At this time, I’d like to welcome everyone to The Coca-Cola Company’s Third Quarter 2024 Earnings Results Conference Call. Today’s call is being recorded. 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 am 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 analysis of our growth and operating margins. 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. Reenter the queue to ask any follow-ups. Now, I will turn the call over to James.

Thanks, Robin, and good morning, everyone. After a good first half of 2024, we navigated through a dynamic external landscape during the third quarter. Our business again proved to be resilient. Volume declined 1% in the quarter driven by a slow start in July. However, our business trends improved each month and, notably, Trademark Coca-Cola volume outperformed during the quarter. Our year-to-date 2024 performance gives us confidence we will deliver at the high end of our previous top line guidance and earnings growth of 5% to 6%, including approximately 9% of currency headwinds. With that as context, I'll start with an update on the global consumer landscape and a review of the third quarter business performance. Then I'll explain how we're delivering on our objectives by staying agile and improving execution of our strategy across each facet of our growth flywheel. John will end by discussing financial details for the quarter, our updated guidance for full year 2024, and some early considerations for 2025. During the quarter, global consumer sentiment and spending in aggregate held up well, and our broader industry continued to expand. In this context, we delivered robust organic revenue growth with value share gains in both at-home and away-from-home channels. We also expanded comparable margins. This led to 5% comparable earnings per share growth despite nearly double-digit currency headwinds and the impact of bottler refranchising. We continue to demonstrate staying power as the beverage industry remains attractive with many strong new and existing players. Our system is well positioned to develop the commercial beverage industry in many markets and capture long-term balanced growth. Across the world, we are leveraging our scale and local expertise to navigate varying local market dynamics. In North America, we generated robust top line growth and won value share. Trademark Coca-Cola and sparkling flavors both grew volume. During the quarter and year-to-date, Trademark Coca-Cola and fairlife were the leaders in the beverage industry in at-home retail sales growth. Consumers are responding well to sharper value messaging in away-from-home channels, and we're continuing to drive affordable and premium packages across our total beverage portfolio to realize positive mix. In Latin America, volume was flat during the quarter as we cycled strong growth in the prior year. We had solid revenue growth led by Coca-Cola Zero Sugar and Powerade. We also benefited from integrating marketing activations across the region. For example, in Brazil, Rock in Rio reached over 70 million people and led to Trademark Coca-Cola being the most mentioned brand on TikTok. Stepped-up execution by increasing cooler placement and investing in digital capabilities is also driving results. In EMEA, we saw improved performance in Europe and strong growth across many parts of Africa. The performance in Eurasia and the Middle East and North Africa unfavorably impacted overall results. In Europe, we grew volume during the quarter and benefited from the Olympic and Paralympic Games. Both Fuze Tea and Powerade continued their strong momentum. And we're continuing to focus on affordable price points, value packages, tailored promotions and premium offerings to drive demand. In Eurasia and the Middle East, a confluence of headwinds led to a decline in volume. While it's fair to assume pressure will persist in the near-term, we are taking action. Our system is driving affordability and availability, and we're leaning into the local intrinsics of our business. In Africa, volume declined largely due to pressure in some North African markets. Outside of these markets, we grew volume and gained value share. Our system is investing for the long-term by accelerating refillable offerings, cooler placements and increasing manufacturing capacity. Lastly, in Asia Pacific, despite weakness in China and a couple of markets in Southeast Asia, we grew organic revenue and comparable operating income. In ASEAN and South Pacific, we gained value share led by the Philippines and Australia. The Philippines grew affordable transactions with refillable packages and grew premium transactions with single-serve offerings. Australia prioritized affordability initiatives across our sparkling portfolio and successfully activated the Olympic Games with Powerade. In Japan and South Korea, we had solid volume growth and won value share due to good traction on brand relaunches, which leveraged enhanced taste and refreshed packaging and stepped-up performance in e-commerce channels. In China, a challenging operating environment and strategic reprioritization of our portfolio led to a decline in volume. We're continuing to focus on driving affordability across our core portfolio. Our longer-term growth ambition is unchanged, and we're investing to come out ahead when conditions improve. In India, volume declined in states impacted by higher than normal monsoons. In geographic areas that were unaffected, volume grew mid-single-digits. We remain upbeat about progress in integrated execution and our ability to capture long-term growth opportunities. To sum everything up, while our markets continue to move in many different directions and our agility is being put to the test, our all-weather strategy is working. We're continuing to deliver on our strategy through a combination of world-class marketing and innovation and excellence in revenue growth management and execution. Starting with marketing and innovation. Our refreshed marketing model is integrating digital, live, and retail experiences to connect with consumers in unique and personalized ways. The Olympic and Paralympic games are a great example. We featured our total beverage portfolio, launched fan zones and festivals, and leveraged social channels to increase connections with athletes. Many of our brands offered customized packaging, and our system activated tailored point-of-sale displays with customers around the world. The Olympic and Paralympic Games were activated with customers across over 65 markets, featured nearly 250 influencers, and demonstrated positive engagement scores across our portfolio. Topo Chico is another example. In the U.S., Topo Chico is the number one premium sparkling water brand. We've driven strong consumer demand with a grassroots experiential campaign in 13 cities featuring impactful displays connecting Topo Chico to food, music, and art. In Mexico, we're applying a similar playbook. We recently launched Topo Chico's first-ever nationwide experiential activation with the Think Like An Artist campaign. This featured connections with local artists across 69 events in five cities and was amplified through social channels. During the quarter, Topo Chico trademark grew volume nearly 20% globally. Year-to-date volume has increased tenfold compared to pre-acquisition levels in 2016. Our marketing and innovation agenda emphasizes a culture of acting boldly, learning, and not being afraid to fail, while scaling successes. Sometimes our innovations don't hit the mark as evidenced by Coca-Cola Spice, which we've discontinued. But our focus on bigger and bolder innovations is paying off. Fuze Tea is a multiyear success and is scaling well across over 80 markets, and Minute Maid Zero Sugars shows promise. Sprite Chill also delivered over $50 million in retail sales after only 21 weeks in the market and has been extended after a successful limited run. We also innovate for different reasons. It can be to generate short-term buzz, such as the third quarter launch of the limited edition product, Coca-Cola Zero Sugar Oreo, which is available in over 35 markets, and Fanta Beetlejuice, which is our first-ever global Halloween activation and is offered in nearly 50 markets. Or we might invest for the long term such as our announcement of plans to debut Bacardi Mix with Coca-Cola in 2025. So far, in 2024, overall, we've benefited from strong velocities on our innovation and we're continuing to improve our innovation success rates versus prior year. Moving across our flywheel. Our system is step-changing execution by fully integrating our marketing and commercial plans and investing to grow our customers' businesses. Leveraging data and digitally-enabled solutions, including AI, is a huge opportunity. And we are integrating digital advertising with point-of-sale messaging and offering brand price pack architecture geared to customers' individual needs. When executed efficiently, this approach can deliver promising uplifts in retail sales for our customers. While we're focused on taking our capabilities to the next level, we're also working towards mastering the foundations that move the needle. In 2024, our system increased availability by investing in cold drink equipment and boosted our share of visible cold inventory across markets. In the past 12 months, we created $11 billion in incremental retail sales for customers, which is more than double the next five closest beverage companies combined. From 2018 to 2023, we were the leader in customer value creation for the beverage industry every year. To summarize, we feel good about the momentum of our business. And as we look ahead, our external environment will continue to have many moving pieces. We'll continue to prioritize flexibility to navigate market dynamics locally to deliver on our global objectives. Thanks to the power of our portfolio, our system's unique capabilities, and the unwavering dedication of our system employees, we're confident we will be able to deliver on our 2024 guidance and longer-term priorities. With that, I'll turn the call over to John.

Thank you, James, and good morning, everyone. Today I'll comment on our third quarter performance, discuss the outlook for the remainder of 2024, and provide some early commentary on 2025. During the third quarter, we grew organic revenues 9%. Unit cases declined 1% having had a poor July, but improving sequentially thereafter during the quarter. Concentrate sales were 1 point behind unit cases for the quarter, driven primarily by the timing of concentrate shipments. Our price/mix growth of 10% was driven by two items, approximately 7 points of pricing split somewhat evenly between normal pricing actions across our markets and intense inflationary pricing in a handful of markets experiencing currency devaluations, and approximately 3 points of mix across the markets, which was primarily driven by stronger growth in several developed markets versus developing and emerging markets. Excluding the impact from intense inflationary pricing, organic revenue growth during the quarter continued to be at the high end of our long-term growth algorithm. Comparable gross margin was up approximately 70 basis points and comparable operating margin was up approximately 100 basis points. Both were driven by underlying expansion and the benefit from bottler refranchising, partially offset by the impact of currency headwinds. Putting it all together, third quarter comparable EPS of $0.77 was up 5% year-over-year despite higher-than-expected 9% currency headwinds and 2% headwinds from bottler refranchising. During the quarter, we made a $6 billion deposit with the IRS related to our ongoing tax dispute. We've also filed our appeal with the 11th Circuit Court. We're pleased to move forward with the process. We will vigorously defend our position. We believe we will prevail, and we will continue to keep you updated. Free cash flow, excluding the IRS tax litigation deposit, was approximately $7.6 billion, which is down approximately $290 million versus the prior year due to higher other tax payments, higher capital expenditures, and cycling some working capital benefits from the prior year. Our balance sheet is strong, and our net debt leverage of 1.7 times EBITDA is below our targeted range of 2x to 2.5x. If you include our latest estimate of $6.1 billion related to our fairlife contingent consideration payment, which we expect to make in the first half of 2025, our expected net debt leverage would be at the low end of our target range. As James mentioned, our powerful portfolio, amplified by our system's unique capabilities gives us confidence in our ability to deliver on our updated 2024 guidance. We now expect organic revenue growth of approximately 10% and comparable currency-neutral earnings per share growth of 14% to 15%. Based on current rates and our hedge positions, we now anticipate an approximate 5-point currency headwind to comparable net revenues and an approximate 9-point currency headwind to comparable earnings per share for full year 2024. We continue to expect comparable earnings per share growth of 5% to 6% versus $2.69 in 2023. While it is too early to provide specific guidance on 2025, we do want to share some considerations based on what we know today. We're encouraged by our underlying performance and believe we're well positioned to deliver on our long-term growth opportunity. We expect pricing from intense inflationary markets to moderate in 2025 and recycling the impact of currency devaluations from these markets in 2024. With respect to our commodity environment, we expect prices on industrial materials to remain relatively stable, while agricultural commodities will continue to face volatility and higher prices. We will continue to invest behind our brands as we have been doing, while at the same time we will leverage a range of productivity levers to drive efficiency and effectiveness across our P&L. We expect elevated net interest expense resulting from the deposit made related to the ongoing IRS tax dispute and upcoming fairlife contingent consideration payment. Regarding currency, if we assume current rates on our hedge positions, there would be an approximate low single-digit currency headwind to comparable net revenues and an approximate mid-single-digit currency headwind to comparable earnings per share for full year 2025. Many factors could impact both our currency outlook and broader business between now and when we expect to provide guidance in February. With our all-weather strategy, we've delivered comparable earnings growth for many years now. We have numerous levers to continue to do so. So in summary, successfully executing our strategy in an ever-evolving operating environment, we're confident in our ability to deliver on our objectives in 2024 and over the long-term. We're clear on the direction we are heading in the system. And we continue to invest with our bottling partners to drive sustainable long-term growth.

Our first question will come from Steve Powers from Deutsche Bank. Please go ahead. Your line is open.

Thanks very much. Good morning. So James, it sounds like momentum sequentially improved through the third quarter from a unit case perspective, which is welcome news. I guess given that as you look forward, how confident are you that you can return trends to positive growth in the fourth quarter? And how much of any expected improvement trajectory is within your control through some of the initiatives you detailed in the prepared remarks versus the system being essentially more dependent on a less adverse macro backdrop? Thank you.

Thanks, Steve. Clearly, we were not as happy as we could have been in the third quarter with volume, and we focused on adapting quickly and saw improvements through the quarter. So July was the bump and things improved in August through September. I largely believe that it's within our control to return to growth. Actually, the macro environment, I'm sure we'll touch on later, is showing a degree of resilience. There are lots of puts and takes, but a degree of resilience. So I think it's firmly about getting our flywheel of the marketing innovation, the price pack, and the execution of the system, and that we can get back to growth, which is very much implicit in our algorithm and our expectations going forward through the fourth quarter into 2025.

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

Hi, good morning. Just wanted to focus on the mix component within price mix. You mentioned it was 3% in the quarter. Great result. How sustainable is that as you look going forward out to 2025? And maybe can you talk about some of the key efforts on that front?

Yes. Let me break the mix. I mean, mix has got a lot of different components in it country, category, channel, affordability or premiumization. In the third quarter, there are a couple of pieces of mix that I wanted to call out. One, which I see as enduring and ongoing and one which I see as more temporary. The enduring and ongoing piece is, of course, we're focused on not just driving the growth of affordability options, whether they be smaller packages, smaller multipacks at better entry price points or refillables depending on where you are in the world as a key part of responding to those consumers that are under disposable income pressure, which tends to be a headwind, but also focusing on premium segments whether that be premium waters or fairlife or some of the Coke SKUs to get the mix to be up. The recent situation has been more unusual compared to the past few years. Typically, prices in emerging markets are lower than those in developed economies, and emerging markets usually grow at a faster rate. This growth often creates a headwind for price mix due to their lower prices. However, in this quarter, the growth in emerging markets has been slower or has even declined when compared to major economies like the U.S., Europe, Japan, and Australia. This has resulted in an automatic stabilizing effect, leading to an increase in price mix. We anticipate that as we move into the fourth quarter and next year, we will return to a more typical environment where developed economies perform well and emerging markets grow more rapidly. This should result in a more standard distribution of volume and price mix, and we are optimistic about the direction this is heading.

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

I would like to hear more about those quickly adapted items you mentioned, James. There seems to be a lot happening there, and I would appreciate some tangible examples of how you're managing to adapt swiftly and achieve a quick return on investment. Also, since you hinted at the macro environment, I would like your thoughts on that as well. Thank you.

Sure. I don’t think my perspective on the macro environment will lead us too far. Essentially, there are two main thoughts. First, on a global scale, consumers and economies are relatively resilient and stable. The latest IMF report highlights this point. There are various factors at play across different regions and income levels. However, overall, the macro situation is characterized by a mix of challenges and strengths, with resilience prevailing. I’m uncertain how this will play out next year; it will likely involve different challenges and strengths, but the resilience will remain. Regarding tangible examples, we need to focus on affordability and whether we're doing enough to expand the availability of affordable options. For instance, are we advancing investments in cold drink equipment to enhance the availability of cold products? It’s important to remember that the Southern Hemisphere is about to enter summer, so if we can accelerate these efforts, it could lead to increased volume growth. Are we applying the right adjustment to the mix of the marketing messaging? And how do we tweak that now that we have a more agile marketing model with the ongoing transformation, we're able to adapt the messaging. So to really get in there and get those things. And then in some parts of the world, it's about adapting the messaging to the situation. I mean some countries, for example, where the economics are very poor, it's not so much about the marketing; it's more about the availability and the entry price points. So we've always got to work with our local bottlers to drive what's the right system answer and really fine-tune our relevance with the consumers and retailers in that country in this moment.

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

Thanks operator. Good morning, James. Good morning, John. I guess a question about North America. And our observation through this quarter or over the summer was just, I guess, a little bit of softness overall in just discretionary spending, so that kind of expressed in small-format stores, convenience and gas, I think also maybe a bit in foodservice. So can you just maybe talk to that? Are you seeing the same thing? And is there maybe just a little bit of a recession, if you will, on impulse purchases right now? And if so, just what do you think changes that?

I believe it's a combination of factors. There is definitely part of the consumer landscape that is feeling pressure on disposable income. Depending on whether you refer to consumer confidence or consumer sentiment, the data can show different trends—one may be improving while the other declines. Overall, there's a mixed situation; while there is some softness in general consumer spending, it's quite minor across the total industry. The beverage sector remains fairly strong with overall dollar growth. As we've previously mentioned, some consumers are exhibiting value-seeking behavior, such as looking for combo deals at quick-service restaurants or opting for lower-price beverage options, whether that means smaller pack sizes or fewer multipacks. However, there is also significant purchasing power in other market segments that balances this out, as seen with the strong momentum of fairlife, for instance. Ultimately, the U.S. marketplace has proven to be quite resilient despite the recent macroeconomic challenges we've faced.

Next question comes from Chris Carey from Wells Fargo. Please go ahead. Your line is open.

Hi good morning everyone. Yes, this has been somewhat addressed, but I think I'd maybe be a little bit more specific. The stock is off a bit premarket on what appears to be around 2025 earnings growth given your outlook for FX and net interest expense going into next year. And I think the lesson from this year and really in recent years has been your ability to overcome these substantial FX headwinds and other headwinds and still deliver on reported EPS growth. James, John, you both expressed some confidence in the prepared remarks on innovation, delivering against longer-term targets. So I guess, can you just touch on maybe some of the lessons of 2024 areas which really allowed you to overcome what was the substantial FX, it still is, headwind this year and still deliver your reported earnings objective, whether pricing RGM innovation, whatever that may be, and what feels durable going into next year? I know you've touched on it, but just trying to get down to what's really driving the stock today. And then maybe importantly, then I'm done, but just the areas where you have a bit more of a heightened focus or a sense things, maybe slowing in Mexico, India, some of these lingering turbulent issues in the Middle East, anything that comes to mind? So basically, just you've got momentum into confronting these headwinds next year, but the environment is also evolving. And I'd just maybe like to put a little bit of a finer bow on that. Thanks.

Sure, Chris. I think you're going to win this year's prize for the longest question. Let me begin, and then John will likely want to add his thoughts. For several years, we have intentionally referred to our approach as the all-weather strategy because we have experienced many unusual years recently. By calling it an all-weather strategy, we emphasize that we cannot predict what will happen next year. While we understand some factors, John will discuss those, there are many other variables at play. However, we will take the necessary steps to advance the business, aiming to deliver on top-line growth and underlying earnings per share growth. There are a few important points regarding 2024 and its effects on 2025. Firstly, the mid-single-digit currency forecast for next year is lower than this year, even though interest remains high. There is a distinction in currency dynamics when considering the G10 economies; for instance, if the euro experiences significant devaluation, we are unlikely to see substantial short-term inflation in Europe, making it more challenging for us, although not unmanageable. If there is a significant devaluation in an emerging market, it typically leads to a quicker transmission of inflation. This trend is expected to be evident in 2024, where nearly all the foreign exchange challenges are due to devaluations in these emerging markets. In contrast, the major developed economies, like those in the G10, are relatively stable. Thus, when the issues arise from emerging markets, there tends to be a stronger connection to above-normal pricing on the revenue side, which we are already observing for the year-to-date in 2024. So, there's a piece of next year where we, and John will get into it, where you've got to some extent see G10 is different from the emerging markets, and some of the emerging markets stuff is linked to the top line. And then obviously, within that, we have to manage each of the marketplace. Because if there's high inflation, there's likely to be a big push on affordability and a big shift in the marketing and innovation mix. So, there's a set of kind of framework approaches depending on what sort of our problem is occurring in the marketplace. But again, let me finish my thought and then hand over. In the end, we're pursuing an all-weather strategy. Some years the headwinds will be greater than others, but we're going to pursue a strategy to get over the line in terms of trying to drive some growth. And there's a lot that can still happen before next year and will come with a complete picture in February. John, do you want to add?

Maybe, Chris, if I could touch upon some of the lessons that we've learned, not just this year but really over the last few years. First one I'd say is it's really important through the thick and thin of all of this is to stay very focused on investing the right way behind our brands and that is something we will continue to do. I think, secondly, in the last couple of years, having an even sharper understanding as to where your profit drivers are underneath the global portfolio at the country casualty level and then making sure that we're over-allocating resources to support those larger profit pools both in the base of the business and as we think about growth going forward is really important. And doing that in partnership with our bottlers around the world and we've seen that being a big source of the momentum over the last couple of years. I think the third area that I would highlight and I know it's a topic across many companies going into 2025, is that you can never take your foot off the productivity accelerator. And in that context, I think the learning is that you've got to build into your overall way of doing business as opposed to have it as an end-of-year project that you need to kind of deliver something in the next six to 12 weeks to save the quarter. So, we've got a lot of levers we've talked about in the past that are available to us, whether it's through marketing investment line, our operating investment line, operating expense investment line, or through our supply chain. And we will continue to go after the opportunities that come at us. And so when you take all of those together, I think that's what we see creating that flywheel of growth on the top line, and then the ability to sustain and expand margins down through the P&L from there.

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

Hi, thank you. Good morning. I actually wanted to circle back to North America. Your organic sales growth was very strong at 12%, which caught most of us by surprise. And growth was primarily driven by the double-digit price mix. So, hoping for a little bit more color behind that in terms of rate versus mix in the market. And then ultimately, how sustainable that is and I guess, second, I'd be curious to hear if you believe you've maybe reached a point where you've pushed too far in terms of pricing. And if so, how will you modify your pricing strategy or RGM capabilities going forward? James, you did touch on this, certainly a greater focus on affordability, so maybe an example or two would be helpful to hear. Thanks so much.

Sure, Bonnie. In North America for Q3, the price and mix are approximately equal; half of it comes from pricing and half from mix. Pricing is more about the rate, while the mix is influenced by reduced focus on case pack water and increased investment in brands like fairlife, Topo Chico, and some nutrition products from Coca-Cola, which positively impact the mix. This approach reflects a careful strategy regarding where we allocate resources for different brands, countries, and channels. This is evident in North America, leading to the roughly equal contribution from mix and price. We are also balancing this with our affordability efforts, which outlines the fundamental setup. If we focus on pricing for a moment, approximately half of that is derived from price changes, which aligns closely with the downward trend of the consumer price index. Looking ahead, we anticipate continued inflation in input costs, including labor and certain agricultural commodities, as well as packaging costs, although these increases are expected to occur at a slower rate. We expect to move towards more normalized pricing levels in the upcoming year, landing within a typical range that corresponds with the decreasing rates similar to the consumer price index. Of course, we continue to be very choiceful about where we invest for affordability options and where we invest for premiumization options. I'm not sure; I think mix will always be four or five points. But certainly, we would look for continued growth in the North American business.

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

Hi, good morning everyone. I wanted to ask on the margin outlook going forward. This year, you realized very strong gross margin, operating margin expansion, a lot of it driven by the refranchising activity with the underlying kind of being offset by currency. As we think about going forward, you guys both talked about leverage on the productivity line; maybe some inflation in the agricultural commodities, can you talk us through the balance of the levers for margin expansion into next year? And anything we should be thinking about, assuming no other franchising activity? Thank you.

Sure. Thanks for the question. First of all, it's a huge area of focus and has been. We're currently tracking to have our highest gross margin level since pre-COVID and expect that underlying expansion to continue, notwithstanding the offsets that you just mentioned. For 2025, as we laid out in the script, some of the considerations for 2025 is a more normalized pricing environment. James has touched upon that. We would continue to look to offset the FX headwinds with some underlying expansion through our RGM and cost efficiency efforts. I've highlighted some of the challenges we have on the agricultural commodity front, and we see that being part of just the equation we need to manage. We are, as I said earlier, looking at a number of levers on both the revenue and the cost lines, our ongoing elevation on the RGM front, the optimization of – on the promotional front within the innovation space, things like simplification of product specs, for example, can free up a lot of dollars. The way we have been working with our very diverse supplier base across the world, not only for certainty of supply, which is a huge priority in a number of markets, but over time to leverage the scale of the system, etc. So there's just a lot of opportunities and it's not any one big thing that's going to make or break the numbers. But I think it's our continued ability to bring all of these levers to play that's going to make the difference. And I think that's represented in the consideration set that we framed for 2025.

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

Thank you and good morning, everyone. James, John, you mentioned that volumes improved as you exit the quarter, but implied organic sales growth for Q4 even after you raised, it's closer to, I believe, 6% from 9% in Q3, if my math is correct, and you have the extra two days. I'm hoping to see if you can help us bridge the most recent trends and how to think about Q4. And separately, just a clarification. There are some recent news on potential ban in the sale of CSDs and snacks in schools Mexico. I know that historically the impact of the sugar tax was not relevant at all. But just wanted to hear how you're positioning cases if it materializes? Thank you.

Let me go in reverse order. I haven't read all the news in Mexico; I'm not sure it's happening yet. But we largely sell a no-sugar set of portfolios recommendation towards schools and that's part of our global approach. So I'm not sure how that matters, or not sure how that's going to impact the business. I'd imagine that's going to be very small, if at all. In terms of the fourth quarter, it's important to consider how high inflation marketplaces will influence our results. The impact of high inflation has clearly been diminishing throughout the year, so we could see less effect in the fourth quarter. Regarding CSDs, we anticipate an increase in inventory levels, although I believe we haven't reached the optimal number yet, and it is likely a bit higher than what's currently reflected. We can certainly revisit this topic. Overall, I expect a strong outlook. Essentially, if we remove all the fluctuations and focus solely on the numbers, excluding high-inflation markets from the price/mix in the third quarter yields a 6% increase. With a volume decline of 1%, that brings us to a 5% growth, which aligns with the upper range of our growth expectations as it has each quarter this year and in prior years. In simple terms, without considering high inflation, I anticipate we will remain at the top end of our long-term growth projections.

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

I'm going to go for the award for the shortest question. Since the news is so new with McDonald's and potential food contamination. I think they're your largest customer. Is there anything we should know about how it would impact your business?

Kaumil, yes, I think you've got a pretty short question there. Look, I think obviously, hearts go out to the people who have been affected by the contamination. Certainly, we're a big partner of McDonald's; they're a big partner of ours. We'll be helping them in any way we can as they work through whatever is happening here. Clearly, the information is very thin on the ground as it relates to those of us further away from the situation. Certainly, when one looks at what's in the media so far in terms of the states that have been affected, I would say, at this stage, it's not going to be a large, significant impact on the business.

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

Great. Thank you very much. Your CSD business in the U.S. is performing quite a bit better than it has than a number of years ago. And I'd like to kind of get your sense of the drivers on that? Is it Zero Sugar products? Is it better engagement with younger drinkers? It market share gains? And then more specifically, this year, some of the data that we're looking at seems to suggest CSDs are retaking market share from energy drinks. So lots of pieces there, but I'd love to get your assessment of what's going on. Thank you.

Thank you, Rob. To start, I believe the growth in the soft drinks is due to several factors, particularly our efforts to enhance brand relevance. The North America teams have made significant strides across the portfolio. In the third quarter, the Coke Trademark saw volume growth, as did other sparkling beverages. While Coke Original remained relatively stable, Coke Zero experienced double-digit growth, and even Diet Coke saw an increase. This success can be attributed to the ongoing marketing transformation, improved execution from the bottling system, efforts in revenue growth management, and effective marketplace execution, which have all strengthened the sparkling beverage segment in North America. This achievement reflects the cumulative effects of numerous quarters of effort, and it's becoming evident when examining the third quarter and the improving trend throughout the year.

Our next question comes from Charlie Higgs from Redburn. Please go ahead. Your line is open.

Yes, hi, James, John, Robin, hope you are all well. I'd like to dig into the unit case volumes down 1% in Q3 a bit more, please. And if you could maybe just quantify or contextualize some of the consumer hesitancy that's happened in Q3. Was it about the same as Q2 better or worse? And then also some of the impacts from the portfolio trimming you're doing. I'm just trying to get a sense of like the clean volume performance in Q3. And then just building on that, maybe you could touch a bit more on Trademark Coke, Coke Zero accelerating to 11%? Are you confident, James, that that's incremental and not coming from Coke Classic? Thanks.

We can analyze the volume in various ways. The key point to note is the unusual composition of volume in the third quarter. There was solid volume performance in developed markets. In North America, despite being flat overall, there was growth in sparkling beverages and premium stills across several categories, although we had deprioritized some of the case pack water. Thus, North America performed well. Europe, Japan, and Australia also experienced growth. However, this growth was impacted by pressures from emerging markets, which were concentrated in specific regions facing both temporary and ongoing challenges. The temporal factors are significant; for instance, Mexico experienced a strong Q3 last year, which impacts current comparisons. Brazil remains strong, but Mexico's previous performance in Q3 makes Latin America's numbers look weaker than they are. In reality, we believe the momentum in that region is still positive. In India, a particularly heavy monsoon season in several states has impacted volume. It's worth noting that heavy monsoons often correlate with better agricultural yields, which we anticipate will improve next year. This situation is expected to be temporary, and we expect India to return to growth. Certain regions are facing ongoing challenges, especially China, the Eurasian markets, and the Middle East. In China, the economy is not experiencing significant growth, partly due to strategic decisions we've made. We chose to deprioritize water products in favor of expanding our sparkling beverage line, and as a result, Coca-Cola actually experienced volume growth in Japan during the third quarter. This situation highlights that some outcomes are influenced by our choices. We need to concentrate more on the aspects we can control in China to improve our marketing, innovation, and execution. Nonetheless, we remain optimistic about long-term investment prospects in the Chinese market. The Eurasia business is more of a confluence of factors, the spillover from the Middle East conflict, plus there's a set of markets there that are undergoing quite significant macroeconomic adjustments and that is also coming together to kind of create a relatively big headwind volumetrically speaking.

Our next question comes from Bill Chappell from Truist Securities. Please go ahead. Your line is open.

Thanks. Good morning. To dig a little bit further into fairlife, I guess maybe the size of it at this point, are we nearing $1 billion? How much impact is it having on mix and kind of the prospects as we look to next year? Can it continue to expand or do you have tougher comparisons? Because it's really been a big driver particularly in the past kind of 12, 18 months and just trying to understand the prospects going forward and how much impact it's now having on North American overall sales? Thanks.

Thanks, Bill. Well, for sure, it's going to be a $1 billion brand. It's certainly passed that mark a while ago. I think firstly, like one of the most kind of I think standout facts about the North American businesses, and I think we said it in the script, is the two biggest brands in terms of retail dollars added to the North American beverage landscape by any brand across the whole industry is Coca-Cola Trademark and Fairlife. And that shows you, I think the ability to take something that's been around for 138 years and make it continue to be relevant and take something that's not much more than a decade old and make that relevant too. And so yes, it's having an impact on mix because largely we're consolidating a vertically integrated business and so there's a mechanical effect at the revenue line, which is part of that slightly outsized contribution for mix that I talked about earlier, but it's also delivering on the bottom line. But just to allay fears that somehow that means that the rest of the business is not doing well, no. The North America ex-fairlife is also growing top line, gaining, doing well, and growing profits. So both engines are firing, or all the engines are firing, and it's not just one engine, which I think is very important to understand, and it can certainly continue to expand. I mean, clearly next year we're going to be cycling a very strong year, and we are in the process, as previously advertised, about bringing online more capacity. The New York plant is being dug out of the ground or built out of the ground as we speak. And so we will be aiming to blend in that capacity. Clearly, it's going to be hard to cycle this year's numbers until we get the capacity, but I think there's huge opportunity and demand in the marketplace. We just need to continue to run, keep it relevant, and bring online the capacity.

Our next question comes from Kevin Grundy from BNP Paribas. Please go ahead. Your line is open.

Great, thanks. Good morning, everyone. James, I was hoping to pivot to the alcohol strategy and learnings there. I think it's gotten a little bit less attention from investors more recently. The company has about a few years in or so to the strategy, extending some of the brands. You have a number of different partners in the space with a number of different trademarks. Maybe comment, number one, sort of broader learnings here a few years in. And then two, which opportunities you think are more scalable globally and can become a more meaningful part of the portfolio. Thank you.

Yes. It's a couple of years in; still very early days. I would advertise here a kind of an overall learning that most things take a decade to work out whether they're going to arrive at scale, a minimum of 7 years. And that's true, even if you look back at the beverage industry, the most successful of any brands, it was very hard to tell whether we're really breaking through to scale until about year 7 and it took at least till year 10 to get scale and often much longer. So a few years is still relatively early days in terms of really building out something at scale. So that's point number one. We have been taking a careful approach to determine what will be effective. We have gained valuable insights and adjusted our strategy when necessary, while continuing to progress with what is working. Regarding the question of whether one option will succeed while another fails, I don't view this category in that manner. I don't believe there will be a single dominant product that captures 50% of the market. Instead, the alcohol industry offers a wider range and encourages more variety-seeking behaviors. And therefore, I think it's going to be more about us using a combination of some partnered ready-to-drink offerings like Jack and Coke, Bacardi and Coke, Absolut and Sprite, complemented with a set of our own brands, ARTD, like Simply Spiked or Minute Maid, in a portfolio effect. And I think it's going to be about having a robust portfolio of choice, is going to be the approach that is likely to do well in ARTD. And if you look around the world at the few markets, and there are only relatively a few, where ARTD is a meaningful percentage of the beer, relative to beer, then that's the characteristic that stands out. So the question is, can we put together a bundle that could be effective, not just in share terms, which I think is possible, but in terms of making ARTD a relevant size category?

Our next question comes from Robert Moskow from TD Cowen. Please go ahead. Your line is open.

A quick question. You expect price/mix to decelerate next year. Some of it's due to North America, some of it's due to hyperinflationary markets. So do you expect any benefit to volume from that? Like is there elasticity assumption? You did sound very positive about volume into 2025. Thanks.

Yes, there is a mechanical effect related to price/mix and volume. I anticipate that 2025 will be the opposite of the third quarter. I expect emerging markets to regain their traditional role of growing faster than developed economies, which will contribute to volume growth, though it will not lead to a favorable price/mix. Therefore, I foresee some stabilization in this relationship, meaning next year will resemble this year, characterized by some volume growth, a more typical level of volume increase, and normal pricing, along with a residual presence of high-inflationary countries. This is likely where 2025 is headed.

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

Yes, good morning, everyone. I have a North America-specific question. Can you tell us more about the improving system digital capabilities are being built that you might find most promising as you look forward to accelerating volume and revenue growth? And how are you compelling the bottlers to make investments behind these capabilities?

Certainly, Carlos. From the perspective of the bottling system, we're seeing an increase in digital engagement with the retail system. Electronic ordering has been a fixture in modern trade for some time. However, what's particularly exciting is the progress within the mom-and-pop and independent trade sectors. This isn't just about providing a platform for retailers to engage with the ordering system at any time, eliminating the need to wait for a pre-seller. Retailers now have the capability to add products to orders and submit service requests for coolers or merchandising materials. But also as we start to get into AI, the system can also start interacting with the retailers with suggested orders and the engagement, not just from the retailer to the bottler in terms of ordering a service that's actually from the bottler to the retailer suggesting orders because of whatever is happening. There might be some events coming up; there might be people like you buy these sorts of things you should add. And so we really see a combination of enhancement to the market developers who are out there. It's not going to go from being a human system to an entirely electronic system. I think it's going to be about the enablement of the humans to be as productive as they can be, whether those are pre-sellers, market developers or the retail operators themselves. And so I think it's very exciting, and the bottlers are leaning in to the investments in this area. So with that, just to conclude, we think we're well positioned to deliver on our ambitions to 2024 and over the long term. We're certainly managing near-term uncertainty as we continue to build our system for long term. And we're confident we will create sustainable value for our stakeholders. Thanks for your interest, your investment in the company, and for joining us this morning.

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