WEBVTT - Coca-Cola CFO John Murphy discusses the companies 3rd quarter earnings 0:00:00.000 --> 0:00:00.240 Sorry. 0:00:00.240 --> 0:00:02.559 We're keeping an eye on Coca Cola this morning because 0:00:02.600 --> 0:00:06.039 the soft beverage giant raised its outlook thanks to continued 0:00:06.120 --> 0:00:09.000 strong sales. Stop a little bit lower right now because 0:00:09.039 --> 0:00:12.639 that boost overshadowed by an unexpected decline in unit case 0:00:12.720 --> 0:00:15.960 volume in the third quarter. Joining us now to unpack 0:00:16.040 --> 0:00:18.960 is John Murphy. He is the CFO of Coca Cola, 0:00:19.040 --> 0:00:21.160 and I'm so excited to talk about this. Of course, 0:00:21.200 --> 0:00:23.800 we have such a focus on the economy right now, 0:00:23.800 --> 0:00:26.200 and I think this is a really interesting sign of 0:00:26.200 --> 0:00:27.880 the time. So we're going to talk about price, We're 0:00:27.880 --> 0:00:31.200 going to talk about volume. Let's start with volume. Because 0:00:31.240 --> 0:00:34.599 your total unit case volume down about one percent in 0:00:34.640 --> 0:00:37.559 the quarter. What levers do you have to pull? How 0:00:37.600 --> 0:00:39.480 do you boost volume at this juncture. 0:00:41.159 --> 0:00:44.159 So we did have a decline in the quarter, but 0:00:45.040 --> 0:00:49.320 i'd highlight the decline was primarily driven by some anomalous 0:00:49.360 --> 0:00:53.880 factors in July. Sequentially, we improved through the quarter, and 0:00:54.280 --> 0:00:58.760 in this particular quarter, thanks to our developed economies, we 0:00:59.120 --> 0:01:01.520 come out towards the end of the quarter in pretty 0:01:01.560 --> 0:01:04.760 good shape. And as we go forward, the name of 0:01:04.760 --> 0:01:07.760 the game is to get back to the more balanced 0:01:08.120 --> 0:01:11.760 growth equation that we've enjoyed in the last few years, 0:01:11.760 --> 0:01:16.880 and that is getting the developing emerging economies back to 0:01:17.200 --> 0:01:20.000 where they had been. And we expect to see that 0:01:21.720 --> 0:01:26.360 happening throughout the next six to nine months and definitely want. 0:01:26.200 --> 0:01:28.120 To get to the international view. But let's talk a 0:01:28.120 --> 0:01:30.920 little bit about pricing here. Because your price mix, this 0:01:30.959 --> 0:01:33.200 is the prices that you charge across a range of 0:01:33.200 --> 0:01:36.200 your products. It increased ten percent in the quarter, and 0:01:36.240 --> 0:01:38.959 I found that really interesting because not a lot of 0:01:38.959 --> 0:01:42.560 companies have pricing power left at this point, but how 0:01:42.640 --> 0:01:45.640 much more can your consumers handle when it comes to 0:01:45.720 --> 0:01:47.040 raising prices again. 0:01:48.040 --> 0:01:51.080 So that price mix number is, for sure, it's an 0:01:51.080 --> 0:01:53.960 interesting headline number. When you get underneath it, there's three factors. 0:01:54.000 --> 0:01:57.800 You've got your normal pricing, but three to four percent 0:01:58.480 --> 0:02:02.800 we have pricing that comes from some of our hyperinflationary 0:02:03.120 --> 0:02:06.280 environments and other four percent or so. And then in 0:02:06.320 --> 0:02:09.560 this particular quarter, we've got the benefits from the mixed 0:02:09.600 --> 0:02:13.400 impact of our more profitable markets performing better. So as 0:02:13.440 --> 0:02:16.440 we look to the next phase of the of the 0:02:16.480 --> 0:02:20.520 journey ahead, you know, we see pricing moderating more in 0:02:20.560 --> 0:02:23.960 line with the CPI headlines Here in the United States 0:02:24.400 --> 0:02:28.040 and typically around the world. That's our approach. Also, we're 0:02:28.080 --> 0:02:32.520 also investing heavily in our brands to sustain their their 0:02:32.560 --> 0:02:40.400 relevance and through our various revenue growth strategies, offering both 0:02:40.840 --> 0:02:46.040 affordability and premium options to consumers for the occasions that 0:02:46.080 --> 0:02:46.880 they are seeking. 0:02:47.560 --> 0:02:52.359 I wonder about your calorie less drinks and how much 0:02:52.440 --> 0:02:55.480 the impact of we go v and ozepik has had 0:02:55.560 --> 0:02:59.320 on the product mix. Are you selling more, you know, 0:02:59.440 --> 0:03:04.639 just playing water or flavored selters and less of the 0:03:04.680 --> 0:03:06.000 more sugary drinks. 0:03:07.200 --> 0:03:09.560 Well, we've had a for the last number of years, 0:03:09.919 --> 0:03:14.680 We've seen trends towards lower zero calorie products across the 0:03:14.680 --> 0:03:17.960 portfolio here in the US and elsewhere. We're not seeing 0:03:18.200 --> 0:03:22.160 a material impact yet in our data on ozepic and 0:03:22.520 --> 0:03:27.360 similar types of medications. So our goal is to follow 0:03:27.400 --> 0:03:31.240 the consumer. We have a terrific innovation pipeline. We continue 0:03:31.280 --> 0:03:34.560 to invest. I think ahead of the curve on the 0:03:34.639 --> 0:03:39.680 lower zero calorie because around the world that's what consumers 0:03:39.680 --> 0:03:41.960 are looking more forum We're going to be there to 0:03:42.480 --> 0:03:43.200 provide them. 0:03:43.520 --> 0:03:45.960 John, I want to double down on Katie's earlier question 0:03:46.040 --> 0:03:47.720 a little bit here because it looks like that's what 0:03:47.760 --> 0:03:50.560 investors are really latching onto because on first plush for 0:03:50.560 --> 0:03:52.720 a company, you would think that being able to raise 0:03:52.720 --> 0:03:55.840 prices as you have despite everyone else not being able 0:03:55.880 --> 0:03:57.920 to that, that would be a good thing. But the 0:03:57.960 --> 0:04:03.200 worries here rely around and customers buying more ultimately, So 0:04:03.480 --> 0:04:06.800 if you project out through the next year, how do 0:04:06.880 --> 0:04:10.040 you expect consumers to behave under this higher price scenario. 0:04:11.640 --> 0:04:16.840 So at the highest level, we see continued consumer spending 0:04:17.240 --> 0:04:20.400 at the levels that we're seeing at the moment and 0:04:20.480 --> 0:04:24.680 growing pretty much in line with GDP expectations, which low 0:04:24.760 --> 0:04:29.560 single digit at the global level. I think what's really important, though, 0:04:29.560 --> 0:04:33.800 is to get underneath that, to understand your consumer customer 0:04:33.839 --> 0:04:36.839 base at a much more granular level, and then to 0:04:36.839 --> 0:04:42.200 be able to apply the appropriate solutions that we have 0:04:43.240 --> 0:04:48.279 in our portfolio, offering affordability in whe where that's important. 0:04:48.320 --> 0:04:52.159 There's a lower income segment in the United States, for example, 0:04:52.680 --> 0:04:55.599 we're offering at one and a quarter liter packages growing 0:04:56.440 --> 0:05:00.440 at double digit rates. We have premium solutions to for 0:05:00.760 --> 0:05:03.440 the occasions for that work. So I think the name 0:05:03.480 --> 0:05:07.320 of the game is going to be adapting to those 0:05:07.600 --> 0:05:11.479 more granular segments. But at the highest level. We see 0:05:11.560 --> 0:05:16.880 continued resilience and continued growth in consumer spending around the world. 0:05:17.000 --> 0:05:19.160 And John, I want to talk about the competitive landscape 0:05:19.200 --> 0:05:21.840 and potential m and A coming from Coca Cola because 0:05:21.880 --> 0:05:25.400 you think about this craze around healthier sodas, you think 0:05:25.400 --> 0:05:28.720 of poppy, you think of Ollipop for example. Would Coca 0:05:28.720 --> 0:05:32.080 Cola be open to buying one of those brands, partnering 0:05:32.400 --> 0:05:34.359 with one of those brands? What might that look like. 0:05:35.920 --> 0:05:39.359 Yeah, we're always We're always open to new opportunities that 0:05:39.360 --> 0:05:43.120 are out there. But right now, we have a portfolio 0:05:43.240 --> 0:05:48.080 of twenty eight billion dollar brands that we think represents 0:05:48.160 --> 0:05:51.320 a tremendous amount of headroom for us over the next 0:05:51.440 --> 0:05:55.160 couple of years. So our primary focus today is to 0:05:55.440 --> 0:05:58.120 continue to invest and grow the brands that we own. 0:05:58.920 --> 0:06:02.799 And you you always have to stay opportunistic. You always 0:06:02.800 --> 0:06:05.200 have to keep your eyes open, and if something more 0:06:05.240 --> 0:06:08.560 attractive than what we currently have comes along, we'll be 0:06:08.600 --> 0:06:09.400 open to look at it. 0:06:09.960 --> 0:06:13.120 I wonder about the geopolitical risks out there, John, You know, 0:06:13.880 --> 0:06:18.840 we focus so much on interest rates and inflation, the 0:06:18.920 --> 0:06:22.320 labor market, and we cover you know, the war in 0:06:22.440 --> 0:06:25.359 Ukraine and the war in the Middle East as general news, 0:06:25.440 --> 0:06:28.039 but we don't hear much about them from business leaders. 0:06:28.120 --> 0:06:30.599 Until last night we heard from a private equity company 0:06:30.640 --> 0:06:34.559 that they are concerned more about geopolitics than anything else. 0:06:34.880 --> 0:06:37.440 Do you see any effect of that on your business? 0:06:37.520 --> 0:06:38.400 Is it significant? 0:06:40.120 --> 0:06:44.120 Well, you know, operating in over two hundred countries around 0:06:44.160 --> 0:06:46.920 the world, it would be hard to not have an 0:06:46.960 --> 0:06:50.200 implied effect from what's happening in the geopolitical world. And 0:06:50.240 --> 0:06:53.880 I think, as you know, as James and I have highled, 0:06:53.920 --> 0:06:57.840 you know, we have an old weather approach to not 0:06:57.960 --> 0:07:01.000 just the geopolitical pieces, but the macro economics as well, 0:07:01.200 --> 0:07:02.839 and I think the name of the game is to 0:07:03.680 --> 0:07:06.880 is to stay very close to what's coming and to 0:07:07.080 --> 0:07:10.440 be in a position with our bottling partners around the 0:07:10.440 --> 0:07:14.080 world to adapt. So yes, you know, if you look 0:07:14.120 --> 0:07:17.600 at the situation the Ukraine, yes, it had an impact 0:07:18.080 --> 0:07:20.560 on the way we go to market and the markets 0:07:20.560 --> 0:07:24.680 we're in. But with our partners, we adapt and we 0:07:24.720 --> 0:07:28.360 continue to see the global portfolio being the best one 0:07:28.400 --> 0:07:30.680 for us to be in. And John quickly before. 0:07:30.440 --> 0:07:32.280 We let you go, I am really curious about how 0:07:32.280 --> 0:07:35.120 you're thinking about marketing at this juncture of course we 0:07:35.160 --> 0:07:39.120 have that long discussion about price to volume, how much 0:07:39.160 --> 0:07:41.320 when it comes to your resources are you dedicating to 0:07:41.400 --> 0:07:42.200 marketing spend. 0:07:43.600 --> 0:07:47.000 So marketing is at the core of our ability to 0:07:47.160 --> 0:07:51.320 create value for both our consumers and for ourselves. And 0:07:52.200 --> 0:07:55.920 one of the lessons we've learned through COVID, post COVID 0:07:56.360 --> 0:07:58.720 and as we go into next year is to is 0:07:58.760 --> 0:08:02.920 to stay consistent, say, investing behind your brands. I think 0:08:03.440 --> 0:08:09.360 what's important though, is to understand the mix of the 0:08:09.400 --> 0:08:14.160 investments that you make. We're particularly keen to ensure on 0:08:14.360 --> 0:08:19.280 the marketing front that we're leveraging new technologies, we're levering 0:08:19.280 --> 0:08:23.720 new capabilities to stay close to consumers in the digital world, 0:08:23.800 --> 0:08:28.840 for example, and so it's a hugely important piece of 0:08:29.160 --> 0:08:33.360 our growth equation and will be for I think forever. Actually, John, 0:08:33.480 --> 0:08:34.480 great to get some time with you. 0:08:34.520 --> 0:08:38.160 Really appreciated John Murphy, their CFO at Coca Cola.