At this time, I’d like to welcome everyone to the Coca-Cola Company’s Second Quarter Earnings Results Conference Call. Today’s call is being recorded. If you have any objections, please disconnect at this time. All participants will be in 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 Mr. Tim Leveridge, Vice President of Investor Relations, Financial Planning and Analysis. Mr. Leveridge, you may now begin.

Good morning and thank you for joining us today. I am here with James Quincey, our Chairman and Chief Executive Officer; and John Murphy, our Chief Financial Officer. Before we begin, please note that we posted schedules under the Financial Information tab in the Investor section of our company website at www.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 gross and operating margin. In addition, this conference call may contain forward-looking statements, including statements concerning long-term earnings objectives and should be considered in conjunction with cautionary statements contained in our earnings release and in the company’s most recent periodic SEC report. Following prepared remarks this morning, we will turn the call over to your questions. Please limit yourself to one question and if you have more than one, please ask your most pressing ones first and then reenter the queue. Now, let me turn the call over to James.

Thanks, Tim, and good morning everyone. In the second quarter, thanks to the tremendous efforts by our associates and our bottling partners, we executed on our key emerging stronger priorities, as many parts of the world gradually reopened. As we continued to deliver on our transformation, we are encouraged by our results and are raising our top line, bottom line and cash flow guidance, even as we are accelerating investments for the future. At the same time, we also recognize the trajectory may be dynamic and understand that we must remain flexible to respond to changes in the environment. This morning, I’ll provide a business update and discuss how disciplined innovation and more effective and efficient marketing are driving broad-based share gains and are delivering enhanced value for our system. Then I will hand the call over to John to discuss our financial update, including our improved outlook for the year. Last year, in the face of a global pandemic, we laid out a path to emerge stronger across five strategic priorities. We are delivering against those priorities, and this quarter demonstrates the power of our system. We started 2021 with promising results. Mobility and business levels improved in the first quarter and this trend continued in the second. Consumer mobility increased in markets where vaccination rates are reaching meaningful levels and our business has recovered as we are lapping last year’s biggest lockdown impacts and seeing our strategies in motion. Consumers have started to return to many prior routines. And as a result, our away-from-home volumes steadily improved as a percent of our business this quarter, driving strong price/mix and margin acceleration across the enterprise. However, the recovery remains asynchronous and several parts of the world have dealt with further waves of infections leading to delayed openings, and in some cases, tightened restrictions. India and Southeast Asia were our only areas that did not see sequential volume acceleration on a two-year basis this quarter. Despite the asynchronous recovery, our revenues and earnings in the second quarter surpassed our 2019 results. We also made progress on share this quarter. We said many times that gaining share is a key objective in our emerging stronger agenda. And I am pleased to report that we have achieved that objective with broad-based share gains across categories, as well as in both our at-home and away-from-home channels in the quarter. And importantly, despite away-from-home channels not having fully recovered, our value share today is higher than the 2019 levels, confirming that our effective brand building and innovation, along with our advanced revenue growth management and market execution capabilities, are working. So let me dive a bit deeper into the key drivers across our geographies. In Asia-Pacific, China saw continued momentum across categories, driven by both volume and improved mix with Trademark Coca-Cola. We outpaced the overall macroeconomic recovery, led by strong performance in away-from-home channels and business-to-consumer e-commerce. Australia and New Zealand were bright spots, performing at or close to 2019 levels, but they are currently seeing renewed lockdowns. While Japan is struggling to come out of lockdown, there have been tangible successes with consumer-led innovation, small pack initiatives and improved customer execution of key initiatives. As I mentioned earlier, in India and across much of Southeast Asia, resurgence in the virus impacted further recovery. As India’s restrictions have eased a bit, we are encouraged by the level of resilience in both the business, as well as our system associates as they navigate this resurgence. In EMEA, Europe is still being impacted by some level of restriction, but vaccination rates and consumer confidence are improving. Because of this and our strong bottle alignment and marketing investment, we are seeing a much improved away-from-home mix even as at-home volumes continue to grow. Great Britain and Russia, where mobility was at the highest, show noticeable volume outperformance relative to 2019, and sparkling soft drinks gained or maintained share in most of the top 10 markets in Europe. Eurasia and the Middle East are performing well despite a diverse recovery landscape. In Turkey and Pakistan, strong execution during the key Ramadan holiday and emphasis on snacking and meal occasions drove new consumers to the Coke brands. Africa delivered a strong first half performance with affordability packages delivering good results, despite tightened restrictions heading into the winter season and vaccination rates that are behind the rest of the world. In North America, the consumer environment improved through the quarter as many states lifted restrictions and consumer mobility increased. More frequent social gatherings and rising travel and event activity drove significantly higher demand for our brands in away-from-home channels, while at-home volumes remained robust, leading to broad-based share gains in the quarter. Within away-from-home, eating and drinking was the strongest performing channel, with travel, hospitality and at-work trailing. In Latin America, lockdowns eased as vaccination programs rolled out in countries such as Mexico and Argentina, and stimulus programs in Brazil and Chile also helped drive recovery. Our results and year-to-date share gains in the region continued to be driven by commercial initiatives to improve execution, as well as a focus on affordable packs like refillables. Costa’s UK Coffee Shop revenues recovered almost entirely to 2019 levels through the reopening phase, despite ongoing capacity restrictions. Increased consumer traffic and digital momentum are also supporting recovery as restrictions eased in other countries where we have a retail presence. Our Bottling Investment Group faced pandemic-related challenges, particularly in India and Southeast Asia, but managed to sequentially improve or gain share in India, Vietnam, the Philippines and South Africa. BIG also made great progress against this growth and productivity agenda, increasing year-to-date comparable operating margin approximately 300 basis points from the 2019 levels. Our category teams are collaborating with a global lens, enabling us to move even faster towards our Beverages for Life ambition. By continuously engaging consumers around their passion points and testing ideas in a coordinated and increasingly digital way, we are getting even better at what we’ve always done best: building loved brands around the world. For a few examples, the Coke trademark portfolio is experiencing robust growth, led by brand Coke and driven in part by Coca-Cola Zero Sugar, which has contributed double-digit growth in value and volume year-to-date. The new Coca-Cola Zero Sugar recipe has already launched in nearly 50 markets across six of our operating units, including last week’s announcement in the U.S., with more to come this year. Early results indicate that the recipe and simplified packaging design are resonating strongly with consumers. In sparkling flavors, we are accelerating our Zero Sugar offerings and executing global campaigns to focus on key occasions. Sprite has done well globally, benefiting from the Let’s Be Clear campaign, which has led to improved share gains. Likewise, I Want The Fanta Mystery Flavor campaign in Europe drove accelerated growth and improved share. Dairy remains an opportunity for the overall portfolio, with premium offerings in key brands like Hollandia drinkable yogurt and Fanta Cladius flavored milk showing healthy growth. We continue to leverage Fairlife’s great success in the U.S. with a recent expansion in Canada. There are many bright spots in hydration, sports, tea and coffee. We see momentum across brands in the U.S., including good results from our renewed focus on SmartWater, a new brand bundle from Gold Peak tea, exciting flavor innovations in Dunkin Coffee and continued growth from expanded distribution of Topo Chico sparkling mineral water. We had early success with Costa ready-to-drink launches in Asia, with meaningful share gains in key markets in China and has already been voted a hit product in Japan. The rapid consumer traction and attractive proposition of healthy indulgence AHA, which began as an intelligent local experiment in the U.S., has led us to believe we can transition to a bigger bet and travel internationally. The recent launch in China with the local name of Little Universe has been encouraging, with meaningful value share gains in a short period of time. We continued to build our momentum with the launch of AHA’s first 360-degree marketing campaign with a significant digital emphasis titled Can I get an AHA? Finally, last summer we announced more exploration in the dynamic flavored alcoholic beverage category with the launch of Topo Chico Hard Seltzer. Topo Chico Hard Seltzer is now in 17 markets worldwide and we have authorized Molson Coors the right to produce and sell Topo Chico Hard Seltzer in the United States. Launching a global brand in markets where the categories are at different stages of development comes with many learnings and our local knowledge allows us to adapt with speed to win or in some cases develop this new category. From strong performance in Europe where available, to a top two position in Mexico, to the U.S. where velocity is robust and the product has enjoyed positive consumer reaction, we are encouraged by recent trends and are gaining valuable insights along the way. We continued to make progress with our consumer-facing digital propositions. Internally, we are building out our platform services organization to support the enterprise as we have a sizable opportunity to become a holistic digital leader. Digital is of the utmost importance and we are also building an integrated ecosystem of platforms that create value across the digital and physical worlds. We are partnering with our bottlers to leverage the power of systems’ physical footprints online, creating enhanced value for customers across the globe for a best-in-class e-B2B platform. With pockets of excellence in many regions, we are working with our bottling partners to evolve and streamline our approach. Working together as a system allows us to improve distribution economics, solve unmet needs of outlet owners and open new revenue streams by providing other CPG brands access to our deep customer relationships and global distribution network. We are building a digital one-stop shop for customers, seamlessly offering most of the products they need to stock their shelves and operate their daily business. We are also ensuring consumers get the frictionless experience they demand, with more availability and assortment of the products they need and love. On top of the initiatives discussed today, we also continued to work with our bottlers to embed RGM principles and integrate execution capabilities into our processes to continue driving basket value and incidences as the world reopens. Through enhanced execution, we have an opportunity to win with more consumers and grow share by having the right products in the right channel at the right price, supported by the right activations. We also continue with our sustainability agenda to create shared value for our stakeholders and communities we serve. In addition to integrating ESG considerations into our daily business decisions, during the second quarter, we released our business and ESG report, highlighting progress across all our goals, as well as our World Without Waste report, which focuses exclusively on our work to create a circular economy for our packaging materials. Highlights include the continued rollout of 100% recycled PET with 30 markets representing approximately 30% of our total sales offering at least one brand in 100% rPET packaging. We have continued the expansion of refillables and dispense packaging and ultra-light weighting technologies, and we delivered a 60% global collection rate for packaging in 2020. We are proud of these achievements and we know there is more work to be done. Recently, we announced we have become a global implementation partner for the Ocean Cleanup’s River Project supporting the deployment of clean-up systems across 15 rivers across the world. We will embed our marketing capabilities into this partnership to create consumer awareness of the issues and the actions we are all taking. Putting it all together, we realize there’s a range of possible outcomes when it comes to the pandemic in the second half of the year given the asynchronous recovery. While we over-delivered relative to our expectations in the first half and have raised guidance for 2021, we are biased towards a growth mentality and will invest behind this momentum going into the rest of the year. Our networked organization is beginning to help us move faster to capture opportunities and create value for our stakeholders. As a system, we are increasingly equipped to win and we are excited about the future. Now, I will turn the call over to John to discuss our second quarter results and the drivers of our updated outlook.

Thank you, James. This morning, I will highlight the drivers of our second quarter performance, as well as our revised guidance. In the second quarter, we built on the momentum from the beginning of the year and our business mix improved as consumer mobility increased across many markets. Our Q2 organic revenue was up 37% comprised of concentrate shipments up 26% and price/mix improvement of 11% as we lapped the biggest pandemic impacts of 2020. Unit case growth was 18%. Our shipments outpaced unit cases in the quarter and year-to-date due to cycling the destocking we experienced last year and certain timing impacts this year, including five additional days in the first quarter. Improvement in the away-from-home channels and positive segment mix from higher growth in our finished goods businesses positively impacted our price/mix. Channel and package mix also affected comparable gross margin, which showed significant improvement relative to last year, even with certain inflationary costs like transportation coming through. As we have said throughout the pandemic, our goal is to emerge stronger and we are investing ahead of recovery as markets reopen. As a result, we have doubled our marketing dollars year-over-year, cycling the significant pullback from the same period last year. Even with a step-up in those investments, we delivered a 170-basis-point improvement in comparable operating margins driven by the strong top line. Below operating income, we saw a benefit from improvement in our equity income, as our bottling partners also emerged stronger, as well as reduced interest expense on a comparable basis. As a result, second quarter comparable EPS of $0.68 was an increase of 61% year-over-year. We also delivered strong year-to-date free cash flow of approximately $5 billion, double last year’s results. Our cash flow performance has also driven the return of our leverage to within the targeted range of 2 times to 2.5 times. Since we reiterated guidance last quarter, the operating environment and our business have clearly improved. Given the improvement year-to-date and the increased visibility, we are raising our outlook for the full year. We now expect to deliver year-over-year organic revenue growth of 12% to 14% and comparable EPS growth of 13% to 15% in 2021. Our steady focus on cash generation continues to yield progress, and our updated guidance for free cash flow of at least $9 billion implies a dividend payout ratio significantly improved from where we began the year and is edging closer to our targeted level of 75% over the long-term. So as we think about the remainder of the year, a few things to keep in mind. The recovery phase continues to be asynchronous creating a dynamic demand environment in addition to causing many parts of the supply chain to experience tightness as a result. While experiencing some isolated pressure points, our team is navigating the challenges well through supplier diversification and inventory management. Despite recent upward pressures in many commodities driven by pandemic-related disruption, we feel good about the rest of the year, and as we anticipate hedges rolling off in 2022, we are working with our system to take appropriate action in the back half of this year to manage the ongoing volatility using revenue growth management capabilities and supply chain productivity levers. With regard to marketing investment, we have three priorities: increase consumer-facing marketing spend toward levels similar to 2019, improve the quality of that spend, and allocate the spend in a more targeted manner. Our currency outlook continues to contemplate a tailwind of 1% to 2% to the top line and approximately 2% to 3% to comparable EPS in 2021, based on current spot rates and our hedge positions. That said, the currency markets remain volatile and dependent on recovery from the pandemic, as well as macroeconomic factors. We will also have some additional timing considerations with the leveling out of our concentrate shipments that are running a bit ahead year-to-date, as well as six fewer days in the fourth quarter. To summarize, our company and our system have tackled many challenges through the pandemic, but we are emerging stronger, thanks to the hard work of our people and the focus on our strategic priorities. With our networked organization up and running, we are on a path to operate more efficiently and effectively, and to unlock the enormous potential we have in our brand and across our markets. As James mentioned earlier, we remain clear-eyed as we look at the rest of the year, with many markets continuing to face obstacles, such as the spread of the COVID-19 Delta variant, but others continue to see the benefits of reopening. Overall, we are pleased with our progress in the first half of the year and we are grateful for the commitment from the stakeholders across our ecosystem that contributed to our results. With that, operator, we are ready to take questions.

Our first question comes from Dara Mohsenian with Morgan Stanley. Your line is open.

Hey, guys. So, on the revenue front, in markets like the U.S., where COVID concerns have now dissipated, can you just discuss how quickly consumer behavior is coming back? How that compares versus what you originally expected, presumably it’s better than expected with the raised full year top line guidance? But how that impacts your strategy going forward and maybe also what you see is the lasting changes in consumer behavior in some of those markets?

Yes, Dara. First of all, I wouldn't say the U.S. is completely past COVID. It has transitioned to a phase similar to many other markets with high vaccination rates, where the most severe impacts of COVID are primarily affecting the unvaccinated and vulnerable populations. The situation is not over, which is evident in the numbers. Looking at the U.S., there are a couple of notable trends as it has entered this reopening phase. Consumers, as we've previously discussed, are inherently social beings. Once the restrictions are lifted and the virus situation allows for safe outings, they tend to return to away-from-home venues. We're seeing this trend start to emerge in the second quarter. For our away-from-home channels, there have been significant rebounds compared to last year's second quarter, which makes sense given the previous declines. However, not all channels have regained their 2019 levels. For instance, QSR, which experienced less of a downturn last year due to increased delivery and takeout options, has mostly returned to or surpassed 2019 figures. In contrast, channels like bars and taverns, which were heavily impacted last Q2, have reopened and seen a surge of about 200%, but they are still not back to 2019 levels. In various away-from-home channels, travel and transportation have generally remained stable. Businesses that did well last year are maintaining or building on those gains in 2021, though some have not fully recovered, partly due to ongoing COVID restrictions and lingering consumer confidence issues. On a positive note for Coca-Cola, the interactions with at-home brands over the past 15 months have fostered new consumer behaviors that might last. Over time, we might regain our away-from-home business while retaining some of the at-home gains. E-commerce, which surged last year, has stabilized and grown slightly this year. Large stores that performed well are continuing to grow, and smaller stores impacted last year are recovering too. Overall, in the U.S., there's a sustained resilience in the at-home business and an ongoing rebound in the away-from-home business that is still in progress. This trend is also observable in other countries experiencing similar phases of COVID recovery, where restrictions are easing and vaccination rates are high, leading to reopenings in places like the UK and parts of Europe.

Thank you. Your next question comes from Lauren Lieberman with Barclays.

Great. Thanks. Good morning. John, you offered definitely some perspective on the bigger picture profitability, and I know this quarter was kind of a new high watermark on operating margins. But I was curious if you think about the full year, and frankly, even into 2022, how you are thinking about the ability to better leverage your sales growth as a result of some of the restructuring work that you’ve been doing, but also in the vein of this come out stronger and what you’ve been able to achieve already and think you will still be able to achieve in terms of changing package mix and premiumization. And so, again, it’s sort of a longer-term margin question with the awareness that perhaps this quarter is more timing than something directly related to my question? Thanks.

Thank you, Lauren. It would indeed require the rest of the call to go through everything that has happened, so I'll keep it brief. Let's look at the two-year picture. In 2020, we experienced growth in gross margins, primarily due to a significant reduction in our operating costs and marketing investments, even though there was some compression in margins during that time. In 2021, we are pleased with the year-to-date progress towards improving gross margins and expect to approach the levels seen in 2019 by the end of the year. As James mentioned, we are also committed to investing in our brands and key markets moving forward. We've already seen a positive increase this year and will prioritize this for the latter half of the year. To summarize, taking a two-year view, we anticipate some compression in operating margins compared to 2020, as gross margins recover and we focus on reinvesting for the mid to long term. However, by the end of 2021, I believe our performance will be better than in 2019. Looking ahead to 2022 and beyond, we’ve emphasized the importance of our flywheel effect driving the business through enhanced marketing and innovation strategies to support our streamlined brand portfolio. We see innovation as a continued growth driver, which integrates into our execution in the marketplace with our bottling partners, utilizing various strategies, including our revenue growth management approach. As we move into 2022, 2023, and 2024, our goal remains the same: to maintain a strong focus on enhancing our overall margin, and Q2 has provided a boost to help us stay on that path.

Our next question comes from Nik Modi with RBC.

Thanks. Good morning, everyone. I was hoping you could talk a little bit about WABI and the expansion into more countries. Could you share some details about where you are rolling it out? Also, what insights have you gained from that initiative from a data perspective? I understand you have direct access to that data, unlike some other direct-to-consumer platforms. Do you think this could also be effective in the U.S. market?

Sure. WABI is a set of features in a digital ecosystem that allow us to both do direct-to-consumer and I will come back to it specifically how, and to do B2B both or either for just the beverages or for multi-category orders. Now predominantly where we are using WABI in partnership with our bottlers is more in the B2B space. We have done some experiments doing B2C, but in the case of WABI, the model that was used which is very appropriate in Latin America, where you have a very high density of mom-and-pop stores, essentially the consumer uses the WABI app to place an order. If they want to have a whole set of Cokes and Fantas and Sprites or whatever, that order goes into the app. And the app then shops the order to the mom-and-pops that are nearest to the consumer and they can accept that order much like a ride-hailing service and given that they are likely to be 50, 100, 200 meters from the consumer in these high-density cities, they will just run around the product and deliver it in a very short space of time, 15 minutes or 20 minutes or less. And so it is very interesting and we have actually also used that platform with some of the QSR restaurants in places like Argentina to do the same thing. So it’s an interesting experiment. We are getting a lot of insights and data. We have also expanded on the B2C place to actually add other categories of other FMCG partners, so now you can place an order at the mom-and-pop for a whole series of categories, not just beverages, so getting lots of interesting data and insights on that. The other thing that we are doing with B2B with a number of the bottlers is using it to accelerate the digitization of one part of the relationship particularly with the fragmented trade, whether it be the mom-and-pops or restaurants and cafes around the world, which is of course, now that the rollout of smartphones and smart devices everywhere is expanding, you don’t necessarily need the salesperson to turn up at the store in order to capture an order. And so we are blending the use of the sales force to drive account development and drive all of the in-store activations that we know create impulse purchases and give us advantaged execution, but leverage the platforms to drive order taking. And again, we are getting a lot of learnings with the bottler on how that improves not just efficiency, but just as importantly, the effectiveness of the selling and the execution process. Again, there are, depending on where you are in the world, sometimes that’s just a beverage approach, but we have also got some experiments where it’s a multi-category approach through the platform and links to either wholesalers who deliver either all or the non-beverage categories, et cetera. Anyway, standing back, the net of it is, we continue to see the ongoing digitization of the interaction both at the consumer with the retailer and the retailer with the suppliers. And we think that the Coke system globally with our bottling partners is in a tremendous position to expand the depth of our relationship with the retailers and we are being open-minded as to exactly what format takes and working with them to drive a whole set of experiments to see what works, more to come.

Our next question comes from the line of Bryan Spillane with Bank of America.

Hey. Good morning. So I think just a follow-up to Lauren’s question earlier around margins and then just two items, John, if you can provide. One is just in terms of marketing for this year, I think, I heard, the way I read it was that you have actually increased the spend or plan to increase the spend now more versus, I guess, what was in your original plan? And then the second, if I don’t know if I missed it, but just can you give us kind of where we stand today in terms of how much of the savings from the reorganization have been captured and how much more there is to go?

Thanks, Bryan. Yeah. On the first part, I think, again, looking at the year-to-date, I think, we saw a big rebound in the second quarter. We are doubling our spend on consumer-facing activities and for the rest of the year with an eye to both delivering the year, but also being well-prepared for 2022, we have a very robust investment agenda that will see us getting back to 2019 levels and that’s just comparing dollars. When you look under the hood though, I think, one of the big changes we have made in recent months is to improve the quality of that spend. And so my working with Manolo, our objective is to be able to actually generate more with the same and we are pleased with the progress that we are making in that space, particularly as you think about some of the newer areas, digital media, et cetera. Regarding the savings, it’s a piece of the overall equation, and I think, for me, rather than provide hard numbers, it gives us a degree of flexibility to invest behind some of the bigger bets to think about our ongoing ability to pivot as market conditions dictate. And so it’s really less around taking those savings to the bottomline and much more around having to flex to be well-positioned to go after opportunities as we see them.

Our next question comes from the line of Steve Powers with Deutsche Bank.

Thanks and good morning. James, maybe John wants to answer too, but following up on where you started with Dara and panning out globally, the updated guidance from today seems to call for a further acceleration in underlying growth on a two-year basis in the back half versus 2019, especially at the top end of the range? And I guess, I am curious where you see that most being sourced from a segment perspective, but also whether you have a bias as to that acceleration and sequential improvement being more volume led versus 2019 or price/mix led as the system fights through inflation or whether you see a bit of both, just how you are thinking about the mix of revenue in the back half? Thanks.

Our expectations for the year are focused on returning to 2019 levels, and we have made significant progress, which leads us to raise our guidance. As we enter the second half of the year, we are aware of the various factors at play. I recommend examining the 2021 performance across quarters on a two-year basis, considering both volume and price/mix. It's important to account for the fluctuations in gallon stocking, as we saw rapid de-stocking this time last year and have been restocking during the current quarter. When we analyze volume and price/mix over two years, we anticipate continued improvement in the latter half of the year as vaccination efforts advance and restrictions ease in more countries. However, we recognize that market dynamics can fluctuate. Overall, we expect modest sequential improvements over a two-year timeframe, both in volume and price/mix. For price/mix, we began assessing it on a two-year basis in Q2, and our long-term model indicates an average annual price increase of two to three percent. Although the figure in Q2 was notably high due to last year's challenging comparison, we don't expect such extremes to persist. Once adjusted for these factors, we are essentially maintaining our historical approach as we navigate this period of reopening.

Our next question comes from the line of Bonnie Herzog with Goldman Sachs.

Thank you. Good morning. I actually had a question on your guidance. You raised your full-year outlook given the strength you saw in the quarter, but you didn’t flow through the entire beat especially on the bottom line, given your new guidance now suggests EPS growth in the second half will be negative. So I was really hoping to understand the drivers behind this, is it cost pressures that might have gotten worse in the last few months versus the planned stepped up investments that you called out ahead of the recovery? Thanks.

Thanks, Bonnie. A couple of comments, one is, the first half of the year, we saw gallons ahead of cases, which we would expect to normalize in the second half of the year. So I think you have got to factor that into account. Secondly, in the first quarter we had a few extra days and they would come off in the fourth quarter. So that’s a big piece of the equation that we have designed for the full year. And then secondly, as we have already discussed, in the investment space too, we look to sort of end the full year with our marketing investments continuing to step up and margins back to better than 2019, but not as strong as 2020. So that’s all factored in.

Our next question comes from the line of Kaumil Gajrawala with Credit Suisse.

Hi. Can you help us understand how your business has evolved in recent years? Specifically, what does operating leverage look like? For example, does a 5% increase in revenue correspond to a 7% increase in profit, and does a 6% revenue increase equate to a 10% increase in profit? Could you provide some insight into where leverage is reflected in the profit and loss statement?

I’d refer you back to our long-term algorithm. We are currently navigating an interesting period. We believe that considering all the factors affecting our businesses, the long-term algorithm still accurately represents what we can achieve in the coming years. As our business mix evolves, we will need to reassess this, but for now, we don't anticipate any changes to the algorithm in the near future.

Our next question comes from the line of Andrea Teixeira with J.P. Morgan.

Hi, thank you very much. I wanted to revisit the performance of the on-premise sector as we conclude the quarter. James, it seems you are confident that we are observing a recovery, particularly in the U.S., and that this trend will contribute positively to global recovery and at-home consumption. Can you elaborate on how we exited the quarter in regions where infections have surged globally? How does the current volume compare to 2019 levels? I believe you mentioned that developed markets are returning to previous levels. Also, how does your product mix in terms of finished goods and single-serve compare to 2019?

Sure. I will try and offer a few thoughts there that might help. Clearly, when countries have gone, when infections go up and greater restrictions have come back in during the course of the second quarter, you do see negative impacts on the business. Now over the last 15 months, we have worked very hard to make our business more adaptable and more agile and able to pivot in the restrictions to help consumers get the beverages they love, but often in the very short-term, it impacts the business. So if you look at places where infections have spiked up recently in the second quarter, so Vietnam went into some restrictions. They have done a good job of avoiding large restrictions and so they were doing fine the first few months of the year and then all of a sudden they have had some restrictions and they were negative in June. Similarly, India, earlier in the quarter, brought in a strong set of restrictions and the business went negative, but then when they reopened, they bounced back. So clearly, while we have adapted the business and made it more resilient to levels of lockdown, when these do occur, wherever they do occur around the world, it’s going to impact the business. We are going to bounce back quicker and we are going to suffer less, but it is going to impact the business. And so as you think about the outlook, clearly, the direction of travel of COVID, its variants, the levels of infections and the levels of restrictions are going to make a difference to the business. And then as it relates to immediate consumption and future consumption, if I look on a worldwide basis and I look on a two-year stack rate, what you can see is that now we have steadily improved through the course of the pandemic such that the immediate consumption of volumes are now slightly ahead of 2019 levels as we exited the second quarter in June. So as I said in the opening or in the reflections on that first question from Dara on the U.S., that has not been followed by a mirror image decline in the at-home. Clearly, some of the at-home on a two-year stack basis goes down because people are now out and about and at work, and so you now see the two of them tracking, you see the at-home tracking at the 2019 levels as well. So that’s why we feel that there’s some sequential improvement coming in the downhill, moderate but some.

Our next question comes from the line of Rob Ottenstein with Evercore.

Great. Thank you very much. Can you please talk maybe a little bit more about headline pricing and promo intensity? I think I heard you say that in Q2, your pricing was sort of at historical levels of 2% to 3%. I also heard you say that in the second half of the year you would look to address higher input costs with revenue growth management initiatives. So maybe kind of talk about your thoughts on pricing in an environment where we have seen more inflation than we have in many years and how able the consumer is in your key geographies to be able to take additional prices? Thank you.

Clearly, the comments I made about pricing are based on a two-year perspective. When you remove the effects of channel and geography, you would see what the data reflects. Throughout the pandemic, we have consistently approached pricing to reflect our brand strength and revenue growth management while managing input cost increases over time. We utilize hedging strategies to minimize sudden price fluctuations. Our belief is that by focusing on the growth of the beverage category for our retail partners, we'll support their overall business and, in turn, gain market share. This strategy is best executed through consistent investment in our brands and effective execution, using revenue growth management to align with consumer preferences regarding pack sizes and price points. Managing input cost increases in a rational, staged manner is essential, and we leverage hedging to ease this process. We believe that brands with strong consumer resonance can pass on costs, as we've historically demonstrated. While inflation in the U.S. has been relatively moderate for some time, other countries are experiencing much higher inflation. Our strategy involves effectively managing these challenges while maintaining consumer engagement to keep our business momentum and margin structure steady or improving.

Our next question comes from the line of Carlos Laboy with HSBC.

Yes. Good morning, everyone. James, about three years to four years ago you said you wanted more robust experimentation and small experiments become big experiments, drive collaboration and revenues, and we see this thriving in America. But might you share with us perhaps in some developed markets where we don’t have as clear a line of sight, how this is coming along and maybe are there some wins that really stand out in this area?

Thank you, Carlos. We continue to focus on collaborations and innovations. For instance, WABI, which began in Latin America as both B2C and B2B, is being used to collaborate with our bottlers worldwide, including in Europe, to enhance digitization and B2B capabilities. We're expanding these initiatives beyond Latin America and into the U.S., where AHA has performed well this year and is now launched in China. Fairlife, which also does well in the U.S., is heading to China too. We're seeing a shift from west to east. Similarly, Topo Chico Hard Seltzer, which started as a global concept, is now available on all continents and continues to grow. In Asia, we're exploring non-black tea segments in several ASEAN countries. There are exciting experiments taking place. We're also focusing on packaging innovations like the use of rPET, which promotes a circular economy; this started in Europe and recently entered the U.S. with our 13-ounce bottle. We're always looking to improve and are beginning to see more disciplined experimentation, learning which initiatives are successful and which are not, and expanding those that show promise. Interestingly, these experiments are now moving in all directions, with ideas emerging globally, and we're determining which ones are worth pursuing for global expansion.

And if I may, James, I think, in the supply chain also there’s over the last 12 months to 18 months, it’s a tremendous amount of partnership collaboration that is delivering results in the individual entities across the world that I think will continue.

Our next question comes from the line of Kevin Grundy with Jefferies.

Great. Thanks. Good morning. A question for James, just picking up on the last line of questioning there around innovation, my question specifically for hard seltzers and some of the early success that you have had there. So, James, you mentioned some of the early learnings. I was hoping you could perhaps share those with us, particularly as it pertains to the seltzer category? And then more broadly, James, whether the success that you have had in the alcohol space emboldens the company a bit for further exploration in alcohol sort of outside non-alcohol? Your comments there would be helpful. Thank you.

Yeah. Sure. So we are still very much in the learning phase. It’s not a category we are familiar with, particularly with the alcohol. It’s got a number of important characteristics and regulatory characteristics and business characteristics that we need to learn about. So we have not got to a stage of concluding anything more strategic or coming to the point of view that there is a bigger vision for us out there in the flavored alcoholic beverage space. We want to learn and understand more before we decide anything one direction or the other. As it relates to some of the learnings so far, I mean, clearly, what we have discovered is obviously it makes a difference if the category exists or doesn’t exist in any particular country. I mean, we are in 17 markets to-date. We are on track to be in 28 markets around the world by the end of the year. We are learning what it takes to compete where the category exists. We are learning what it takes to help grow the category where it doesn’t exist. So we are pleased, for example, in Latin America, where we are the number two hard seltzer and getting some good traction and good velocity in Brazil where it’s more of an undeveloped category. There’s more kind of development needed as we are trying to work out how that happens. Similarly in Europe, it’s the number one or two performer in terms of rates and velocity in Europe and so I think it’s very interesting what’s happening there. And obviously in the U.S., it’s got a lot of good traction, while it’s still of course relatively small overall nationally, it’s done particularly well where we have focused or where Molson is focused to launch, which is in Texas and it’s done very well in Texas, looking good in kind of the southern states, California, and Florida too. Retail customers, we understand they are very bullish, lots of display activity and activity. So we are looking to see that continue to expand. Of course, we are conscious that the overall hard seltzer category has come down in terms of its overall growth rates in the U.S. That’s not ultimately that big of a surprise to us, because it is a category that has been predominantly an at-home channel category, much less bars and restaurants category. And so as people have gone back out, clearly, some of those occasions have moved from at-home to away-from-home. So it’s not too surprising that some of the strong tailwinds the category got in the lockdowns have lessened. But we still think it’s very interesting. It’s got some long-term potential in the U.S. It’s very on-trend for a lot of consumers. And so we are continuing to look at that and push on that and invest to see where we can go.

Our next question comes from the line of Sean King with UBS.

Great. Thanks for the question. How do you stand to benefit from the Olympics starting later this week, really given a pandemic-driven disruption around the world? Can you shed any light on any marketing activation plans or just a general outlook on this opportunity given the pent-up sort of excitement for this type of event?

Yeah. I mean, in terms of kind of two ways of looking at it, one, those countries where the Olympics are broadcast too and then the actual activation in Japan itself. I mean, clearly, in Japan, given the restrictions, we have dialed back all the physical activations and are supporting appropriately, keeping supply of beverages to the athletes, et cetera. But the physical activation is essentially not going to happen. And so really it’s as much as anything, it’s about leveraging the airtime that the Olympics are going to get in places like the U.S. to market our programs. But very specific marketing activation at a large gallery isn’t going to happen in part because of the slight uncertainty of whether they were going to happen or not led us to move away from having any large extra fixed cost investment in activating the market, the Olympics for this year, and so we will leverage the airtime to market our brands. You can still note even today the deputy, one of the people in Tokyo said that, who knows what’s going to happen whether it will actually start. So we very much are taking the approach of take away the physical activation, take away any fixed cost that can only be used in the event of the Olympics and use any rights and times we have for the general marketing of our brands.

Our next question comes from the line of Laurent Grandet with Guggenheim.

Hey. Good morning, everyone. Thanks for squeezing me in. Got a question on Coca-Cola Zero, please, you had the mark to re-launch Coca-Cola Zero with new packaging and recipe both for Coke Regular, so in countries where it has already been launched, is the value you are seeing coming from Regular actually or Diet or competition? So any color would help. Thanks.

Sure. The answer varies by country since each has its own initial mix, like whether they have Diet or Light options and the popularity of Classic. The starting point is important. Additionally, driving Coke Zero Sugar has allowed us to gain business without just taking from ourselves. If the growth only came from Coke and Coke Light, it would be necessary but not particularly exciting. What's thrilling is that we’re expanding the Coke brand. If you look at the global perspective, you can see growth in Coke Original and a rapid increase in Coke Zero, with only a portion of that growth coming at the expense of Coke Light or Diet Coke, depending on the region. Overall, this contributes positively to the Coke brand. Ladies and gentlemen, this concludes our question-and-answer session. I would now like to turn the call back over to James Quincey for any closing remarks. Thanks very much, everyone. As we said at the beginning, look we are delivering on the priorities we set out for ourselves to emerge stronger. Hopefully, you could see that in both the results and our guidance. And we just want to take the opportunity to thank once again the extraordinary effort of our associates, of our bottling partners and all our partners that have allowed us to deliver these results and to raise our guidance for the outlook. Our system is strong. Our bottling partners are strong. We continue to invest behind momentum and the huge growth opportunity ahead of us. Thanks for your interest, your investment and for joining us today.

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