But I think the easier way to think about it is take the whole of the first half because you’re always going to have some good months and some bad months. April happened to concentrate some price increases in developed countries and bad rains in India. Look, that will always happen on any given month. I think what is a question of what gives us confidence in the back half of the year by just saying January to June with its combination of good, middling and bad months, the growth rate in the first half, what we’re expecting is a similar sort of growth rate in the second half, whether you compare to 2022 or to 2019.

And so we think the momentum is there. We think in the developed markets, we’ve got through the pricing that needed to be taken in ’23. We don’t foresee substantive new pricing in the downhill. But we think this is going to be a well set up run through in the second half.

And as I called out on that other answer with Bryan that the uncertainty factor is really around a concentrated in a few of these more inflationary marketplaces. Guidance going up, I guess there’s obviously some flow through. We had a good first quarter, obviously, versus consensus. About a second quarter — we clearly feel confident in our outlook for the full year, which is why we’re taking it up. So there’s some flow through.

Obviously, there’s some timing factors in the relative performance in Q2. And as we’ve talked on previous calls, given the nature of our business and where we sit in the supply chain relative to final sales, I think it’s always good to take a multi-quarter average to the way of thinking about volume or pricing or even the flow-through to EPS. And I think that’s kind of something that we always think about. Otherwise, you can get too distracted by the ups or downs on any given quarter. So we’re going up. In the guidance, we feel confident about the second half. There’ll always be some puts and takes, but we think we have a great strategy and a great plan to execute for the rest of the year.

Operatør:
Vores næste spørgsmål kommer fra Bonnie Herzog fra Goldman Sachs.

Bonnie Lee Herzog:
Det var godt. Jeg havde et spørgsmål om jeres driftsmarginer i Asien og Stillehavsområdet, som var under pres igen i dette kvartal. Og James, du var inde på et par markeder, der stadig er under pres, men jeg håber bare, at du kan fortælle lidt mere om nogle af disse modvinde i regionen. Og hvilke vigtige initiativer har du implementeret for at afbøde nogle af disse udfordringer? Og som et resultat, hvordan skal vi så tænke på udviklingen i jeres driftsmarginaler i resten af året i regionen?

James Robert B. Quincey:
Sure. As it relates to Asia Pacific, what we — there’s obviously a set of things that happened in Q2 that were specific to Q2. There were some destocking in the China operating unit that was kind of a significant piece there. And there was some strong demand for some of the juice businesses in China and India. And those are 2 kind of atypical factors that happened that depressed on a timing basis the margin in Asia Pacific. It is worth noting that there is a sort of structural headwind when seen specifically just at the Asia Pacific region level. And what I mean by that is that we have a very big business in Japan, which is an excellent business and has a good operating margin.

But then Asia Pacific concentrates a set of fast-growing emerging and developing markets, India, China, some of the Southeast Asian countries. And given the nature of how fast they grow and their emerging profile, i.e., they have price points that are lower than Japan, they create a negative geographic mix effect to the Asia Pacific reporting segment. And that’s been a feature for an extended period of time. In other words, you have to sell 1-point-something cases in India and China to make up — to kind of compensate the mix effect relative to Japan. So that kind of structural headwind is always slightly there.

Obviously, our objective is through our strategies, our marketing, RGM execution and the way we invest to try and offset that headwind. So if you look back over time, you’ll see that the — whilst the margin fluctuates up and down, it has kind of had a certain stability when you look, for example, 2019 versus 2022. And so I close by saying don’t over-rotate to 1 quarter in the case of Asia Pacific, given some of the issues. But I would also point out that this is not a region seen on its own where operating margin is likely to grow all the time because of the structural mix effect.

But when seen at the company level, we obviously manage it as part of the overall portfolio so that it is a piece of the puzzle in looking at our total strategy of, as we’ve talked about, using the levers to hit that top end of the revenue 5 to 6 with a little bit of aggregate operating income margin expansion for the total enterprise. And we understand the role of each segment within that equation.

Operatør:
Vores næste spørgsmål kommer fra Steve Powers fra Deutsche Bank.

Stephen Robert R. Powers:
Faktisk vil jeg gerne klemme to emner ind, men jeg vil først samle op på det, James, som du lige talte om i en bredere sammenhæng for hele virksomheden. I kvartalet var toplinjen tydeligvis stærk. Men jeg tror, at vi i forhold til eksterne forventninger så en smule mere marginflow og SG&A-gearing end forventet, især i regioner som Nordamerika, hvor marginen var usædvanlig stærk i forhold til historien.

So I’m curious in terms of how to think about the balance of managing top line growth versus continued margin expansion as you think about the back half. But then also more broadly, just in the context of your top line-led algo, is there maybe more cost efficiency opportunities that we should be thinking about longer term? Or is what we see in the quarter maybe more just a matter of timing?

I also, John, if I could, I just want to loop back to a question I asked last quarter on below-the-line dynamics. You came into the year talking about below-the-line deleverage, interest expense and so on. We haven’t seen that again this quarter, especially with the lower tax rate. So I’m just curious if that has changed in the full year and if that factored in to the full year guidance raise?

John Murphy:
Steve, let me take the second piece first. It’s fairly straightforward. In the quarter, we benefited from higher equity income and from interest that we earned on our overseas cash, which was in both cases ahead of what we had soon when we guided at the start of the year. And from the second half of the year, I don’t expect either of those 2 to be as strong. So I do think we’ll have a little bit of deleverage in the second half of the year but modest, not a significant variable for your consideration in the second half of the year.

James Robert B. Quincey:
Ja, tilbage til margin-elementet i spørgsmålet. Nordamerika er på en måde en flydende side af det, vi lige har talt om i Asien og Stillehavsområdet. Det er klart, at resultaterne var meget stærke i Nordamerika på toplinjen og på marginen. Igen er der en række timingfaktorer, der gør marginstrukturen i andet kvartal mere flad for Nordamerikas vedkommende, herunder for eksempel - lidt ligesom Costa i Storbritannien, hvor vækstraten var meget hurtigere på udemarkedet end på hjemmemarkedet på det nordamerikanske marked.

And obviously, that’s margin accretive. That should be seen as, in a way, more completing the play of the recovery versus COVID. So the completion of the reopening of restaurants, cafes, theme parks, et cetera, et cetera. And so that channel mix, if you like, flatters the operating income in the short term. There’s a number of timings of other things that impact that, BODYARMOR integration, et cetera. I think the way to think about margin going forward by segment and most importantly for the company overall is, firstly, not to over-rotate on any 1 quarter.

Remember that there are a number of expense items and deduction items that we accrue on the basis of sales curve, not just what actually happened in the quarter. So timing is a feature. And that’s why I’m very strong on let’s take 4 quarters in a row and look at that relative to history.

And when you do that, whether in North America or Asia Pacific or more importantly, the company in the overall, what you’re going to see is us sticking to our strategy, which is to drive the growth from the top line and then to look for modest or moderate increments of the operating margin, which we deliver not just by effective strategies to allocate resources, whether they be marketing or operating expenses so that we are efficient and get a little bit of leverage there.

But the design of the portfolio itself and the RGM strategies also is a component in creating sales that inherently have a little more gross margin. So we use all the levers to try and deliver. And so don’t take these segments over or under deliveries as a sign of something new and radical happening. If they are features of our business model and the big overall idea is top line growth with small income and operating margin expansion.

Operatør:
Vores næste spørgsmål kommer fra Rob Ottenstein fra Evercore.

Robert Edward Ottenstein:
James, I’d like to talk about the global system. Recently, there’s been a lot of interesting developments from some of the bottlers. You had CCH buy Finlandia. You’ve had a lot of your bottlers, particularly in Latin America and elsewhere, talk about B2B platforms that they’re developing. And so my question is, how are you thinking about these developments? Are there new models, revenue, earnings sharing models? And how do you make sure that the bottlers stay focused on those products that drive the most value for The Coca-Cola Company?

James Robert B. Quincey:
Sure. Let me start just by headlining actually, we’ve just come off. Last week, we had a Global Bottler Meeting in Atlanta. I think it’s in 30-plus years since we had that meeting in Atlanta, but we had it in Atlanta last week with the majority of the biggest bottlers in the Coke system. And I think it was a very clear meeting on our collective will and ability and interest in investing in this business and our overall level of alignment on what’s important and what should we drive individually and what needs to be driven collectively.

So actually, you guys all go around and talk to the bottlers as well, and I think you will get it reflected back from them that there is a very high degree, not just an alignment on what needs to be done, but enthusiasm on the opportunities ahead of us to drive the business, our collective business forward. On some of the specifics, clearly, you’ve got in that basket, there are things that happen around the world that are local and a biased set of dynamics that are important and relevant and not necessarily projectable around the world. And the case of CCH and the distribution, now the ownership of Finlandia, I think, is one of those.

The B2B platforms, which are progressed very nicely in Latin America, are a feature of the business in multiple other countries. We’ve been testing and exploring and developing individually and collectively B2B platforms with the principal objective of enhancing the system and most importantly, the bottlers’ relationships with the retailers.

To the extent that we can compliment, and here we’re largely talking the fragmented channel because the relationship with the modern trade is already set on electronic platforms anyway. We’re talking about the fragmented trade, and the majority of the almost 30 million customers we visit as a system is to enhance that relationship, to make it no longer a hostage to the visit of the Coke sales rep but to make it a 24/7 opportunity to enhance relationship, to order product, to ask for a service call, to get a new cooler, to put some umbrellas up or to add to an order that’s already about to delivered.

And that is certainly when we have evaluated how those customers where the B2B platforms are available how they’re doing versus where it’s not yet rolled out. There’s clearly an improvement, not just in the relationship however you want to measure it, but also in the sales. So there’s a lot going on in the system. And I think the last thought there is you should take it also as examples of the willingness of the system to experiment and try and be on the front edge of what drives value in the marketplace.

Operatør:
Vores næste spørgsmål kommer fra Chris Carey fra Wells Fargo Securities.

Christopher Michael Carey:
You made a comment on some private label switching happening in certain markets. Can you just expand on where you’re seeing this specifically geographically and perhaps by category and the playbook that you’ll be deploying in these markets, the sorts of developments that you’d be looking for to respond to these actions ahead?

And I asked that a bit in the context of, clearly, some of your ingredients are still quite inflationary and whether you see any potential risk to being able to price against that inflation in some of these markets going forward. Obviously, you have a playbook with a lot of different levers. And I’m just curious to hear your thoughts on where these developments seem to be happening and how do you think about responding to these a bit more specifically.

James Robert B. Quincey:
Sure. So private label switching is principally a feature firstly in Europe, and then to some extent also in the U.S. If you were to include price brands or B brands, you might see some of that also in Latin America depending on how you want to define it. But very specifically on private label, that’s number one, a European effect; and number two, a U.S. effect. And it’s, in our view, highly related to the strength of the brands in any specific category.

Så vi ser det mere i forhold til drikkevarer, hvor det sker inden for vand og juice frem for læskedrikke og bestemt mindre, når man kommer til cola. Strategien oven i det, vi skal gøre med hensyn til markedsføring og fortsat at gøre mærkerne relevante for forbrugerne og eksekvere på markedet, er selvfølgelig RGM-strategien. Ja, premiumisering er stadig en mulighed, men vi er nødt til at holde fast i og fortsætte med at udvikle og tilpasse vores strategier for overkommelige priser, hvad enten det er genopfyldelige produkter, små pakker til overkommelige priser eller forbrugspakker til overkommelige priser, det er blevet en afprøvet strategi i inflationsmiljøer, som vi har lært meget af i for eksempel Latinamerika, men som nu anvendes og har været det i en årrække i Europa og i USA.

And we have more things we can do in both marketplaces to have an anchor in both affordability and premiumization. And that’s a playbook that we’re rolling out and executing in those marketplaces. As it relates to the inflation and the COGS coming through, obviously, some of that, whether it be juice or sugar and corn syrup, affects different markets. The most of the inflation is in a set of markets where we do price for local inflation. And in a way, the higher inflation gets, the more likely it is we’re just — you’re going to follow inflation.

And so the risk not following is not really there as it goes up. The risk actually appears on the volume side. But this is a select group of markets. So if it were to err towards the more inflation in the back half of the year, we think it’s manageable. If we were to err for the less inflation, that would be good, but we think it’s in a bucket of manageable things.

And as it relates to the total company relative to some of those input costs, we have very long-term relationships with most providers and long-term hedging programs, which allow us to kind of — they don’t avoid inflation, but they smooth it that they make it much more manageable from a pricing and packaging point of view.

Operatør:
Vores næste spørgsmål kommer fra Filippo Falorni fra Citi.

Filippo Falorni:
Can you guys talk a bit more about your alcohol strategy broadly, particularly with the Red Tree Beverages subsidiary? And specifically in terms of like new innovation, any other subcategories or areas where you’re looking to expand within alcohol? I know you’re experimenting, but just any color on the future plans will be great.

James Robert B. Quincey:
Yes. Thanks, Filippo. Look, the Red Tree entity that we stood up in the second quarter is more of a technicality than some new big step. It isn’t a change in strategy, and it’s not a vehicle to distribute in the U.S. It allows us a better platform to engage with the partners that we’re working with in the U.S. in terms of coordinating and influencing the marketing and allows us a better separation of the alcohol versus the non-alcohol band. So it’s more an optimization of the model and how we want to execute things rather than a different thing. And then in terms of progress, look, it’s still a small part of the business. And as I talked about, I think it was CAGNY, that’s great, and there are lots of runs on the board.

Jack and Coke har fået nogle virkelig lovende resultater, også i USA. Simply Spiked Peach klarer sig rigtig godt i USA. Hvis man vil se efter et virkelig lyspunkt, kan man sikre Filippinerne, og Jack and Coke og Lemon-Dou, som er en alkoholisk citrondrik, fik langt over 30% andel af RTD-kategorien.

All of this is very encouraging as we continue to take a measured approach to this and to kind of learn and apply our learnings. All of this needs to generate belief that it can be material for the Coke company, not just a nice business, and that we’re still in the process of driving towards. But certainly, so far, we’re pleased with what’s taken place, and we are encouraged about the next steps that we have to take.

Operatør:
Vores næste spørgsmål kommer fra Andrea Teixeira fra JPMorgan.

Andrea Faria Teixeira:
And James, on your volumes commentary, and I appreciate that on your 4-year CAGR, I think if our math is correct, it’s 1.7% unit case for total company, which is obviously remarkable. That said, I think EMEA was a bit softer in the quarter. I understand your commentary about Russia. And what is actually happening in EMEA ex Russia? And how we should be thinking going forward?

Og i den forbindelse, da du kommenterede, at USA var meget stærk uden for hjemmet, og Europa er - en stor procentdel af Europa er uden for hjemmet, hvordan skal vi så tænke, ikke kun på Europa, men på præstationerne for on-premise i forhold til off-premise globalt?

James Robert B. Quincey:
I’m trying to process all the questions. I think you’ve beaten, that was Dara. I think you’ve beaten Dara. EMEA was a bit softer. Yes. I think on EMEA, we are — it was even though — so on EMEA, we’re expecting EMEA to be positive in the second half. And so there was a ramp effect from the withdrawal from Russia in the second quarter. But we — so Europe was in pretty good shape, actually, Europe ex Russia. If you take the first half, Europe ex Russia was positive. So we are feeling that now it’s dropped out of the base numbers in the second half that actually Europe and EMEA will be in good shape.

Obviously, EMEA has got a couple of the hyperinflationary countries like Turkey, like Pakistan, so EMEA could get other effects. But if you concentrate where Russia is, which is Europe, which is the biggest impact, actually, Europe had a positive volume in the first half if you take out Russia. And so we’re feeling good about Europe as we go into the second half. And I think the question really is the trade-off between pricing and volume in a couple of countries, particularly Turkey and Pakistan and for those that want to go deep down the rabbit hole, Zimbabwe as well.

Now the next part of the question, which was about our away-from-home versus at-home. Yes. It wasn’t just June, which was the strength in the U.S. basically the first half. You’ve seen the out-of-home growing ahead of the at-home and the recovery. And I think that’s the way to think about it is we’re seeing the back end of the recovery in the away-from-home.

Similarly, in Europe, in fact, globally, transactions were ahead of volume, which tends to imply smaller packages are growing faster than bigger packages from a mathematical point of view. So as a global feature, there’s a little more on-premise consumption or a little more small package consumption than large package consumption, which helps as well. But I don’t — we should see this as a new secular trend, more the kind of the last bit of renormalization post-COVID.

Operatør:
Vores sidste spørgsmål i dag kommer fra Peter Grom fra UBS.

Peter K. Grom:
So James, maybe just 2 quick follow-ups. One, just on Chris’ question around trade down and improving affordability. Do you expect any changes in the promotional environment, particularly in North America? It doesn’t sound like that’s a shift you expect, but just wanted to be sure. And then just following up on your response to Andrea’s question, I would be curious how you see channel mix evolving as consumers seek more value in some of these developed markets, particularly just given the strength from away-from-home that you just alluded to?

James Robert B. Quincey:
We see the U.S. pricing and promotional environment as pretty rational. We have a set of strategies in place to try and balance our premiumization, regular and affordability strategies in the U.S., which includes a little more promotion than the first quarter. But basically, promo levels are very similar to prior years and not as a step up. And we think that we have the right balance of premiumization and affordability plays to be able to continue to gain as we did in the second quarter volume and value share in the U.S. So we think the environment is rational. We think our strategy works for us because we gain volume and value share. And we’ve got the right mix of — roughly the right mix of promo and price. And obviously, we’re going to continue to push the affordability and the premiumization play.

And then the channel mix question, do we think we’ll see in developing markets what — I think the principal feature is a renormalization post-COVID. I don’t think it’s kind of recessionary or inflationary or that. I think it’s just been — we’ve kind of seen a renormalization of the channel mix. We had talked over prior years about how big an impact on price mix and margin structure, the shift in channels were with what seems ages ago, the lockdowns. That has now largely played out, which is another way of saying, we don’t expect channel mix to be a major feature of the discussion in quarters and years to come.

Operatør:
Mine damer og herrer, dette afslutter vores spørgsmål-og-svar-session. Jeg vil nu gerne give ordet tilbage til James Quincey for eventuelle afsluttende bemærkninger.

James Robert B. Quincey:
Yes. Thank you, operator. So just to quickly summarize. Second quarter results, I think, demonstrate the momentum we have in the marketplace. We are navigating a broad set of dynamics in the local markets while driving scale and maintaining flexibility at a global level. We’re confident in our ability to deliver on our ’23 guidance and our longer-term objectives. Thanks for your interest, your investment in our company and for joining us this morning.

Operatør:
Ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may now disconnect.

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