At this time, I'd like to welcome everyone to the Coca-Cola Company's Fourth 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 on 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. These reconcile certain non-GAAP financial measures that may be referred to this morning to 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 margin. 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 take your questions. Please limit yourself to one question. Re-enter the queue to ask any follow-up. Now, I will turn the call over to James.

Thanks, Robin. And good morning, everyone. In 2023, we achieved our near-term goals, while also positioning our business for the long-term. Our all-weather strategy delivered 8% comparable earnings per share growth despite greater than expected 7% currency headwinds. Today, we are leveraging our scale globally and winning locally, which gives us confidence that we can deliver on our 2024 guidance. This morning, I'll talk about the global consumer landscape, then I'll highlight how our strategy and enhanced capabilities are making us a more agile and effective organization. And finally, John will discuss our financial results and our 2024 guidance. During the quarter, we benefited from strong performance across many of our markets. However, some were impacted by elevated inflation and others by geopolitical tensions and conflict. We delivered 12% organic revenue growth, which included 2 points of volume growth, continuing a positive volume trend for the year. Throughout, we continue to invest in our business to provide the right portfolio of brands and packages to retain and attract more drinkers. We drove industry growth and delivered value share gains in the quarter and for the full year. We achieved these results by effectively navigating a number of headwinds and capitalizing on tailwinds across our markets. During the quarter, we saw strong consumer demand across Australia, India, Latin America, Japan, and South Korea. In North America, consumer spending in aggregate is holding up well. And in Europe, consumers remain cost conscious. In Africa and China, the macro environment remains uncertain. And in the Middle East, tensions have resulted in some shifts in consumer behavior that have had an impact on our business. Another important point I want to highlight is that inflationary pressures are moderating or stabilizing across most of our markets. To keep consumers in our franchise, we are leveraging our revenue growth management capabilities to tailor our offerings and price-pack architecture to meet consumers' evolving needs. In North America and Europe, while inflation is moderating, the cumulative impact of inflation is pressuring certain consumer segments seeking value. Throughout 2023, we increased our affordability offerings and gained volume and value share in both regions. In Latin America, despite double-digit inflation during the fourth quarter, we grew volume by 4% and increased household penetration and basket initiatives. There are a few pockets of the world that are experiencing hyperinflation, and John will later speak to how this dynamic is impacting our business. However, I want to mention that our local franchise operating model allows us to navigate through hyperinflationary environments and gain an advantage over the long-term. Across our business, we continue to prioritize agility and focus on improving every aspect of how we operate. An important part of this is our marketing transformation. To recruit the next generation of drinkers, our marketing has shifted from a TV-centric model to a digital-first organization that balances local intimacy, scale, and flexibility. Our digital mix has gone from less than 30% in 2019 to approximately 60% of our total media spend. In 2023, we established Studio X, a digital ecosystem that brings this all together. We created physical hubs in each of our operating units to integrate disciplines, standardize data and technology, and enhance our capabilities. Creative, media, social, and production capabilities are now operating at scale, connected by our global network structure. In our previous model, it took several months to create a TV ad. Now, we're producing thousands of pieces of digital content that are contextually relevant and measuring these results in real-time. Studio X is driving tangible results. For example, Coke Studio, which originated in Pakistan and taps into consumers' passion for music, has been scaled to our top 40 markets. The campaign uses packaging as digital portals to access real magic experiences, which have generated more than 1.2 billion YouTube views and 100 million music streams this year, resulting in strong recruitment of Gen Z drinkers. We're engaging differently with consumers, and it is delivering results. In 2023, according to Cantor, Coca-Cola's brand value increased by $8 billion. Coke is now the 10th most valuable brand in the world, up seven spots from the prior year. In the U.S., Sprite was named by Morning Consult as the number one beverage brand for Gen Z drinkers. We were also named one of the top 10 innovative companies in augmented and virtual reality by Fast Company. Our innovation agenda is increasing our competitive advantage across our products, packaging, and equipment. Taste is the starting point. Simply put, people want drinks to taste great. To drive superiority across our total beverage portfolio, we're continuing to build capabilities to tap into unique insights in taste and aroma sciences. We're applying digital tools, ingredient processing technology, and AI to create bolder and more successful innovations. Coca-Cola Zero Sugar is an ongoing example of how superior taste drives demand, with volume that grew 5% in 2023, leading to continued volume and value share gains. We are applying learnings from this multi-year success and driving taste superiority elsewhere in our sparkling portfolio. In 2023, we launched Sprite and Fanta reformulations in 25 markets, delivering mid-single-digit volume growth in those markets and driving overall sparkling flavors value share gains. Outside of our sparkling portfolio, we're enhancing flavor profiles, adding functional benefits, and expanding into new categories. In Japan, we relaunched Georgia Coffee, which generated broader customer interest and led to value share gains. In the U.S., Fairlife’s Core Power is a high-protein dairy product that does not compromise on taste. In 2023, Fairlife grew volume by 15%, its 9th consecutive year of double-digit volume growth. We're also seeing continued promising results from FUZE Tea across Europe, Jack and Coke in the Philippines, Flashlight in Mexico, among many others. In 2023, innovation contributed to approximately 30% of gross profit growth, and our success rates have nearly tripled compared to 2019 levels. Our revenue growth management execution capabilities continue to be distinct advantages, as demonstrated by our ability to deliver volume and transaction growth despite ongoing inflationary pressures. We're working with our bottling partners to capture every opportunity available to create significant value for consumers and customers. By offering a total beverage portfolio in the right packages and at the right price points, we're driving category expansion and becoming more relevant to more consumers and customers. In North America, we're evolving packaging options across more distribution points, driving affordability and premiumization. On the affordability side, our 1.25-liter PET bottles are now available in 80% of supermarkets, and our 16-ounce can distribution increased by 14 points in convenience stores during 2023. We're also focused on premiumization through the expansion of our mini-can offerings. During the quarter, we launched 15-pack mini cans in grocery and club channels. In Europe, we're leveraging the same strategy, but adapting it to local needs. In Spain, our 1.25-liter PET package is offered at a compelling price point, driving 16% volume growth and increased household penetration in 2023. In Italy, Britain, and Ireland, we drove premium single-serve mini cans, which are smaller package offerings that generated positive mix and incremental retail sales. Our franchise system uniquely combines the benefits of scale and knowledge sharing with the know-how needed to execute for customers and win locally in many different operating environments. For example, approximately 70% of purchase decisions are influenced at the point of sale; our systems stepped up in-store displays during the quarter, which drove incremental retail sales and cross-selling opportunities. Putting it all together, we created $15 billion in incremental retail sales for our customers in 2023, more than any other beverage company. This was our sixth year in a row as the leader in value creation. While we're pleased with our progress, we recognize there's still much work to be done to capture the vast opportunities available. Our system is galvanized to move further and faster. Before I hand over to John, I want to acknowledge that none of this could happen without the unwavering dedication of our employees. As we turn to 2024, we expect the year will bring new challenges and opportunities. We'll remain ready to respond by continuing to improve execution of our strategy across our total beverage portfolio. I look forward to sharing more next Tuesday at CAGNY and encourage everyone to listen in. With that, I will turn the call over to John.

Thank you, James. And good morning, everyone. In the fourth quarter and throughout 2023, we delivered strong results. During the quarter, we grew organic revenues by 12%, which was in line with our full-year organic revenue growth. Unit case growth was 2%, and it was positive in each quarter of 2023. Concentrate sales grew 1 point ahead of unit cases, driven primarily by one additional day in the quarter. Our price mix growth of 9% in the quarter was driven by three factors: one, 2023 pricing actions across most of our markets; two, hyperinflationary pricing that I'll speak to in just a moment; and three, some mix which is mostly timing-related. Comparable gross margin for the quarter was up approximately 140 basis points, driven by underlying expansion and a slight benefit from bottle refranchising, partially offset by the impact of currency headwinds. Comparable operating margin expanded approximately 40 basis points for the quarter, primarily driven by strong topline growth, partially offset by currency headwinds and an increase in marketing investments. The positive volume and topline growth that we're realizing today demonstrates the effectiveness of our marketing spend. Below the line, comparable other income declined primarily due to the operating environment in Argentina. Putting it all together, fourth quarter comparable EPS of $0.49 was up 10% year-over-year, despite higher than expected 13% currency headwinds. Before moving on, I wanted to discuss the impact of a few hyperinflationary markets on our fourth quarter results. During the quarter, inflation intensified and exceeded 60% across these markets. In aggregate, while they represent less than 5% of our total volume, this degree of inflation creates a cosmetic distortion to our underlying results. In the fourth quarter, these markets contributed more than 3 points of our price mix and most of our currency headwinds, including an outsized impact on comparable other income from balance sheet remeasurement in Argentina. They did not, however, have a material impact on our earnings per share results. In hyperinflationary markets, it is either impractical or impossible to hedge our currency exposure. To manage it, we use our full suite of revenue growth management tools, including pricing actions to keep pace with local market inflation. We have been operating in these markets for a long time and expect to be in them for a long time to come. We work hand-in-hand with our local bottling partners, and our focus will be to continue to nurture the strong relationships we have with our consumers and customers, ultimately to prevail longer-term. So while we will continue to experience volatility of this nature in a few markets, it's important to keep in mind that they are operated locally, are typically self-funding, and have not impeded our overall ability to grow earnings per share. As we move forward, we are confident that our business model and the many levers within it will allow us to deliver on our overall objectives. In 2023, free cash flow was $9.7 billion, which increased from the prior year. Free cash flow included a transition tax payment of approximately $720 million, which was approximately $340 million higher than the prior year and included approximately $230 million in M&A-related payments. Our underlying free cash flow growth was largely attributable to strong operational performance and working capital benefits. If you exclude the full impact of the transition tax and M&A-related payments, our adjusted free cash flow conversion ratio would be within our target range of 90% to 95%. Our balance sheet remains strong, with our net debt leverage of 1.7 times EBITDA below our targeted range of 2 to 2.5 times. During the fourth quarter, in addition to offsetting dilution from the exercise of stock options by employees, we repurchased additional shares in anticipation of expected proceeds from bottler refranchising. As James mentioned, we anticipate 2024 will bring new challenges and opportunities. However, through our all-weather strategy, we've proven we can deliver in many different operating environments. Our 2024 guidance builds on the underlying momentum of our business. We expect organic revenue growth of 6% to 7% and comparable currency neutral earnings per share growth of 8% to 10%. We anticipate hyperinflationary pricing will continue to play a role in 2024, but it will moderate throughout the year. We continue to make significant progress toward refranchising company-owned bottling operations. Bottler refranchising is expected to be a 4 to 5 point headwind to comparable net revenues and a 2 point headwind to comparable earnings per share but will have a positive impact on both our margins and the return profile of our business. Based on current rates and our hedge positions, we anticipate an approximate 2 to 3 point currency headwind to comparable net revenues and an approximate 4 to 5 point currency headwind to comparable earnings per share for the full year 2024. Notably, much of our anticipated 2024 currency headwinds are attributed to hyperinflationary markets, with a meaningful impact in the fourth quarter. Our underlying effective tax rate for 2024 is expected to be 19.2%. All in, we expect comparable earnings per share growth of 4% to 5% versus $2.69 in 2023. We expect to generate approximately $9.2 billion of free cash flow in 2024 through approximately $11.4 billion in cash from operations, less approximately $2.2 billion in capital investments. The $11.4 billion of cash from operations includes two items to highlight: transition tax payments of approximately $960 million, an increase of approximately $240 million versus 2023, and payments associated with various M&A transactions of approximately $560 million, an increase of approximately $330 million versus 2023. Driven by our underlying cash flow generation and current balance sheet strength, we have ample flexibility to both reinvest in our business to drive growth and return capital to our shareholders. A significant portion of our expected capital investment increase is to build capacity for Fairlife and for our India business, both of which experienced robust growth in 2023. Related to capital return, we have an unwavering priority to grow our dividend, as we've done with 61 consecutive years of dividend increases. With respect to share repurchases, we will be flexible in our approach. Typically, we've repurchased shares to offset any dilution from the exercise of stock options by employees in the given year. Our capital allocation policy prioritizes agility, and we're committed to taking the right actions needed to drive the long-term health of our business and create value for our stakeholders. There are some considerations to keep in mind for 2024. The first quarter of 2024 will be impacted by the timing of concentrate shipments in the fourth quarter of 2023 in some markets and cycling our strongest volume growth quarter from the prior year. We estimate the ongoing conflict in the Middle East had approximately 1 point of impact on volume growth during the fourth quarter of 2023. It's unclear how long this impact will last. In November 2023, the U.S. Tax Court rendered its supplemental opinion related to our ongoing dispute with the Internal Revenue Service. We intend to move forward on appeal and vigorously defend our position. We have ample balance sheet flexibility to fund any payment related to the appeal. Finally, due to our reporting calendar, there will be one less day in the first quarter and two additional days in the fourth quarter. So in summary, we're pleased with what we accomplished in 2023. We're building on our capabilities to continue the underlying momentum across our markets. We're progressing on our refranchising agenda and we're reinvesting in our system to drive long-term growth. We have great confidence we can deliver on our 2024 guidance and long-term commitments. With that, operator, we're ready to take questions.

In the interest of time, please limit yourself to one question. If you have more questions, you may rejoin the queue. Our first question comes from Lauren Lieberman from Barclays. Please go ahead, your line is open.

Great. Thanks. Good morning, everyone. I know John just went through a lot of details on the guide, but I did just want to step back and maybe go to a higher level conversation on this because for 2023, you ended up with high single-digit earnings growth even with that 7 point currency headwind. The initial guide for 2024 for mid-single-digit earnings growth feels like a reasonable starting point, but can you just contextualize a bit how you're thinking about the impact of hyperinflation like John mentioned in the Middle East tensions, that consumer backdrop, et cetera. How you're able to kind of come through with that U.S. dollar-based earnings growth outlook for the year? Thanks.

Good morning. I want to touch on a few points. First, the projected mid-single-digit growth for 2024 accounts for the effect of refranchising. Essentially, without the structural changes, it would be around six to seven percent. I believe 2024 will reflect the ongoing strength and momentum in our business. If you consider 2023 or even go back to 2019, you can see the essence of our core business operating at the upper end of our growth expectations. While there have been inflationary pressures and various fluctuations, we continue to experience consistent volume growth as we concentrate on our consumer base and strive to increase our loyal customers, all while navigating the current inflation cycle, which varies by region. The guidance provided reflects the core performance across the majority of our markets. Taking into account both challenges and opportunities we've faced, 2024 is likely to present new surprises, but we are prepared to tackle them with our resilient strategy. We expect to achieve volume growth and expand our consumer base while appropriately adjusting pricing, remaining at the upper end of our growth targets. Additionally, we have the influences of inflationary markets and the transition related to our bottling investments. The impact of hyperinflation, as mentioned by John, adds a few points to our outlook, which is generally balanced by currency devaluations. Within this, our strong core continues to grow on both ends, aligning with our growth expectations.

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

Hey. Good morning. So maybe just a quick follow-up there. As you think about that 6% to 7% organic sales growth guidance for 2024, can you just give us a bit more detail on volume versus pricing on the underlying business, maybe extra hyperinflationary markets just as we think about that balance between volume and pricing? And then, James, just more importantly longer-term, perhaps you could just take a step back and review your confidence in delivering that long-term top-line algorithm and the higher end of that algorithm, just as you look out over the next few years, taking a look back at the last few years, there's obviously been a lot of volatility, hard for us to judge from an external perspective given all the volatility with COVID, but how do you think about sort of the success of the strategic initiatives you put in place the last few years, and what level of confidence that gives you in the long-term looking out a few years? Thanks.

I'm addressing various perspectives here. Let me briefly discuss the end of 2023 as a lead into 2024. In 2023, we experienced a 2% volume growth, consistent in both the fourth quarter and throughout the year. Over the past five years, we've maintained a 2% volume growth rate. This indicates that we have seen solid underlying volume growth in the last quarter, last year, and over the past five years, primarily due to our focus on enhancing the consumer franchise. Looking at the fourth quarter of 2023, we have recorded a 9% increase. However, due to some adjustments for quarter-to-quarter timing, if we deduct a couple of points, we arrive at 7%. Out of this 7%, half is from normal pricing in the majority of our business that is not experiencing extreme inflation, while the remaining 3.5% comes from regions dealing with high inflation. Therefore, in the fourth quarter, we are looking at 2% volume growth and just over 3.5% from price mix, which aligns well with our long-term growth expectations of 5% to 6% on the top line. This has been consistent not only in the fourth quarter but also over the entire 2023 and the last five years if we disregard inflation-related distortions and bottle sales. As we move into 2024, we will continue to strive for a balance between volume and pricing. In the vast majority of our business, we anticipate seeing volume growth alongside normalized price growth. Our goal is for the combination of both to remain at the upper end of our long-term revenue growth expectations. While we expect some impact from hyperinflation, which may account for a couple of points in our topline growth for 2024, we believe it is important to highlight how pricing mix has complicated matters, especially with bottle sales not being directly comparable. Underlying the expected growth is the significant progress we have made with our bottling partners, investments in marketing, innovation, and in-store execution. The effective execution of our Revenue Growth Management strategies across diverse geographical profiles gives us strong confidence that we will maintain this momentum.

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

All right. Thank you. Good morning. Actually, I had a question on gross margins. I was hoping for a little bit more color on the drivers of your expansion in Q4, which came in better than expected. And then could you highlight maybe the key puts and takes on margins this year. Curious, how much do you expect COGS inflation maybe to moderate or will higher sugar costs continue to be a big headwind? Thanks.

Thanks, Bonnie. Let me start by just picking up from her. James has often stepped out of both the quarter and the year. If you look over the last four years, we've been able to sustain a pretty resilient gross margin line. As we go into 2024, we expect to continue to do so. There's some expansion embedded in the long-term growth model, and we're confident we can continue to drive that. With respect to 2023, the key ingredients, so to speak, were the impact of the various pricing actions we've had around the world, somewhat offset by higher than normal inflation with some of our commodity items and some of our non-commodity costs. But overall, for 2023, that's the key story. In 2024, I think you’ll need to take into account the mechanical impact of the refranchising of those markets that we talked about in the release that will layer in throughout 2024. Keep in mind the impact of foreign currency headwinds. I think, against that, we will continue to drive the levers that we have. I've talked about this in the past, but it’s worth just highlighting. We start with that suite of revenue growth management tools and the many actions that we can take with that. We have a very resilient supply chain, tremendous partners across the supply chain. We source mostly locally and continue to drive through our scale a lot of productivity in almost each line item of what comprises the supply chain. So going into 2024, I think it's worth just reiterating that we expect to see margin expansion, some of it driven by the mechanical effect of bottler refranchising, and with some more normalized cost inflation relative to the last couple of years, plus continuing to deploy those levers. I talked about, we see the opportunity to continue to drive our long-term growth model expansion.

Our next question comes from Bryan Spillane from Bank of America. Please go ahead, your line is open.

Hey. Thanks, operator. Good morning, everyone. I'd like to just drill in a little bit more on North America. And James, I think on the last earnings call, you talked a little bit about channel shift, right like on-premise or foodservice maybe growing faster than some of the take-home channels. There were some commentary, I think also about or observations, I should say about maybe low-income consumers. So maybe just kind of the state of things there. And John, just if you can also clarify, I think in the press release there was a mention in the description around price mix, some sort of adjustment, so wasn't sure if that's an accrual related to promotions or just if you could just give us a little bit more color on that as well. And also, it sounds like it's concentrate shipments might have lagged in the quarter, so that we make that up in the first quarter. There's a lot there, but if you guys can just fill in that would be helpful. Thanks.

Yes. Let me take the end, and then I'll pass it over to James for the beginning. The mix that you referred to is timing related and it's not unusual in the fourth quarter to have timing related items in the deductions area, particularly that will flow back into next year.

Yes. Consumer, let me go with two things. One, clearly the consumer landscape in North America one has to not think of it in aggregate because actually in aggregate, the U.S. consumer spending power has held up pretty strongly compared to some other developed markets. What has been important is to understand there is a section of the population that has come under pressure from disposable income, the real spending power squeeze from the inflationary effects, and there we are very much focused on affordability. And you could perhaps argue that some of them went out less, there were more at-home purchases, some of the certain channels, and there we really focus with affordability, both from individual pack size and multi-packs. On the other hand, there is a segment of consumers that still have plenty of money, plenty of purchasing power, and we've seen strong growth for some of the higher price point premium segments like Fairlife Core Power. Simply put, some of those ones. So there's clearly multiple things going on in the landscape in terms of categories and price points, and we've been working to address both ends of those. And as it relates to channels, I think we've seen a re-normalization; there has been a historic slight shift in volume consumption from at-home to away. Clearly, through COVID, there was a big down in the away-from-home and then a rebound in 2021 in the away-from-home channels. In 2022, they stayed out, but they continued to outpace at-homes. In 2023, they were slightly ahead of at-home. If you look at the various away-from-home channels, they were slightly ahead of at-home. I would say that landing more in what it was previous to COVID, kind of the more normal situation. So that's kind of what I would say, a strong need to focus on the different consumer segments and the sort of re-normalization of some of the channel dynamics.

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

Thank you. Good morning. I have two questions if I may. I know I’m limited to one, but I have a quick follow-up. Regarding the currency headwinds you've mentioned for next year, you indicated a 2% to 3% impact on revenue and a 4% to 5% impact on EPS. Can you clarify how much of that additional bottom line impact will affect operating profit versus below the line due to monetary asset revaluation? Additionally, I’d like to get your thoughts on the refranchising activities and system advancements made in 2023. We discussed the financial implications for 2024, but I’m interested in your view on the overall significance of the steps taken in 2023 and your priorities moving forward in terms of system evolution. Thank you.

Okay. Shall I start at this time? And then you go second, John.

Look, we have been focused on our refranchising effort, and as I like John raised, our ambition is to be the world's smallest bottler. It still remains absolutely true, but we're going to do it at the pace. We sort of make sure we do the refranchising in the right way with the right partners. I think we can categorically say we're very pleased with the refranchising process that we have undertaken over the last number of years. Almost without exception, every time we've poured one of the bottling companies into the hands of the right partner with the joint vision and investment plan to take the business forward, we have stepped up performance, whether it be a straight refranchising or a combination creating new bottlers or evolving bottlers. We have come up to a level of performance, and I think that is a sign of the commitment of the company to invest in what it does best, which is the branding, the marketing, the innovation, working with our bottlers to get the revenue growth management and their unwavering commitment to drive execution and build capabilities and capacities in the marketplace. That does help power the overall performance I talked about in the answer to the previous questions. So, as I think we are in the penultimate chapter of the refranchising, there's only really a couple of pieces left. At the right time with the right partners, we would like to finish the play. But really, we have our eye on the prize on creating a much stronger system together with our bottling partners to continue the top of the algorithm momentum very far into the future.

Great. And on currency, Steve. Let me just make a couple of comments in case there are other questions out there on currency overall. First, it’s important to highlight the 2024 guidance that we've given would be close to flat if we were to exclude those few hyperinflationary markets. It just reinforces the point that we're making on that sort of distortion that those few markets have. And then secondly, with regards to your specific question, I do not have that breakdown today; there are just too many puts and takes, particularly in that below-the-operating-income line as we go through the year. You've got to do a monthly remeasurement on the balance sheet items, and that’s just a calculation. I don’t have the ability to predict with great detail, so I just keep in mind that the overall impact I think is the one to focus on. In normal years, the multiplier is 1.5 times to 2 times, we would continue to assume that will be the case going forward. These hyperinflationary markets have a tendency to create that distortion that we've highlighted, and we’ll continue to provide guidance as we go through the year to make sure that everybody stays abreast of the latest developments.

Our next question comes from Rob Ottenstein from Evercore ISI. Please go ahead, your line is open.

Great. Thank you very much. So, James, I think you made a very strong case that really over the last five years, if you accept the noise you've delivered at roughly kind of 5.5% topline growth, which puts you clearly in the top rankings of your other staples companies. And that's great. In terms of both 2024 and looking forward, assuming a continuation of that, what can you do to both derisk that in terms of the bottom line and enhance it in terms of the bottom line given various macro variables? And then, given that you've now de-levered to 1.7%, you've shown interest in buying back stock. Should we think of share buybacks as perhaps a greater part of the overall algorithm and value creation for shareholders going forward. Thank you.

Okay. I mean, I think the derisking, what I would say is, look, we face an extraordinary number of headwinds in the last five years and still delivered at the top end of the algorithm. Things will happen in the coming years, but there will be tailwinds. I think really the argument about the all-weather is, I cannot tell you what the future holds. But if you look at what we've managed to work through and deliver at the top end on the revenue and the momentum and the capabilities that we've built in the system. If you look at the share and look at our long-term performance, we are also gaining share within the industry. I think you can see a head of steam built upon momentum, and at the scale that we operate, it’s a very compelling way to drive it forward. That feeds down into the bottom line; obviously, the mid-single digits, the U.S. dollar EPS goal for 2024 includes the disposal of 2 points of EPS from the bottling system. So kind of on an ongoing basis, that's already six to seven. I think we can continue to drive some leverage from the topline to the bottom line in dollars, and that becomes a compelling compound over time. And as it relates to cash, I think that you will see, we've put in a non-GAAP metric somewhere in the ecosystem of the website that just calls out what John was talking about, about the number of discrete items that are coming up over the next couple of years. As it relates to transition tax actually curiously tax on the M&A transactions, if you sell a bottler, the money you get disappears into one account, for the taxes you pay goes into the free cash flow curiously enough. There's a whole set of discrete items that make the free cash flow look odd for the next few years. If you strip that out, you see that the earnings are flowing into free cash flow. The cash conversion on that adjusted basis remains very high and is likely to do so. In a normal world, clearly, as John said, we would continue to increase our dividend, and we would have substantive additional cash to continue to invest in the business and consider potential share repurchases. The wrinkle in the cream, if you like, is our considerations of the IRS tax case and the impending appeal. So, as we go forward for the next few years, we like our strong balance sheet. We are mindful of the likelihood of launching the appeal in the second half. We have incoming non-operating cash flows, which as John talked about, we used to buy some shares in the fourth quarter. We're going to balance all these things, particularly in the next couple of years, we'll keep everyone updated. The long-term perspective is that the cash generation will continue to be very strong. John, yes, go on.

Just one additional point. In addition to that unwavering commitment we have to the dividend that we talked about in the script, one of the lessons I think over the last couple of years is to be prepared to be more dynamic relative to your kind of normal view of the individual components. So, as you know, our debt goal is to be 2 times to 2.5 times, and we're at 1.7 times. We think that's right for what we need going into 2024, 2025. We've taken up our CapEx for 2024 because it's the right thing to do to continue to build the growth foundations that we need. And in those parts of the business that need capacity. Just two examples. I think we will continue to demonstrate that as we go forward. The share repurchases in the back half of the year, again was not something that we had necessarily considered at the start of the year. But we first, there was an opportunity with the buffer proceeds coming in to do so. We will continue to take that approach as we enter this coming year.

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

Hi, good morning. I wanted to see if you could maybe frame the global away from home channel. I know you touched on it a little bit in response to Bryan's question. But we've heard about, obviously there's a lot of pricing power in that channel, there's been a lot of pricing; you're talking about a normalization from elevated levels back to a more normal channel distribution between at-home and away from home. But can you maybe just give us a bit more granular perspective on what you're seeing by region and whether some of the strengths that I think was occurring in Q4 has continued into this year? Thanks.

Sure, Chris. I'll give it a try. The main point is that the commentary about North America somewhat applies to other regions as well. During COVID, we experienced shutdowns and then a gradual reopening, leading to significant fluctuations between away-from-home and at-home consumption. However, in 2022, things began to stabilize, and in 2023, we see a similar trend. For instance, in the U.S., away-from-home channels were slightly ahead of at-home channels overall. In Europe and the EMEA segment, at-home consumption was slightly higher, but only marginally. When looking closer, there is significant ongoing structural growth in away-from-home consumption, but it’s a small portion overall. If this leads to a question about pricing and potential big upside from channel mix, the answer is no. If I consider immediate consumption packages versus future consumption, the channel mix differs quite a bit, especially in emerging markets, where immediate consumption has become more balanced compared to future consumption in 2023 versus 2022. This isn't surprising, given that we stopped focusing on affordability as a strategy in 2023. So, in summary, we are not anticipating significant mix effects from the channels in 2024.

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

Thank you, and good morning, everyone. James, could you share some insights about the U.S.? I understand that the volumes are around 20%. In your outlook for 2024, you mentioned in the fourth quarter that the trends in water sports and coffee were more negative or slowing down. How much of this is due to internal factors versus the challenges you face in terms of market share, and how long do you expect this to continue into the first half of 2024? Also, regarding your previous comments on shifting to on-premise and price mix, if I calculated correctly, out of the 9% you achieved, about 2% or 3% came from mix benefits in 2023. Should we anticipate that this will decelerate, or with your strategy to introduce more mini cans, do you project the same contribution for 2024? Thank you.

Sure. Okay. The comments on the 2% in the fourth quarter, that was related not to channel mix, but to the way that deductions happen. This is not, this is often just an accounting treatment between the quarters within the year. So it’s not mix as you would think about it in terms of package mix or channel mix of category mix. This is related to kind of the big difference between gross and net revenue. I would move past backlog. To me, ignore that bit; focus instead on the underlying impact in 2023 of the non-hyperinflationary pricing, which was the kind of 3.5% which ran through 2023 and is inherent in what we are saying roughly speaking for 2024. We are expecting, right and mix, whether these channel category geography package, the sort of things we're saying, which in 2023 is what we're expecting in 2024. Again, those are all largely normalized in 2023, so by influence, they’re all largely normalized in 2024 as well. You kind of see a stability across channels, packages, etc. As it relates more specifically to the U.S., yes, we did some de-prioritization of some of the bulk water categories, and some of the advanced hydration was the normalization or re-stabilization of the sports drinks category. I mean, I don't think there's an obvious or useful split between self-inflicted or proactive decisions versus things that were competitive; that's hard to tease apart. Clearly, from a performance point of view, when we think about it in the U.S., yes, there's a fractional softening of the volume through the year, which I think goes back to the comment I made about the different consumer segments. But if you step back and think about what was the overall impact of our marketing innovation RGM and execution with the bottlers, the answer is, we won volume share in 2023, and we want value share in 2023. Yes, there's work to be done in the water category and advanced hydration then to a much lesser extent in tea. But the overall picture is strong growth in sparkling particularly, Coke and Sprite, good on Smartwater, good on Vitaminwater, good on Topo Chico. Very good on Fairlife, good overall win on both dimensions. That’s the platform we’ll be looking to drive in 2024.

Our next question comes from Bill Chappell from Truist. Please go ahead, your line is open.

Yes. Good morning.

Hey, Bill.

Just a question on kind of the Chinese consumer and both how it's progressed or how he or she has progressed over the past few months versus your expectations or just in general, and kind of what you see kind of spending power and just getting back to normal consumption as we move into 2024.

2023 began on a strong note in China, as we made significant investments in preparation for the Chinese New Year. Last year, we experienced a robust first quarter in the region, primarily during the tail end of the reopening phase. While we did see growth in restaurant volumes and revenues throughout 2023, there was a noticeable decline in the last three quarters. In 2024, we anticipate a reversal of this trend. We have once again made substantial investments for this year's Chinese New Year, although the results will take a few weeks to materialize. We expect a slower start in the first quarter, particularly as we compare it with last year's performance. However, we are optimistic about general improvement throughout the year, aiming for balanced growth. While there is some economic softness, we believe conditions will gradually become more favorable as the year progresses. Our strategy will involve continued investment not only in key periods like Chinese New Year but also in regaining momentum in sparkling beverage sales and focusing on revenue growth management and execution opportunities.

Our next question comes from Kaumil Gajrawala from Jefferies. Please go ahead, your line is open.

Hey, everybody. Good morning. When we met in December, we talked a little bit about 2023; there was a bunch of testing and learning on innovation and 2024 will be about scaling some of them. Both of you mentioned Fairlife Core Power; it's a big brand now. Can you maybe just talk about the scaling of that capacity expansion? And then maybe what other brands we should be considering in that same context? Thank you.

Yes, sure. I mean, firstly, we're going to continue to experiment and find lots of new things hopefully in 2024, but it's certainly true to say that Fairlife has been on a roll. We have been driving that. I think you should have noted a double-digit volume growth for as many years as I can remember, plus faster double digits in revenue. Clearly, as we scale that, we needed to put that more capacity. We have recently announced and begun the process of building a mega plant up in upstate New York. There’s capacity tight in the Fairlife business and Core Power is also firing on all cylinders. We'll certainly talk about some of these at CAGNY when we'll kind of lay out some of the back story. I think it’s like Fairlife and particularly Core Power and how these brands and products have done a great job in driving from experimentation to scaling, the challenging and, for example, in the case of Core Power to leading.

Our next question comes from Peter Grom from UBS. Please go ahead, your line is open.

Thanks, operator. And good morning, everyone. So, James, I was hoping to pick up on your commentary in response to Bryan and Andrea's question on the U.S. Maybe first, the performance in the quarter play out as you expected; you mentioned softening in the market in your response to Andrea. But was that in line with how you thought growth would evolve, or was it a bit weaker than you would have anticipated? And then looking ahead to 2024, I appreciate the commentary on expecting balanced growth at the total company level, but do you expect that balance to occur in North America as well? Thanks.

Yes. I believe it was reasonably predictable that the market would tighten throughout 2023 as inflation outpaced wage growth. So it wasn't unexpected to see some tightness, especially among specific consumer segments. Overall, the growth in North America for the fourth quarter mirrored the growth for the entire year, with only minor differences. These are not significant shifts in trends. There was a slight softening observed during 2023, but I anticipate that will begin to reverse as we enter 2024, as consumers are starting to feel that their income is beginning to catch up with inflation, as indicated by confidence indicators. I expect improvement throughout the year, but again, these changes won't lead to major shifts in the volume growth rate for our U.S. business. Overall, we expect to see more contribution from price compared to volume in the U.S. business. This balance between price and volume is consistent on a global scale and is influenced by our geographic portfolio mix. In the U.S., we expect stable or slightly increasing volume alongside decent pricing, while in markets like India, we are experiencing significantly more volume with less focus on price, necessitating substantial investment in capacity. These examples reflect the dynamics of our global portfolio, contributing to the overall balance.

Our next question comes from Charlie Higgs from Redburn Atlantic. Please go ahead, your line is open.

Yeah. Hi, James, John, hope you both are well. I got a question on sparkling, please, where I mean, 2% volume growth in the quarter and the year very strong. I think in the 20 quarters since 2019, it's actually averaged 3% in those 20 quarters, so definitely testing our ex-growth. I was just wondering what your perspective is on the category going forward, maybe with the consumer weakening. And if you can just touch on the launch of Coca-Cola Space, so we haven't talked about that yet. I mean, what gives you the confidence of launching this as a permanent launch rather than a limited edition Coke Creations launch, and here’s the target—consumers are Gen Z; is it adds to held for Coke with meals strategy. Just any color on that would be useful, please.

Yes. I mean, Coke Space, a bit like Coke Creations, not exactly, but it is really aimed at increasing connectivity with Gen Z and the broad consumers, driving engagement—driving reconsideration is part of a whole overall strategy that, as you say, we've been deploying for a good number of years. It has really worked to reengage consumers with the Coke trademark, whether it's Coke Original, Coke Zero Sugar, or even Diet Coke to some extent. The overall strategy of an upgraded approach to the marketing and innovation, whether it's Coke's Space or some of the Creations through the RGM in the execution has allowed us to drive our Coke growth across the global business. And actually by also increasing focus on Fanta and Sprite— even organizationally splitting them out into two sub-teams within the organization has allowed us to bring more clarity and more focus onto Fanta and to Sprite and drive growth there too, which has worked in Q4 in 2023 and, as you say, over the last five years. I know that sometimes people— well, I would say that people think about the sparkling category just through the optic of the U.S. over the last 20 years. I would invite you to look at the optics or everyone to look at the optics of the sparkling category globally all the time. And actually, there, you see that the category remains robust on a global scale, both in terms of volume and revenue growth. And of course, we are not just the leaders, but we are the share winners, so if we do the right things for our brands, we will be able to drive the category forward and benefit disproportionately from that growth.

Our last question today will come from Carlos Laboy from HSBC. Please go ahead, your line is open.

Yes. Good morning, everyone. Thank you. Can you comment for us on the state of global independent bottlers CapEx or digital capabilities? We've seen a really robust Latin American digital investment over the last four or five years, but where else do you see a step up in digital market development capabilities like this? And can you comment on the U.S. in this area as well.

On U.S., what?

On the U.S. regarding digital bottling system investments.

Sure. Carlos, yes. I think it's fair to say that the overall investment levels that you referred to in Lat-Am are pretty consistent across the world. Like one of the underlying tailwinds, I believe we have is the degree to which our system is sharing and thus the opportunity that's ahead and willing to increasingly invest ahead of the curve. So I think that's happening across the global system. One of the subsets of that, of course, is the degree to which digital, and its many forms is playing a pivotal role to sustaining and indeed building advantage wherever we operate. We have CAGNY next week. I think you'll hear more of that threaded through the conversation up there. But safe to say, I think CapEx levels are at the highest as a percentage of system revenue that I can remember. Within that, the appetite and willingness to invest ahead of the curve, particularly in digital is also at a very high level. Right. Thanks very much, everyone. Just to summarize, we're proud of what we've accomplished in 2023. We are winning in the marketplace, we're going to be maintaining agility and improving every aspect of how we do business across our total beverage portfolio. John and I look forward to discussing more with you all next week at CAGNY. 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.