At this time, I'd like to welcome everyone to The Coca-Cola Company's First Quarter 2023 Earnings Results Conference Call. Today's call is being recorded. If you have any objections, please disconnect at this time. 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 Mrs. Robin Halpern, Vice President Head of Investor Relations. Mrs. Halpern, you may now begin.

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. Now I'll turn the call over to James.

Thanks, Robin, and good morning, everyone. 2023 is off to a good start. We continue to execute well and grow amidst the dynamic macro environment. We like to say we have an all-weather strategy, one that enables us to thrive no matter what's happening in the world. We pursue excellence globally with an eye towards winning locally as a system. Our brand investments continue to create value for our customers and consumers, leading to our ability to drive quality growth for our stakeholders. Today, I'll discuss our first quarter performance and provide some perspective around today's global consumer and macro environment. I'll then reiterate why we are confident in our ability to deliver on our guidance for the full year. Finally, I'll elaborate on how the actions we're taking set us up for success in any environment and how we're driving resilience for our business and continued growth in 2023 and over the long term. John will then discuss our results and go into more detail on the 2023 outlook. In the first quarter, pandemic restrictions in parts of the world relaxed, and many supply chain pressures abated. At the same time, inflation and geopolitical tensions persisted. New concerns emerged around the stability in the banking sector and the magnitude of the potential squeeze on consumers. In the face of these factors, we continue to generate momentum as investments in our brands got the year off to a positive start. We remain focused on creating value by meeting the needs of our customers and consumers. We delivered 12% organic revenue growth in the quarter. This was primarily driven by pricing actions across markets and revenue growth management initiatives to retain and add consumers. We also delivered volume growth of 3%, which is in line with last year versus 2019. We saw growth across developed as well as developing and emerging markets, and we continue to gain both volume and value share for the quarter, including at home and away from home channels. We're encouraged by this momentum and are operating the business with a focus on growth while closely monitoring macro trends for signs of a slowdown. As we look around the world today, the consumer picture varies across our markets. In Asia Pacific, the reopening of China has led to an increase in consumer activity, but consumption is still recovering to pre-pandemic levels. India's economy remains resilient with a strong job market and robust consumption. In Japan, consumers are feeling inflationary pressure for the first time in many years. In Europe, the recent banking crisis added to last year's energy spike, driving further uncertainty to purchasing behaviors as consumers continue to increasingly seek out affordable and private label options across many FMCG categories. In North America, the picture is a mixed bag with unemployment low, gas prices improved and savings holding up, but inflation and higher mortgage rates are top-of-mind concerns for many consumers. In many developing and emerging markets in Latin America, Africa, and the Middle East, consumers continue to face varying levels of inflation and volatility in the macroeconomic conditions. Clearly, there's uncertainty in how the consumer environment may ultimately play out in 2023. But thanks to the hard work of our people and partners, we're a more flexible network enterprise today. With our enhanced system alignment, we're confident we can win together locally in a wide variety of environments. Let's start with the portfolio. We have a growth portfolio of consumer-centric brands across categories. Our networked organization is allowing us to raise the bar of innovation and marketing to leverage our loved brands more effectively in the marketplace. We're keeping our streamlined portfolio of brands relevant with consumers and finding innovative ways to offer beverage choices for every occasion. In Japan, we recently relaunched our Georgia Coffee brand with a fresh new look and a bright proposition to inspire current consumers and expand Georgia's appeal to a broader audience, complementing Costa's premium ready-to-drink offerings in that market. We're expanding our exploration in alcohol ready-to-drink beverages with a keen focus on responsibility. We work with Brown-Forman to roll out Jack and Coke cocktails in the U.S. during the quarter with more markets launching now. It's early days, but the ability to get one of the most popular cocktails in the world in a can is proving to be compelling to retailers and consumers based on preliminary volumes and velocities. We're encouraged by the level of engagement as distribution expands. We're driving bigger and bolder innovations that can leverage consumer insights leading to a higher success rate and enduring growth. In North America, we continue to foster brand love for fairlife, which has grown volume double digits for eight consecutive years. Fairlife became a $1 billion brand last year, and we're building on the momentum of the brand, including the success of co-power with fairlife nutrition plan. Launched with a digital-first campaign in the club channel, fairlife nutrition plan has seen strong consumer interest from those looking for high-protein, low-sugar shake that tastes great and is lactose-free. We're planning to expand the product to more channels and packages in the coming months. We're working with WPP, our global marketing network partner, and increasingly leveraging digital capabilities to engage consumers through passion points, personalized experiences and collaborations. The Coke Studio concept first drove cultural relevance and brand performance in Pakistan, with the latest season streamed over one billion times. We scaled the program to 30 markets last year, and in 2023, it will become an always-on platform across the globe. Connecting consumers' love of music to consumption occasions by spotlighting breakthrough talent, Coke Studio provides a portal to live digital experiences and can be activated using QR codes on our packages. Consumers can drink, scan and enjoy their favorite beverage along with music from genres around the world. Working as a network system with our bottlers, we're managing through macroeconomic uncertainty with enhanced capabilities in revenue growth management and integrated execution. We often talk about the many levers of revenue growth management. While the inflationary environment led to proactive pricing increases over the past 18 months, it's important to recognize our RGM capabilities extend far beyond pricing. At its core, revenue growth management is about consumer-centric segmentation, ensuring we have the right product in the right package in the right channel at the right price point, driving transactions and meeting consumers where they are. Affordability and premiumization are key levers to maintain and expand our consumer base, and we continue to balance affordable offerings with compelling premium propositions to ensure we have beverage options across income levels. Affordability is a driver in developing and emerging markets, evidenced by double-digit volume growth in these offerings in Indonesia and Vietnam, helping to drive record sparkling share in Vietnam and driving approximately 3 billion transactions at affordable price points in India this quarter. Premium packages like slim cans and mini cans are seeing strong growth in many markets, including Australia, where mini cans drove 40 million transactions and contributed to share growth in the region. Premiumization also includes participation in adult drinking occasions. In North America, we've expanded our Simply premium juice brand into the mix segment with Simply Mixology in three flavors to serve as a cocktail or mocktail. In Europe, we've relaunched our Kinley and Royal Bliss brands as harmonized platforms to participate in the adult mixer segment. For both affordability and premiumization, the value proposition is often messaged at the point of sale, such as the expansion of the value bundle in certain channels in the U.S. and the mini can mini price campaign that drove strong growth in small packages in Japan. RGM, coupled with integrated execution, also drives value for our customers. By providing key insights and offering the right mix of brands, packages, price points and compelling data-driven promotions, we are able to partner with customers that deliver traffic, basket and incidence growth. Latin America is a great example of how this came to life in the first quarter, evidenced by revenue growth ahead of transactions and transaction growth ahead of volume. By working closely with key retailers, our system focused on the availability of cold, single-serve beverages in premium brands such as Schweppes and smartwater. We introduced refillable packages into new channels, all while driving better in-stock levels and higher consumer traffic in-store, earning accolades from customers. Our business has largely recovered from the effects of the pandemic and remains well-equipped to navigate the dynamic macro environment and is emerging with even stronger capabilities and system alignment to deliver vibrant long-term growth for many years to come. At the same time, our consumers also care about sustainability. While we strive to grow our business, we also want to be water positive, drive a circular economy for our packaging and grow consumer beverage choices, including low- and no-calorie brands as part of our total beverage strategy. These goals are integral to our business and beneficial for society. Our annual business and sustainability report will be released soon, including an integrated section on our World without Waste packaging initiatives. We're proud of what we've accomplished so far and recognize there is still opportunity ahead. We continue to lead and act collectively with other key stakeholders to drive progress on this agenda. I encourage you to learn more about how we're progressing against our targets across various sustainability pillars and priorities to refresh the world and make a difference. Before I hand over to John, I'd note that it's early in the year, and there's a fair amount of uncertainty around the operating environment ahead. But our first quarter results give us increased visibility to deliver on our full-year 2023 guidance. We're executing more efficiently and effectively on a local level, maintaining flexibility on a global level and continuing to reinvest in the business and build the system for the long term. In short, we're expanding the sphere of what we can control. We're well prepared to respond with speed to changing market dynamics as we've demonstrated we can do. By staying clear on our purpose and remaining consumer-centric, we continue to execute to sustainable long-term growth. With that, I'll turn the call over to John.

Thank you, James, and good morning, everyone. We've had a good start to the year with strong first quarter results. Starting with the top line. We grew organic revenues 12%. Unit cases grew 3% with broad-based growth across most markets, driven by investments in the marketplace. Concentrate sales were two points behind unit cases for the quarter, primarily driven by the timing of concentrate shipments and one less day. Our price/mix growth was 11% for the quarter. Much of this was driven by carryover pricing coming into the base from last year, along with some new pricing actions across operating segments, revenue growth management initiatives, and favorable channel and package mix. Comparable gross margin for the quarter was up approximately 120 basis points driven by underlying expansion and a slight benefit from bottler refranchising, partially offset by the impact of currency. Underlying gross margin expansion was driven by a benefit from the phasing of inventory costs, strong organic revenue growth, and cycling the timing of M&A integration expenses, partially offset by higher commodity costs. Comparable operating margin expanded approximately 40 basis points for the quarter. This was primarily driven by underlying operating margin expansion due to robust top-line growth across operating segments, partially offset by increased marketing investments and higher operating costs. Putting it all together, first quarter comparable EPS of $0.68 reflects an increase of 5% year-over-year despite higher-than-expected 7% currency headwinds. Free cash flow was negative by approximately $120 million in the quarter. This was largely attributable to the timing of working capital initiatives and the previously discussed M&A-related payments that took place in the quarter. Our underlying cash flow generation remains strong, and we feel confident in our cash flow agenda and full year outlook. Our balance sheet remains fit for purpose to support our growth agenda, and our net debt leverage of 1.8x EBITDA as of the end of the first quarter is below our targeted range of 2 to 2.5x. Our capital allocation priorities remain the same. We continue to invest to drive long-term growth and to deliver dividend growth for our shareowners as evidenced by the 5% dividend increase announced in February. We remain mindful of maintaining our financial flexibility amidst the ongoing tax dispute with the IRS. We are currently waiting for the tax court to render its final opinion in the case, allowing us to move forward with the appeals process. As previously discussed, we intend to assert our claims on appeal, vigorously defend our position, and believe we will ultimately prevail. We will continue to keep you updated. As James mentioned, we are encouraged by our first quarter results and are harnessing what we can control to remain resilient in the face of a volatile operating environment. We remain laser-focused on top line-led growth as well as the endurance of the bottom line. And we'll reinvest in our brands with more rigor and discipline using the refreshed resource allocation framework we discussed at CAGNY. This approach enables the enterprise to prioritize and put more focus behind country and category combinations that can deliver the best return in the near-term while fueling steady progress on our total beverage strategy over time. It also allows us to be more dynamic and to adapt quickly. For example, in emerging markets, where commercial beverages are still a small part of daily consumption, we're leading with core sparkling and juice strengths propositions. In developed markets, where consumers are looking for more beverage choices, we're investing behind a broader portfolio of brands and categories, including value-added dairy, enhanced water, tea, and coffee. Despite the global macro picture remaining uncertain in the months ahead, our planned investments and operational strategy will support the momentum we've seen early in the year and give us good visibility to deliver on our 2023 guidance. This guidance is comprised of organic revenue growth of 7% to 8%, primarily led by price/mix amidst the ongoing inflationary environment, comparable currency-neutral earnings per share growth of 7% to 9%. Based on current rates and our hedge positions, we are reiterating our currency outlook of an approximate 2 to 3-point headwind to comparable net revenues and an approximate 3 to 4-point currency headwind to comparable earnings per share for the full year 2023. Inflationary forces are moderating in some respects. Spot prices have come down in oil and freight rates are more favorable. That said, many commodities we've been exposed to have been sticky, and we have some advantageous hedges that will be rolling off to less favorable rates during the year. 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. Additionally, we expect wages and inflation in media to continue to remain elevated. Despite the increase in the first quarter effective tax rate, we continue to expect our underlying effective tax rate to be 19.5% for 2023. All in, we are reiterating comparable earnings per share growth of 4% to 5% versus $2.48 in 2022. We expect to generate approximately $9.5 billion of free cash flow in 2023 through approximately $11.4 billion in cash from operations, less approximately $1.9 billion in capital investments. I would like to remind you that included in cash from operations are two discrete items related to, one, transition tax payments, which will take place in the second quarter; and two, payments associated with M&A transactions. Excluding these, our implied free cash flow conversion would be within our long-term guidance. This guidance does not include any payments related to our ongoing U.S. income tax dispute with the IRS. Overall, we don't expect the tax dispute to have a bearing on our ability to deliver on our capital allocation agenda and drive long-term business growth. There are some considerations to keep in mind as it pertains to our guidance. We expect price/mix to moderate through the year as we cycle our pricing initiatives from the prior year. The discrete gross margin benefits related to the phasing of inventory costs and cycling the timing of M&A integration expenses this quarter are unlikely to repeat. Given the ongoing backdrop of rising interest rates, we expect to see higher net interest expense given our effective exposure to floating-rate debt. And finally, due to our reporting calendar, there will be one additional day in the fourth quarter. With a quarter of good results to start the year and our focus on driving top line-led growth in any macroeconomic environment, we are well-positioned to compound quality value by delivering on 2023 guidance. Our network structure and aligned system are enabling us to deliver on our three key objectives: pursuing excellence globally and winning locally, investing for the long-term health of the business, and generating U.S. dollar EPS growth. The strength of our people and great partnerships with our bottlers around the world give us confidence in our ability to win with consumers in the marketplace and deliver value for our stakeholders.

We are ready to take questions.

So first, just a detailed question. You guys obviously started out with a pretty robust initial outlook for work sales of 7% to 8% for the full year in 2023. Obviously, a strong start in Q1. You kept that full-year guidance. So just can you give us a sense, did Q1 come in better than you expected? Was this more expected, why not move on the full year? And within that, can you also comment on away-from-home trends as we recover from COVID and what you guys are expecting in the balance of the year, including in China, which is probably in a different place than the rest of the world.

Certainly. I'll begin by discussing the situation in China. As the market opens up, we are observing a revival in consumer behavior similar to what we saw in the U.S. and Europe during their openings. There has been an increase in consumer activity, particularly noted during the Chinese New Year, which occurred in the first quarter. The performance in China is improving, and we are concentrating on revitalizing our marketing efforts and enhancing availability in rural markets. In the second quarter, we will be facing the most challenging comparisons from 2022 regarding China. Overall, we remain cautiously optimistic; although our business in China is still below 2019 levels, we are hopeful for the remainder of the year. In terms of our away-from-home business, last year's first quarter was impacted by Omicron and not all venues were fully open. This year, we are experiencing additional strength in the away-from-home sector. For instance, in the U.S., immediate consumption packages have outpaced those meant for future consumption. Fast-food restaurants performed well in the first quarter as we are comparing it to a time when the market was only partially open. This trend might stabilize as we progress through the year. To summarize, the first quarter showed strong performance that aligned with our expectations and plans. Back in February, we had anticipated ongoing volume growth for our beverage franchise throughout the year, although we expect pricing to moderate from the elevated levels seen in the fourth quarter to more typical levels by year-end. We are confident in our guidance as we navigate uncertainties related to inflation and its effects on consumers and input costs. While we foresee moderating costs and pricing over the year, we understand there are challenges ahead. We feel positive about our guidance, have an effective strategy in place, and are focused on achieving resilient results throughout the remainder of the year.

One thing that stood out to me this quarter was the profitability in North America. I was wondering if you could comment on that. It seems like margins have reached a new high. I'm curious if there was anything one-time or if it relates to portfolio mix and pricing realization.

Sure. Thanks, Lauren. Yes, on the back of what James just said, we expected in Q1 to see North America coming out to a strong position, given the carryover pricing that we knew would be a tailwind for the quarter. We also saw benefits from immediate consumption being strong through the quarter. As we look to the rest of the year, we continue to keep in mind our ongoing objectives to expand margins. Q1 was a strong start, and we knew we would come out well. We look to the rest of the year in line with what James is saying to moderate as we get into the back half of the year on the pricing front and continue to be laser-focused using our RGM work to stay close to the consumer. So we feel good about the start. Rest of the year is looking positive. Yes, we'll take into account some of the trends we're seeing on the macroeconomic and consumer front and manage that environment with the various levers we have.

I had a question on your business in Europe. Organic sales in the quarter were incredibly strong. You're up 23% on a tough comp. So just curious if you could help us unpack this a bit more. Maybe touch on the resilience of the consumer. How big of a factor was the mild winter? And then were there any countries within Europe that were particularly strong, for instance?

Yes. Thanks, Bonnie. Look, firstly, EMEA is more than just Europe. That's the first key point. It includes some countries that had some near hyperinflationary effects like Turkey, and there's an impact in the first quarter of high inflation in Turkey, which has pushed the price/mix up more than would be normal. Secondly, of course, there's some carryover pricing from the inflationary burst that happened in kind of the European Union, certainly the U.K. last year. And that will moderate as we go over '23, as is likely to be the Turkish inflation. There are some mix benefits of Western Europe having, as you said, a relatively mild winter. Despite the pressures on purchasing power, Western Europe had a very good first quarter. That's good in its own right, but it's also good in a mix effect within EMEA. A number of the other Middle Eastern and African countries did well, perhaps with the exception of Nigeria. So it was a strong overall result. Lots of mix in there; as I said, a bit of an inflationary effect between carryover and Turkey that will moderate in the rest of the year.

John, I wanted to just touch back on some of the gross margin comments you made earlier. Looking at the slide deck, right, there was about 140 basis points of gross margin benefit, underlying gross margin expansion in the quarter. Can you just give us some sense of how much, I guess, the inventory phasing and the lapping of the M&A integration costs, just how much of the stuff that is kind of more onetime impacted that 140? And I guess as we're thinking about pricing fading through the year, would we be kind of more looking at flattish maybe gross margins as we move through the balance of the year? So if you could just kind of give us a little bit more color on those items, that would be helpful.

Yes. Thanks, Bryan. So of the 140 basis points, you're correct. Included in that is the onetime on the inventory and the cycling of M&A. It's about half of that. The other half comes from mainly the carryover price and some favorable price/mix in the quarter. As you think about the rest of the year, I would keep in mind the following. As I just mentioned in North America, I think it’s across the board. There will be moderation on price, both rate and frequency. I think a greater use of our RGM levers will help to stay with the consumer as we see them in different states and parts of the world. We will have some FX headwinds similar to what we had in Q1 throughout the year, is our current expectation. We’ll have an extra day in the fourth quarter. I'd keep in mind that we have an ongoing objective to expand margins, and that remains very much the focus, but take those items into account for the rest of the year as you think about 2023 full year.

I would also say that we've talked about it historically on pricing volume. I would encourage people not to draw correlations through one quarter. You can use full quarters or annuals. Given acquisition relative to the bottlers and the final consumer, I think it's important to kind of average out some of these effects through all the various variables that John mentioned and take a multi-quarter view of what's going on and consider everything.

Just maybe first, just a quick clarification. John, I think as you started, you had talked about an expectation of bottom line or below-the-line deleverage on higher interest costs and such. This quarter, we saw that work in your favor just because of the higher other equity income and just wanted to get an update as to whether you still expect to deleverage on the year or if the first quarter changes that outlook. My broader question was back to revenue growth management. You talked about affordability versus premiumization, which has been a theme. I was wondering if you could maybe frame what percentage of the portfolio today is what you classify as affordable versus premium, how those cohorts are growing relative to the totality?

Do you want to start?

Yes. Let me take the first part, Steve. Just as you said, the first quarter, we did benefit from the equity income coming in better. We also had a couple of onetime items on dividends that helped. For the rest of the year, no significant change in what we've guided on interest expense. You can expect Q2 and Q3 relative to the prior year to be higher impact, given that we really saw the step-up starting in Q4 of last year. So we still, for the full year, expect the same quantum of deleverage as we had indicated in our February guidance.

Perhaps I'll take the RGM bit, Steve. I'm not sure I would attach a percentage to it globally. I'm not sure it drives relevance. I think a couple of thoughts, though. One, clearly, as over time, there has been an increase in disparity of income in any given country, the need to match the consumer across a broader range of price points has gone up. So you see both more opportunity and more need to have a foot in affordability and the other foot in premium. Both ends of the spectrum have been going up over time as we seek to meet the consumers where they are and where their pockets are and allow them to stay within our franchise. I see it as a need to do more of both. What's affordable and what's premium in the U.S. might look different than it does in Africa, China, or Western Europe, but the direction of travel is more of both. The mechanic of delivering on them, again, is different by countries.

James, I appreciate your comment on the puts and takes, especially with the away from home and the easy comps for the QSR in the U.S. in the first quarter. We have been seeing some retailers talk about the weather and also seeing companies talk about weaker recent trends, particularly in the U.S. in March. I know to the extent you normally don't give us the exit rate, but particularly now as we see these puts and takes, and of course, your guidance doesn't imply a continuation of the trends that you saw in the first quarter. So I think obviously this start is a pretty good start and gives us some more confidence for the rest of the year, but perhaps talk about these intakes and the easy comps in Asia that you alluded to.

We're two weeks into the second quarter. I don't think there's anything particularly productive in it. I mean, they weren't out-of-the-park results in the first couple of weeks, but there was some worse weather in India and the U.S. and the shift of Eastern side. I don't think one can draw a lot from a couple of softer weeks. The performance through the quarter was good. There wasn't a major drop from January through to March. We started strong in January, saw a continuation through March. The consumer is holding up, and we feel good about the strength of our strategy.

James, you've had some very interesting packaging innovation and digital engagement with younger consumers trying to keep them, and bring them into the CSD portfolio. Just wondering if you could give us any sense of how that's developing? Are you seeing improved brand equity scores with younger consumers, better market share? Any early signs that these innovations targeted to younger demographics in developed markets are working?

Sure. Yes, you put your finger on a kind of a nexus of a whole set of innovations. Let me just focus them on the Coca-Cola brand. We did the Coke Creations, which was kind of limited edition beyond just vanilla or cherry into stardust and marshmallow. I think it was much more engaging for consumers. Some of the advertising, we partnered with OpenAI and ChatGPT to run a promotion where you could design Coke advertising and have it come up on the Times Square billboard. All of that change, the bigger scale through the marketing, has become much more digital over the last three years, is starting to drive a difference.

James, I was hoping you can talk about the nonsparkling part of the business, less so from a consumer and product strategy side, but more from a go-to-market perspective with this whole reorganization going on in North America in particular. Is there a better infrastructure for Coke to sell the entire portfolio versus historically, which has been predominantly focused on sparkling? Any thoughts on that would be helpful.

Let me talk about the portfolio and then the go-to-market. Clearly, the portfolio in North America has been expanding over the last decades, but a lot in recent years as well. I think the results you're seeing in North America are driven by the overused expression of the 'all-in' strategy. We're seeing growth in soft drinks, good resonance in Coke and Coke Zero but also growth in the rest of the portfolio. We talked about in the script how Fairlife has been on a multiyear journey, really doing well. That builds on some of the previous acquisitions. Vitaminwater and Smartwater are doing really well this quarter. You're starting to see the portfolio being built out across the categories. Clearly, it's not all plain sailing in every category. We talked about how we need to stabilize and reinvigorate BODYARMOR in tandem with POWERADE. We're starting to see some growth in the ready-to-drink coffee segment in North America. This feeds into multiple routes to market that have been established in the U.S. There are several platforms. Clearly, the biggest piece is the bottlers, alongside retailers and a good share of away-from-home channels, complemented by the chilled route and fountain route. So there's much greater focus on getting the portfolio to work for consumers and drive a winning strategy for the retailers, coupled with a vastly strengthened bottling system over the last several years.

James, I was hoping to follow up on that a little bit and just kind of get some perspective on the current trends in the sports drink category, specifically here in the U.S. I think you called out BODYARMOR and POWERADE being under some pressure in the release. Can you talk about the competitive dynamics in that category and how you see that evolving as we look out over the balance of the year?

Yes, sure. We have two brands, BODYARMOR and POWERADE. We talked on previous calls about how we hadn't had the best integration into the Coke system last year with BODYARMOR. There's been new players and emerging competitive dynamics. We're focused on stabilizing our portfolio and growing from here. We brought out some product innovation in the first quarter with BODYARMOR Flash I.V. BODYARMOR Sports Water continues to be the fastest-growing premium water brand, and POWERADE Zero Sugar. We're starting to see some innovation and better marketing come through. There will be some missing package formats going into the marketplace in Q2 with multi-serve multipack versions of BODYARMOR. We believe we can do well with BODYARMOR and POWERADE. It's early days, but we see some promising signs to revert the trend by the end of the year.

Just a follow-up on the still category and kind of elasticity. It seems like sparkling has a lot of pricing opportunity from here, but maybe on juice and water, do you see promotions coming back? Do you feel like you're running into a ceiling at some point this year in terms of pricing, especially as you're getting more of a middle and lower-end consumer buying some of those products? Any thoughts there would be great.

Yes. Look, in recent times, the elasticities on water have been stronger than they have on soft drinks, with juice falling somewhere in between. Consumers are distinguishing between categories and brand strength, and whether the brand or category has earned the right to implement pricing, even if pricing is primarily cost-driven. This has been a feature of recent quarters. As we look out, we see pricing moderating, which indicates in markets like the U.S. or Europe a reduction in off-cycle price increases. We may see slightly more promotions as we look for those consumers who are under pressure to offer them slightly better affordability options. However, we’ll balance that with investments in premiumization options, whether that be categories or packaging. We're trying to work both ends of the spectrum here.

Great. We covered a lot of ground. So a couple of clean-ups for me, probably both for John. Can you quantify the impact from hyperinflationary pricing in the quarter from Turkey and Argentina? I'm not sure if that's a number that you have at your fingertips. Broadly, investment levels, I think there'd be a view in staples that, as gross margin improves, it will lend itself to some degree of reinvestment. Just wanted to get your thoughts on where the organization is now in terms of its satisfaction with overall investment levels. I think pre-pandemic, we were sort of at a high 12%. The industry dipped collectively for all the reasons that we know. If I'm not mistaken, you guys are around 8.5% of sales. Where do you see that going? Just some broader thoughts on adequacy and how you see this progressing as the cost environment lends itself to a greater degree of reinvestment.

Thanks, Kevin. The impact from hyperinflation in Turkey was just under two points in Q1. I don't have clear guidance for the rest of the year, but you can factor that into your assumptions. Regarding investment levels, we've been very consistent over the last three or four years, clear that we will invest as needed to support the portfolio. There are ups and downs in that on a quarter-to-quarter basis. We've executed well in '21 and '22 to do more with less, so it's not apples-to-apples in that sense. We are deriving more value today per dollar of investment than ever before. Considering the absolute levels we are investing in and values that we've received, I feel overall satisfaction with the investment levels.

Just a couple of clean-ups for me as well. John, on a total inflation basis, did you see commodities get a little bit worse through the quarter? Can you comment on total inflation including freight? Just trying to frame the commodity inflation versus total inflation. And then from a cash flow standpoint, would you expect free cash flow to be positive in Q2? Any way that you would discuss the front half versus back half delivery in the context of your full-year free cash flow guidance?

Yes. Our commodities portfolio is mixed. On the one hand, we're seeing some moderation in the number of commodities like metals. We're seeing moderation in ocean and freight in general. But offsetting that, we have a meaningful increase in sweeteners and juices. So that's one consideration. The second consideration is we continue to hedge in 2023, and we feel good about the hedges we're putting into place. But they are cycling a set of hedges in 2022 that were more favorable. I think it's important to keep that in mind. Going forward, we do see further moderation on the overall cost front. However, we have an ongoing view that we will see mid-single-digit increases for the year 2023. On free cash flow, yes, we had a couple of discrete items in Q1 affecting the net results. In the second quarter, we will have transition tax payments going out. I expect free cash flow to be back-weighted toward the second half of the year based on what happened in Q1 and expectations in Q2.

To expand on Steve's earlier question, in the emerging markets, refillables drive affordability, but it seems they also help you increase premium pricing for one way and create premium growth. My question is, where in emerging markets might you see big opportunities or new opportunities to drive affordability gains and revenue management?

Yes, Carlos. I definitely agree with you that if you have a good anchor of affordability options, it enables the portfolio to stretch along the pricing spectrum with other packaging options, thereby satisfying more consumers and driving a more favorable competitive advantage and a more profitable business overall. The refillables infrastructure takes time to build, both from a manufacturing and distribution standpoint and from a retail and consumer habit perspective. But there are still plenty of opportunities in Latin America and some activity in Africa and India. It doesn't change rapidly overnight, but there are big opportunities to use all the thinking behind revenue growth management and the latest technologies to provide packaging options that give price points across a broader range as possible.

Just a final one on innovation, please. I think you've relaunched Sprite Zero in the quarter and also POWERADE. Is there any initial feedback you could give on those brands? That'd be very useful. And then also just any thoughts on Coke Zero, which, again, grew volumes 8% off a comp of 14%. How much further do you think that brand specifically has to go?

Sure. The reformulations on Sprite Zero and POWERADE are specific to a number of markets. It's not a big call-out. They're part of an ongoing program to ensure that we have the best tasting, most effective recipes in any particular market. I see those as examples of continuing to innovate to stay on the cutting edge of the formula, whether that's taste and enjoyment or delivery on a functional feature in a category like sports. As for Coke Zero, we now have many years of very strong volume growth behind Coke Zero. I think there's a huge ongoing runway for Coke Zero to continue to grow. Just to summarize, the year's off to a great start. We continue to win in the marketplace. While it's still early in the year and the macro environment remains uncertain, we're confident in our plans and our ability to leverage our capabilities to adapt to consumer needs and drive top line-led growth. We have visibility to deliver on our 2023 guidance. We're focused on the sizable opportunity ahead of us and managing the near-term uncertainties to build a Coke system for the long term. Thank you for your interest, your investment in our company and for joining us this morning. Thank you.

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