At this time, I'd like to welcome everyone to the Coca-Cola Company's Second Quarter 2023 Earnings Results Conference Call. Today's call is being recorded. If you have any objections, please disconnect at this time. All participants will be in a 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 Ms. Robin Halpern, Vice President and Head of Investor Relations. Ms. 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 cocacolacompany.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 gross 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 reports. Following prepared remarks, we will turn the call over for questions. Please limit yourself to one question. If you have more than one, please ask your most pressing question first and then re-enter the queue. Now I'll turn the call over to James.

Thanks, Robin, and good morning, everyone. After a strong start to the year, we continued our momentum in the second quarter. Our combination of strong love brands and an aligned pervasive distribution system is allowing us to win in many different operating environments. Given our strong first-half results and the resilience of our business, we are raising both our top line and bottom line guidance today. To give you the full picture of our results and our raised guidance, I'll start by discussing second quarter performance and provide perspective on the current business and consumer environment. Then I'll highlight our performance across categories, including how we are driving quality leadership throughout our portfolio. Finally, I'll touch on why we're confident in our ability to deliver our long-term objectives and then John will end by discussing our results for the quarter and our revised guidance for 2023. In the second quarter, competing macro forces were at play across our markets. On the positive side, many supply chain pressures eased, concerns surrounding the stability of the banking sector diminished, and energy prices continued to pull back from record highs. However, global inflation was still elevated and geopolitical tensions continued to exist in some markets. Despite this confluence of factors, we delivered 11% organic revenue growth in this quarter. Volume was flat and after a slower start, it sequentially improved, with June being our strongest month in the quarter. In the first half of 2023, we delivered volume growth that was consistent with our underlying performance since 2019. More broadly, our industry is strong and we believe we have significant headroom to grow both volume and value and we continue to gain share. During the quarter, we gained value share in both At-Home and Away-From-Home channels. As we look towards the second half, the global inflationary environment is impacting consumers and our business differently across geographies. In developed markets like North America and Western Europe, inflation is beginning to moderate and labor markets remain strong. Our elasticities continued to be relatively low. However, we have seen some willingness to switch to private label brands in certain categories. Across the sector, consumers are increasingly cost-conscious. They're looking for value and stocking up on items on sale. In these markets, our pricing is largely in place and is expected to moderate as we cycle pricing initiatives from the prior year. It's more important than ever to be consumer-centric and to partner with customers to provide affordable and premium propositions which deliver value through basket and incidence growth. In many developing and emerging markets like Latin America, the Middle East and Africa, consumers are more accustomed to persistent inflation. However, the number of markets with intense inflation has expanded. Five of our top 40 markets are currently experiencing over 20% annual inflation. In these markets, it's equally important to leverage revenue growth management capabilities to balance affordability with premiumization to be able to take price with local market inflation, which helps offset the currency pressures. There are, as always, a few markets affected by specific local factors. In China, economic recovery slowed in the second quarter and inflation has declined. Consumer confidence is below pre-pandemic levels and we continue to monitor our leading consumer indicators and take action to win in the market. In India, business was unfavorably impacted by unseasonable rain and cooler temperatures in the quarter. However, the growth outlook remains intact. In a world with a wide spectrum of market dynamics, from inflation to currency devaluation to shifting consumer needs, our business is proving to be very resilient. We have many levers to pull to manage successfully through different operating environments, and we remain consumer-centric and focused on growth. A Recipe for Success is unchanged. We continue to deliver on our strategy through a combination of world-class marketing and innovation, excellence in revenue growth management, and strong execution. We are raising the bar and increasing quality leadership across our portfolio. Starting with Coca-Cola, we are growing our base of Gen-Z drinkers, gaining share and leveraging our scale to drive efficiencies across our system. During the quarter, we gained volume and value share by linking Coca-Cola to consumption occasions and engaging consumers through local experiences. A great example is A Recipe for Magic, which was activated in more than 50 markets and celebrates consuming Coca-Cola with meals. The campaign was supported by experiences using local chefs, leveraging approximately 750 influencers globally and was brought to life through social media and recipe-focused billboards. The Coke and Meals campaign also allows Coca-Cola to strengthen its local relevance. For instance, in the Away-From-Home channel in Italy, Coca-Cola has grown incidence with Pizza, the number one consumed meal with approximately 3 billion pizzas each year, from 10% to 20% over the past four years. While the Coca-Cola brand is ubiquitous, we tailor our price pack architecture to consumption occasions and are continuing to drive both affordability and premiumization. During the second quarter, we grew basket incidence and volume per trip by double-digits while increasing price per liter. Moving on to sparkling flavors. We are seeing strong engagement from consumers across our staple brands, which include Sprite, Fanta, Fresca and Thums Up. At the same time, we have significant headroom to drive further quality leadership across developed and developing markets. With Sprite, we are driving brand awareness by connecting consumers to passion points and personalized experience at a more granular and locally relevant levels through our global Heat Happens platform. In North America, Sprite celebrated Hip-Hop's 50th anniversary with the launch of Sprite Lymonade Legacy and sponsorship of concert tours, exclusive experiences and collaborations with prominent artists. We partnered with local pop stars and a Grammy producer in China using our global Sprite Limelight music program for Gen-Z drinkers across 1500 college locations. In South Korea, the Sprite Waterbomb Festival generated strong results. In India, the Joke-in-a-Bottle promotion allowed consumers to scan packages and receive customized and localized jokes through WhatsApp to beat the heat. In June, Sprite was awarded Most Resilient Brand by Kantar for adding the greatest number of new households in 2022 of any FMCG brand. Turning to water, sports, coffee and tea. We are segmenting the broader opportunities and using our refreshed resource allocation capabilities to prioritize markets and subcategories that offer the highest return on our investment. We are building our edge through consumer centricity by accelerating the speed to market of our innovation, measuring results in real-time and scaling successes. We continue to build excitement for Fuze Tea through the rollout of Green Tea in Mexico, some limited editions in Turkey, and expansion of Zero Sugar offerings across Europe. Early results show promising velocities and Fuze Tea grew volume double-digits during the quarter. Vitaminwater is another example. During the quarter, we relaunched Vitaminwater Zero in North America with a new sweetener system of Monk Fruit and Stevia, which generated value share gains. We are capitalizing on consumer needs for rapid hydration, a fast-growing sub-segment within sports drinks with the launch of BODYARMOR Flash I.V. in the US and FlashLyte in Mexico. While still early, both saw strong consumer interest during the quarter and have demonstrated promising initial results. Juice, value-added dairy, and plant-based beverages have delivered nine consecutive quarters of double-digit top line growth and gained both volume and value share during the quarter. We continue to innovate and drive premiumization under the Simply trademark, Simply Mixology, which provides consumers with great-tasting mixers and ready-to-drink mocktails. We kicked off an experiential campaign that celebrated the start of summer and its national rollout. Also, Fairlife had another exceptional quarter as both Core Power and Fairlife Nutrition Plan continued their strong momentum. In May, we announced a $650 million investment to build a state-of-the-art production facility to help drive the next wave of growth. Finally, we are encouraged by what we are seeing across alcohol ready-to-drink beverages. We continue to take a measured approach through exploring and applying our learnings. While it's still early, Jack and Coke has shown promising results. In the Philippines, the combination of Jack and Coke and Lemon-Dou delivered strong share gains. The Schweppes Mojito rollout in India is also off to a good start. And these examples illustrate how our marketing transformation is coming to life. The strength of our total beverage portfolio gives us further confidence that we can continue to deliver by providing consumers beverage choices for every occasion. Our purpose is to refresh the world and make a difference. And we remain committed to building a more sustainable future for our company and the planet as we strive to grow our business. We continue to pursue progress toward our vision of a circular economy for packaging through innovation and partnerships. For example, in the US, we recently partnered with Republic Services to ensure we have an adequate supply of recycled plastic for our packaging. At the same time, we are embracing refillables. We recently kicked off a program with customers in four US cities to test refillable fountain cups with plans to expand elsewhere. We've successfully navigated the first half of the year, which supports our decision to raise guidance for the full year. And instead of trying to predict the many directions things could take, we remain focused on delivering our key objectives that we outlined in February. In other words, number one, pursuing excellence globally and winning locally through relentless consumer centricity to drive top-line momentum. Two, investing for the long-term health of our business and raising the bar across all elements of our strategic flywheel. And three, generating US dollar EPS growth. Our system has never been stronger and our global network model is allowing us to quickly adapt to changing environments. We believe we are well positioned to deliver our updated guidance and objectives, thanks to our incredible system employees around the world. With that, I'll turn the call over to you, John.

Thank you, James, and good morning, everyone. We are pleased with the momentum of our business and our strong second quarter results. Starting with the top line, we grew organic revenues 11%. Unit cases were flat. As James said, volume for the second quarter got off to a slower start but ended on a positive note. Concentrate sales were one point ahead of unit cases for the quarter, primarily driven by the timing of concentrate shipments. Price mix growth was 10% for the quarter, driven by carryover pricing coming into the base from last year, along with some new pricing actions across operating segments, including the impact of hyperinflationary markets. Comparable gross margin for the quarter was up approximately 40 basis points, driven by underlying expansion and a slight benefit from bottler refranchising partially offset by the impact of currency. Comparable operating margin expanded approximately 90 basis points for the quarter. This was primarily driven by strong top line growth and the impact of refranchising bottling operations, partially offset by an increase in marketing investments and higher operating costs versus the prior year as well as currency headwinds. Putting it all together, second quarter comparable EPS of $0.78 was up 11% year-over-year despite higher than expected 6% currency headwinds. Free cash flow was approximately $4 billion year-to-date. This was largely attributable to strong underlying operational performance and working capital benefits, partially offset by a $720 million transition tax payment that was made during the second quarter as well as M&A-related payments. Our balance sheet is strong and our net debt leverage of 1.6 times EBITDA is below our targeted range of 2 to 2.5 times. Our capital allocation priorities remain the same and we continue to invest to drive long-term growth. As James mentioned, we are encouraged by what we are seeing in the marketplace. While we continue to spend our strategic flywheel faster to generate top line-led growth, we've also progressed on a margin agenda, as demonstrated by our consistent track record of offsetting cost headwinds to sustain steady gross margins. We have numerous levers available to drive top line growth and improve the effectiveness and efficiency of our spend over the long term. Our all-weather strategy, coupled with the great plans that we have in place to continue to create quality leadership across our portfolio, give us good visibility to deliver on our raised 2023 guidance. This is comprised of organic revenue growth of 8% to 9%, which includes positive volume growth while continuing to be led by price mix. There are a few considerations to keep in mind. We expect pricing in developed markets to moderate through the year as we cycle pricing initiatives from the prior year. In developing and emerging markets, we aim to take price with local market inflation. To the extent that intense inflationary markets drive elevated price mix, the impact is oftentimes offset by currency, as it is frequently difficult to hedge our exposure. Due to our reporting calendar, there will be one additional day in the fourth quarter. We now expect comparable currency neutral earnings per share growth of 9% to 11%. Based on current rates and our hedge positions, we are updating our currency outlook of an approximate 3 to 4 point headwind to comparable net revenues and an approximate 4 to 5 point currency headwind to comparable earnings per share for the full year 2023. Inflationary pressures are beginning to moderate in some ways, including freight rates that are favorable compared to last year. That said, several commodities that are prevalent in our basket, like sugar and juice, remain elevated and we have some hedges that we will be rolling off to less favorable rates. Based on current rates and hedge positions, we continue to expect per case commodity price inflation in the range of a mid-single-digit impact on comparable cost of goods sold in 2023. Our updated underlying effective tax rate for 2023 is now 19.3%. All in, we are updating comparable earnings per share growth of 5% to 6% versus $2.48 in 2022. We continue to 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. If you exclude the transition tax payment made in the second quarter and various payments associated with M&A transactions, our implied free cash flow conversion would be within our long-term guidance. This guidance does not include any payments related to our ongoing US income tax dispute with the IRS. As we enter the second half of the year, we continue to build a culture that emphasizes raising the bar in every aspect of how we do business. Thanks to the tremendous ongoing commitment of our system employees around the world, we are confident in our ability to deliver on our guidance for 2023 and drive value for our stakeholders over the long term. With that operator, we are ready to take questions.

Our first question comes from Bryan Spillane of Bank of America. Please go ahead. Your line is open.

Hey, thanks, operator. Good morning, everyone. I guess I have a question about just as we kind of look into the back half of the year and looking at organic sales, the implied organic sales guidance, which I guess is in the kind of the 5 to 6% range in the back half of the year. Maybe James and John, can you just talk a little bit about how maybe the just the macro environment or you know the operating conditions are today versus what you were thinking at the start of the year? And given that there's, you know, more of these markets where countries where hyperinflation is an issue, is price a little bit more of a driver in terms of the organic sales comp in the back half of the year relative to volume again versus kind of what you were thinking at the start of the year?

Good morning, Bryan. Let me clarify that for you. The main point is that we've observed a higher level of pricing in the second quarter and the second half of the year than we initially anticipated, particularly in countries experiencing high and persistent inflation over 20%. In terms of our strategy, we are consistently focused on enhancing our marketing efforts, improving revenue growth management, and refining our commercial strategies to drive marketplace execution. Our goal is to achieve strong top-line growth. Typically, we expect that growth to be divided equally between volume and price, usually around 5% to 6%. In the latter half of the year, we expect volume to remain steady, similar to the first half, with growth trends aligning with those from 2019, mirroring our performance last year. We aim to expand our consumer base for solid strategic reasons. Regarding revenue in the second half, we will see the effects of three pricing factors. First, there will be a decrease in carryover pricing from last year, which experienced significant cost inflation, but this will gradually diminish by the end of December. Second, this year's pricing increases, excluding the countries with high inflation, appear more in line with typical years in terms of their timing, frequency, and magnitude.

Ladies and gentlemen, we are experiencing technical difficulties. Please stay on the line.

When did I stop? Operator do you know when the line cut on my answer?

Unfortunately not, sir. Our next question will come from Lauren Lieberman from Barclays. Please go ahead. Your line is open.

Hang on, one sec, operator.

Oh, sorry.

Operator, if you let me just finish the other question.

Certainly.

I apologize for any confusion caused by the technical difficulties. I want to reiterate some points, and I appreciate your understanding if I repeat myself or if there are any gaps in my explanation. We discussed that the volume in the second half is expected to be similar to the first half, whether compared to the prior year or to 2019. In terms of pricing, one significant factor is the carryover, which will gradually decrease to zero by the end of the fourth quarter. The new pricing we introduced in 2023 aligns well with our typical pricing levels and is already set for the year, continuing at the same rate for the second half. Additionally, about a quarter of the current developments in PMO are influenced by countries experiencing higher inflation. In fact, inflation in these regions was somewhat higher in the second quarter than we anticipated, which also affects our foreign exchange situation. We expect some of these inflation rates to stabilize in the second half of the year, along with a moderation in foreign exchange, although this remains uncertain. This summarizes the impact of our strategy on achieving solid top-line growth in the second half. Next question, operator.

Our next question comes from Lauren Lieberman from Barclays. Please go ahead. Your line is open.

Can you hear me okay? Because like my line's got crackly now. That's okay.

Yeah, we got you, Lauren.

Cool. Good morning. Okay. I wanted to ask a little bit actually about Costa and coffee overall in light of the resource allocation model and identification of key profit pools and so on, not mentioned in the prepared remarks, but definitely called out in the press release this morning with particular strength in the UK. So I guess broad question would be how coffee overall is kind of fitting in on this thought process and resource allocation models if they are getting their particular differences by geography because we've heard different emphasis on the category by different bottlers. And then specific to the numbers called out in the release and Costa UK, should we think about that as recovery with mobility, COVID, or tweaks or adjustments to the strategy you've made that are beginning to come through in performance? Thanks.

Certainly, Lauren. I'll start with the second part first. In Q2, I see more of a recovery rather than new growth stages. That said, the number of Express machine placements has continued to increase throughout COVID and into this year. The Express business in the UK has been strong, remains strong, and is still growing, capturing market share. The retail side, regarding store numbers, is more about recovering and completing the mobility phase, with some share gain as well. We're also focused on driving growth moving forward and believe there is significant potential in the UK market. However, I would describe the year-to-date for stores as primarily a recovery trend, while Express shows a bias towards new growth. Internationally, if we categorize things, we've made good progress in the ready-to-drink segment in China and Japan, with the introduction of ready-to-drink Costa in Japan alongside Georgia. Japan has had a solid start to the year with growth in both Georgia and Costa, reflecting a comprehensive coffee strategy that is going well, particularly since Japan is our key ready-to-drink coffee market. In the B2B sector, which includes Express as well as our machine and bean services, we are beginning to gain traction in Europe with our bottling partners, and we're starting to find our footing in the US as well. These areas are central to our geographic expansion efforts.

Our next question comes from Dara Mohsenian from Morgan Stanley. Please go ahead. Your line is open.

Hey, good morning.

Good morning.

So I just wanted to follow-up on Bryan's back half question. You did mention a weaker start in April post the Q1 call and then the stronger June volume performance, obviously, on this call. Is that engendering additional confidence internally around the top line? And the reason I'm asking is it sounds like conceptually, you're not necessarily guiding to the June volume strength continuing in the second half. I'm just trying to understand that. Is that more just prudence, given the inflationary environment you mentioned and consumer volatility? Or are there other factors there? And as we think about your full year organic sales growth guidance range as part of that question, was that just the upside in Q2? Was some of it maybe some upside from Q1? Did you change expectations at all for the back half within that full year organic sales growth guidance raise? Thanks.

I think you might have asked the most questions in one go. Clearly, in the second quarter, as we expected from our last call, April started off slowly. However, things normalized towards the quarter's end, and June showed solid growth. It's important to consider the entire first half since there will always be good and bad months. April was affected by some price increases in developed countries and adverse weather in India. That can happen in any month. What gives us confidence for the latter half of the year is the growth rate from January to June, which we expect to be similar in the second half, whether compared to 2022 or 2019. We believe the momentum is there. In developed markets, we've completed the necessary pricing adjustments for 2023 and don't foresee significant new pricing challenges ahead. We believe the setup for the second half is strong. The uncertainty lies mainly in a few inflation-prone markets. Regarding guidance, we've obviously seen some flow-through from a strong first quarter compared to expectations. We feel confident about our full-year outlook, which is why we are adjusting it upward. There are timing factors to consider in Q2's performance, and as we've noted in previous calls, due to our position within the supply chain relative to final sales, it's beneficial to look at multi-quarter averages concerning volume, pricing, or even EPS flow-through. This helps avoid being overly influenced by any single quarter's fluctuations. We are confident in our guidance for the second half. While there will always be some variations, we have a solid strategy and a strong plan in place for the remainder of the year.

Our next question comes from Bonnie Herzog from Goldman Sachs. Please go ahead. Your line is open.

All right. Thank you. Good morning. I guess I had a question on your Asia Pacific operating margins, which were pressured again this quarter. And then, James, you touched on a couple of markets that are still facing pressures, but just hoping you could share a little bit more color on some of these headwinds in the region. And then any key initiatives you might have implemented to mitigate some of these pressures? And as a result, how should we think about your op margins trending through the remainder of the year in the region? Thanks.

As it relates to Asia Pacific, there were specific events that took place in Q2. Notably, the China operating unit experienced some destocking, which was significant. Additionally, there was strong demand for certain juice products in China and India. These unusual factors affected the margins in Asia Pacific on a timing basis. It's important to highlight that there is a structural headwind in the Asia Pacific region. We have a large and successful business in Japan with good operating margins; however, Asia Pacific also includes several fast-growing emerging markets like India, China, and some Southeast Asian countries. Due to their rapid growth and lower price points compared to Japan, these markets create a negative geographic mix effect for the Asia Pacific segment, which has been a long-term characteristic. Essentially, you need to sell more cases in India and China to balance out the mix effect from Japan. This structural headwind is always present, but our goal is to counteract it through our strategies, marketing, revenue growth management execution, and investments. If you look at the past, while margins fluctuate, they have remained relatively stable when comparing years like 2019 and 2022. So don't focus too much on one quarter in Asia Pacific, considering the issues. However, it's worth noting that this region may not always see consistently growing operating margins due to the structural mix effect. At the company level, we manage it as part of our overall portfolio, as we aim to utilize various strategies to achieve our revenue goals and some overall operating income margin expansion for the entire enterprise. We are aware of the role each segment plays in this context.

Our next question comes from Steve Powers from Deutsche Bank. Please go ahead. Your line is open.

Hey, good morning. Thank you. Actually, I want to squeeze in two topics, but I want to pick up first on, James, what you were just talking about in the broader total company context. In the quarter, the top line was obviously strong. But I think relative to external expectations, we saw a bit more margin flow through and SG&A leverage than was expected, especially in regions like North America, where the margin was exceptionally strong relative to history. So I'm curious in terms of how to think about the balance of managing top line growth versus continued margin expansion as you think about the back half. But then also more broadly, just in the context of your top line-led algo, is there maybe more cost efficiency opportunities that we should be thinking about longer term? Or is what we see in the quarter maybe more just a matter of timing? I also, John, if I could, I just want to loop back to a question I asked last quarter on below-the-line dynamics. You came into the year talking about below-the-line deleverage, interest expense, and so on. We haven't seen that again this quarter, especially with the lower tax rate. So I'm just curious if that has changed in the full year and is that factored into the full year guidance raise. Thanks for both.

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

Yeah, back to the margin element of the question. North America, in a way, is a fluid side of what we just talked about in Asia Pacific. Obviously, the results came in very strong in North America on the top line and on the margin. Again, there are a number of timing factors that kind of flatter the second quarter margin structure in the case of North America, including, for example, a bit like the Costa UK bit as it was a much faster growth rate in the Away-From-Home than the At-Home in the North American marketplace. And obviously, that's margin accretive. That should be seen as, in a way, more completing the play of the recovery versus COVID. So the completion of the reopening of restaurants, cafes, theme parks, et cetera, et cetera. And so that channel mix, if you like, flatters the operating income in the short term. There's a number of timings of other things that impact that, BODYARMOR integration, et cetera. I think the way to think about margin going forward by segment and most importantly for the company overall is, firstly, not to overrotate on any one quarter. Remember that there are a number of expense items and deduction items that we accrue on the basis of sales curve, not just what actually happened in the quarter. So timing is a feature. And that's why I'm very strong and let's take four quarters in a row and look at that relative to history. And when you do that, whether in North America or Asia Pacific or more importantly, the company in the overall, what you're going to see is us sticking to our strategy, which is to drive the growth from the top line and then to look for modest or moderate increments of operating margin, which we deliver not just by effective strategies to allocate resources, whether they be marketing or operating expenses, so that we are efficient and get a little bit of leverage there. But the design of the portfolio itself and the RGM strategies also is a component in creating sales that inherently have a little more gross margin. So we use all the levers to try and deliver. And so don't take these segments over or under deliveries as a sign of something new and radical happened. They are features of our business model. And the big overall idea is top line growth with small increments of operating margin expansion.

Our next question comes from Rob Ottenstein from Evercore. Please go ahead. Your line is open.

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

Sure. Let me start just by headlining actually, we've just come off. Last week, we had a global bottler meeting in Atlanta. I think it's been 30-plus years since we had that meeting in Atlanta, but we had it in Atlanta last week with the majority of the biggest bottlers in the Coke system. And I think it was a very clear meeting on our collective will and ability and interest in investing in this business and our overall level of alignment on what's important and what should we drive individually and what needs to be driven collectively. So actually, you guys all go around and talk to the bottlers as well, and I think you will get it reflected back from them that there is a very high degree, not just an alignment on what needs to be done, but enthusiasm on the opportunities ahead of us to drive the business, our collective business forward. On some of the specifics, clearly, you've got in that basket, there are things that happen around the world that are local and a better set of dynamics that are important and relevant and not necessarily projectable around the world. And the case of CCH and the distribution, now the ownership of Finlandia, I think, is one of those. The B2B platforms, which are progressed very nicely in Latin America are a feature of the business in multiple other countries. We've been testing and exploring and developing individually and collectively B2B platforms with the principal objective of enhancing the system and most importantly, the bottlers' relationships with the retailers. To the extent that we can complement, and here we're largely talking about the fragmented channel because the relationship with the modern trade is already set on electronic platforms anyway. We're talking about the fragmented trade, and the majority of the almost 30 million customers we visit as a system is to enhance that relationship, to make it no longer hostage to the visit of the Coke sales rep but to make it a 24/7 opportunity to enhance relationship, to order products, to ask for a service call, to get a new cooler, to put some umbrellas up or to add to an order that's already about to be delivered. And that is certainly when we have evaluated how those customers where the B2B platforms are available how they're doing versus where it's not yet rolled out. There's clearly an improvement, not just in the relationship however you want to measure it, but also in the sales. So there's a lot going on in the system. And I think the last thought there is you should take it also as examples of the willingness of the system to experiment and try and be on the front edge of what drives value in the marketplace.

Our next question comes from Chris Carey from Wells Fargo Securities. Please go ahead. Your line is open.

Hi. Good morning. You made a comment on some private label switching happening in certain markets. Can you just expand on where you're seeing this specifically geographically and perhaps by category and the playbook that you'll be deploying in these markets, the sorts of developments that you'd be looking for to respond to these actions ahead? And I asked that a bit in the context of, clearly, some of your ingredients are still quite inflationary and whether you see any potential risk to being able to price against that inflation in some of these markets going forward. Obviously, you have a playbook with a lot of different levers. And I'm just curious to hear your thoughts on where these developments seem to be happening and how do you think about responding to these a bit more specifically. Thanks.

Private label switching is primarily a trend in Europe and somewhat so in the US. If we consider price brands or B brands, we could observe some of this also in Latin America, depending on how we define it. Specifically focusing on private labels, it is predominantly a European phenomenon, followed by the US. We believe it is closely linked to the strength of the brands within particular categories. We see it more prominently in beverages, especially water and juices, rather than in soft drinks, and it is particularly minimal in colas. In addition to our marketing efforts to keep our brands relevant, we are executing our Revenue Growth Management strategy. While premiumization remains a chance for growth, we must also focus on affordability, whether through refillables, smaller affordable packs, or future consumption packs. This approach has been validated in inflationary contexts, particularly in Latin America, and has been applied for several years in Europe and the US. We have additional strategies to reinforce both affordability and premium offerings in these markets. Regarding inflation and COGS, certain markets experience varying impacts, particularly with juice, sugar, and corn syrup. In many cases, we adjust prices according to local inflation, and as inflation rises, we are inclined to follow suit, with minimal risk associated with not doing so. The volume side does present some risk, but it pertains to a select group of markets. Any increase in inflation in the latter half of the year seems manageable. Conversely, a decrease would be beneficial, but we view the situation as manageable overall. Additionally, concerning overall company input costs, we maintain solid long-term relationships with most suppliers and have established long-term hedging programs. While these do not eliminate inflation, they effectively cushion its impact and make it more manageable in terms of pricing and packaging.

Our next question comes from Filippo Falorni from Citi. Please go ahead. Your line is open.

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

Yes. Thanks, Filippo. Look, the Red Tree entity that we stood up in the second quarter is more of a technicality than some new big step. It isn't a change of strategy, and it's not a vehicle to distribute in the US. It allows us a better platform to engage with the partners that we're working with in the US in terms of coordinating and influencing the marketing and allows us a better separation of the alcohol versus the non-alcohol brand. So it's more an optimization of the model and how we want to execute things rather than a different thing. And then in terms of progress, look, it's still a small part of the business. And as I talked about, I think it was CAGNY, that's great, and there are lots of runs on the board. Jack and Coke has got some really promising nice results, including in the US. Simply Spiked Peach is performing very nicely in the US. If you want to look for a really bright spot, you can hedge the Philippines and Jack and Coke and Lemon-Dou, which is an alcoholic lemon drink, got well over 30% share of the RTD category. All of this is very encouraging as we continue to take a measured approach to this and to kind of learn and apply our learnings. All of this needs to generate belief that it can be material for the Coke company, not just a nice business, and that we're still in the process of driving towards. But certainly, so far, we're pleased with what's taken place, and we are encouraged about the next steps that we have to take.

Our next question comes from Andrea Teixeira from JPMorgan. Please go ahead. Your line is open.

Thank you for squeezing me in. And James, on your volumes commentary, and I appreciate that on your four-year CAGR, I think if our math is correct, it's 1.7% unit case for total company, which is obviously remarkable. That said, I think EMEA was a bit softer in the quarter. I understand your commentary about Russia. And what is actually happening in EMEA ex-Russia? And how should we be thinking going forward? And related to that, since you commented that the US was very strong out of home, and Europe is a big percentage of Europe is out of home, on the comments about June, how we should be thinking not only about Europe, but the performance of on-premise against off-premise globally? Thank you.

I'm trying to process all the questions. I believe you mentioned something, Dara? It seems EMEA was somewhat soft. However, we expect EMEA to be positive in the second half. There was a ramp effect from the withdrawal from Russia in the second quarter. Europe, excluding Russia, actually performed quite well in the first half, showing positive results. As we move into the second half, we believe that Europe and EMEA will be in good shape since Russia has dropped out of the base numbers. EMEA does include some hyperinflationary countries like Turkey and Pakistan, which could influence the results further. If we focus on Europe, the largest impact zone, the first half had positive volume excluding Russia, so we're optimistic as we head into the latter half of the year. The main concern is the balance between pricing and volume in certain countries, particularly Turkey and Pakistan, and for those interested, Zimbabwe as well. Regarding your question about Away-From-Home versus At-Home, it wasn't only June that showed strength in the US; we've seen Out-Of-Home sales growing faster than At-Home in the first half. This indicates that we're observing the last phase of recovery in Away-From-Home. Across Europe and globally, transaction volume is exceeding overall volume, suggesting that smaller package sales are growing quicker than larger packages. This global trend indicates slightly more on-premise and small package consumption than large. However, this shouldn't be viewed as an ongoing trend but rather as a final adjustment phase following the COVID period.

Our final question today will come from Peter Grom from UBS. Please go ahead. Your line is open.

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

We view the pricing and promotional landscape in the US as quite rational. We have implemented strategies to balance our premiumization, regular offerings, and affordability in the US, incorporating a bit more promotion than in the first quarter. However, overall promotional levels remain comparable to previous years without any significant increase. We believe we have achieved the right equilibrium of premiumization and affordability that allows us to continue gaining volume and value share in the US, as we did in the second quarter. Thus, we think the environment is rational and that our strategy is effective, as evidenced by our growth in volume and value share. We're maintaining a suitable combination of promotions and pricing while continuing to focus on both affordability and premiumization. Regarding channel mix in developing markets, we believe the main influence will be a return to normalcy following COVID. It's not indicative of recessionary or inflationary trends, but rather a normalization of the channel mix. We previously discussed the significant effects of channel shifts and lockdowns on pricing, mix, and margin structure, but most of that has now settled, meaning we do not anticipate channel mix will be a significant topic of discussion in the future.

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.

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

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