Hello, Will. At this time, I would like to welcome everyone to The Coca-Cola Company's Second Quarter 2025 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 a listen-only mode until the formal question and answer portion of the call. I would like to remind everyone that the purpose of this conference is to talk with investors and therefore questions from the media will not be addressed. Media participants should contact The Coca-Cola Company'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.

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 reconciliations detail 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 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. Throughout the first half of 2025, the external environment has continued to evolve. To adapt, we stay close to the consumer, manage our growth portfolio of brands, and double down on our all-weather strategy. After the first half of this year, we're on track to deliver on both our top-line and updated bottom-line guidance. We're confident we can navigate varying local market dynamics during the remainder of 2025 to deliver on our updated guidance. This morning, I'll provide details on the operating environment and our second-quarter business performance. Then I'll explain how we're pivoting our plans and building new capabilities to deliver amidst the current realities. John will end by discussing our financial results and providing further commentary on the outlook for the rest of the year. Coming into the quarter, we expected the operating landscape to be choppy. Volume declined 1% during the quarter as we cycled a difficult comparison versus the prior year. Two-year volume trends were on track in April and May, but decelerated in June in the face of adverse weather in several key markets and pockets of consumer pressure. Several markets that were weaker in the first quarter improved volumes sequentially, including the U.S. and Europe. In these markets, the plans we've implemented are working, providing further confidence we can influence the trajectory of our results. We also delivered 5% organic revenue growth and robust margin expansion, which led to 4% comparable earnings per share growth despite currency headwinds and a higher effective tax rate. More broadly, our industry remains resilient. During the quarter, we gained value share, which represented our seventeenth consecutive quarter of value share gains. Across the world, we're navigating complex dynamics across many markets by leveraging our global scale or stepping up local execution. Starting in North America, while volume improved sequentially, it declined due to the continued uncertainty and pressure on some socioeconomic segments of consumers. We continue to invest behind our brands, which led to value share gains and revenue and profit growth. Our price mix decelerated as growth from some of our premium stills brands moderated during the quarter. Our granular action plans to win back consumers with contextually relevant advertising, more focused value and affordability initiatives, and close customer partnerships are working. Several bright spots in our total beverage portfolio include Coca-Cola Zero Sugar, Diet Coke, Fanta, Fairlife, BodyArmor, and Powerade, which each grew volume. We're continuing to get good traction with our foodservice customers on both renewals and category expansion, and our system is stepping up execution and earning increased share of this. In Latin America, volume declined, but we grew organic revenue and profit. We benefited from the improving economy in Argentina, and Coca-Cola Zero Sugar had strong volume growth in Brazil and Mexico. In Mexico, despite cycling a difficult comparison to the prior year and navigating a more difficult start of the year, two-year volume trends improved during the quarter until uncharacteristically cold weather and a major hurricane impacted the trajectory in June. To drive transactions, we're reprioritizing investments driving affordability with refillables and premiumization with single-serve offerings and scaling connected packaging and our systems digital customer platforms. In EMEA, all three of our operating units grew volume, and we also had revenue and profit growth. In Europe, volume growth was driven by both Eastern and Western markets and was partially aided by cycling an easier comparison versus the prior year. Coca-Cola Zero Sugar, Sprite, and Fuze Tea each grew volume. We activated our Share a Coke campaign across thirty-eight markets in Europe and included prominent musicians and influencers. The campaign leveraged a memory maker digital tool, which allowed drinkers in some markets to share personalized memes and videos with friends and family. We also tapped into Sprite's spicy meals and Wanna Fanta campaigns. In Eurasia and the Middle East, despite multiple conflicts in the region during the quarter, we grew volume and won value share. We're leveraging our learnings to emphasize the localness of our system, which includes local sourcing, production, employment, and distribution. We're focusing on locally relevant sparkling flavors, innovations, and affordability with attractive absolute price points, value packages, and tailored promotions. In Africa, despite a worsening macroeconomic growth outlook, we grew volume. Egypt, Morocco, and Nigeria each continued their strong momentum. Our system's actions are working. We've refined our pack price architecture, executed fewer but bolder integrated marketing campaigns, and accelerated cold drink equipment placements. Lastly, in Asia Pacific, after a strong first quarter, we had mixed performance across the region. Volume declined, but we grew both revenue and comparable currency-neutral operating income. In ASEAN and South Pacific, volume declined as growth in Australia and the Philippines was more than offset by declines in Thailand, Indonesia, and Vietnam. However, we won value share, and our system is taking action by scaling refillable offerings, increasing outlet coverage, and accelerating cooler placements. In China, we grew volume despite a cautious consumer environment thanks to stronger performance from trademark Coca-Cola and in the eating and drinking channel. Our system is developing more granular channel and customer-specific execution strategies, driving more tailored promotional campaigns, and accelerating cooler placements. In India, after a strong start to the year, volume declined as our business was impacted by early monsoons and geopolitical conflicts in the important summer season. In response, we're engaging consumers with integrated marketing campaigns like Coca-Cola and Meals supported by execution in the QSR channel, Thums Up with Dariani, Sprite with spicy meals, and Mazzo with festivals, tailoring these activations to regional and local needs. Also, our system is adding customer outlets and recently surpassed one million customers on its digital ordering platforms. In Japan and South Korea, industry volume declined amid a challenging macro environment. Our volume was also down, reflecting industry dynamics and a strong prior year comparison. Nevertheless, two-year volume trends remained positive during the quarter. In response to the external environment, we remain focused. To sum everything up, while the external environment continues to evolve, we remain steadfastly focused on maintaining agility. We're taking the appropriate actions to deliver on our updated 2025 guidance. Critically, to deliver amidst the current realities, we're enhancing capabilities along each facet of our strategic growth flywheel by investing to drive transactions in the back half of the year. Our marketing transformation allows us to more quickly test ideas, share learnings, and scale successful campaigns. For example, to mitigate consumer pressure in mix stemming from geopolitical tensions, our teams implemented tactics similar to those developed last year in Turkey tailored to local needs. During the quarter, we launched a campaign which highlights our long-standing contribution to the Mexican economy. At the same time, we leaned further into consumer passion points and pulled forward our World Cup activation, giving away one thousand tickets to next year's event. As a result of these initiatives, combined with strong local execution, monthly value share trends and consumer perception scores improved significantly in Mexico during the quarter. While we're lifting and shifting learnings across markets, we're also revamping and creating new campaigns and leveraging passion points. In April, we launched the return of the iconic Share a Coke campaign across more than one hundred and twenty countries, featuring over thirty thousand names on approximately ten billion bottles and cans tailored to local markets. Also, in North America, we launched the Bring the Juice campaign, which featured a collaboration between Minute Maid and World Wrestling Entertainment that includes digital experiences, limited-time-only packaging, and in-store activations. Our innovation agenda supports our overall growth strategy by focusing on understanding and anticipating consumer needs. To make a greater impact and improve return on investment, we're leveraging our portfolio of thirty billion-dollar brands. For example, during the quarter, we launched Sprite plus Tea in North America, which contributed to increased share of visible inventory. This limited-time innovation blends the refreshment of Sprite with the flavor of tea and adds to the recent hits under the Sprite trademark, including Sprite Chill, Sprite Winter Spiced Cranberry, and Sprite Lemonade. Sprite Plus Tea started as an experimental project; we scaled the launch after seeing strong consumer demand and positive social media reaction. As a result of on-brand innovation, Sprite became the number three sparkling soft drink brand in the U.S. as Beverage Digest announced in April. We're always exploring ways to meet evolving consumer preferences for great-tasting refreshment, including with our iconic Coca-Cola brand. As you may have seen last week, we appreciate the president's enthusiasm for our Coca-Cola brand. And as part of our ongoing innovation agenda, this fall in the United States, we plan to expand our trademark Coca-Cola product range with U.S. cane sugar to reflect consumer interest in differentiated experiences. This addition is designed to complement our strong core portfolio and offer more choice across occasions and preferences. Revenue growth management is a critical tool to segment our consumers and channels, and we're increasingly integrating the capability with our marketing expertise to drive transaction growth. To step up our capabilities, we are leveraging learnings across our markets and marrying digital investments with compelling points of sale, messaging in stores, and on packs. It takes patience and discipline to build a refillable franchise. We're tapping into learnings from our strong capabilities in Latin America to grow refillables over the long term in Africa, the Philippines, Thailand, and parts of Eurasia and the Middle East. On the premiumization side, we're leveraging our experience in North America to grow many accounts in Europe. Lastly, last year, we highlighted an AI-based pack price channel optimization tool in Mexico. Results so far have shown this tool improves our offerings and speed to market. So far, we scaled this platform to eight markets across four operating units. Robust local execution is key to ensuring the success of our top-line initiatives. Our system is stronger than ever, which ultimately leads to commitments to further invest to drive growth. We've collectively ushered in a culture of learning from one another, and we aspire to improve every aspect of how we do business. To summarize, while the external environment continues to be dynamic and there is no doubt that much uncertainty remains ahead, we remain growth-oriented. We're continuing to pivot our plans as needed, and we are harnessing our all-weather strategy to deliver on our growth ambitions. Before I conclude, I'd like to recognize the efforts and unwavering dedication of our system employees around the world. With that, I'll turn the call over to John.

Thank you, James, and good morning, everyone. In the first half of 2025, we delivered positive volume organic revenue growth at the high end of our long-term algorithm, robust margin expansion, and continued earnings per share growth in a very dynamic operating landscape. During the second quarter, we invested with discipline to achieve our objectives. We grew organic revenues 5%. Unit cases declined 1%, largely due to a weaker-than-expected June. Concentrate sales were even with unit cases. Our price mix growth of 6% was primarily driven by approximately five points of pricing actions and one point of favorable mix. Pricing from intense inflationary markets contributed to approximately one point of price mix growth, down from approximately five points in full year 2024. Comparable gross margin increased approximately 80 basis points, and comparable operating margin increased approximately 190 basis points. Both were driven by underlying expansion, partially offset by currency headwinds. Approximately one-third of our underlying expansion was driven by faster realization of our productivity initiatives, while the rest was driven by timing of investments and favorable cycling versus the prior year. Putting it all together, second-quarter comparable EPS of 87 cents increased 4% year over year despite 5% currency headwinds, elevated net interest expense, and an approximate two-point increase in our effective tax rate. Free cash flow, excluding the Fairlife contingent consideration payment, was $3.9 billion, which is an increase of approximately $600 million versus the prior year. Growth was driven by underlying business performance and lower tax payments, partially offset by cycling working capital benefits in the prior year. During the quarter, we made our final $1.2 billion transition tax payment related to the 2017 Tax Cuts and Jobs Act. Our balance sheet remains strong with our net debt leverage of two times EBITDA, which is at the low end of our targeted range of two to two and a half times. We're confident in our long-term free cash flow generation and have ample balance sheet capacity to continue investing in our business and returning capital to our shareholders. Enabled by our all-weather strategy, we're updating our 2025 guidance, which takes into consideration our actions to drive growth in a dynamic context and what we know today about our external environment. We continue to expect organic revenue growth of 5% to 6%, but now expect comparable currency-neutral earnings per share growth of approximately 8%, both of which reflect delivery in line with our long-term growth algorithm. Based on current rates and our hedge positions, we now anticipate an approximate one to two-point currency headwind to comparable net revenues and an approximate five-point currency headwind to comparable earnings per share for full year 2025. While we recognize there's recently been some favorable currency movements, we hedge much of our developed market and some of our developing market exposure, and we'll take time to see the full benefits. We will continue to utilize the disciplined hedging strategy that provides greater certainty for decision-making. Our underlying effective tax rate for 2025 is still expected to be 20.8%, which is more than a two-point increase versus the prior year. All in, based on what we know today, we now expect 2025 comparable earnings per share growth of approximately 3% versus $2.88 in 2024. So here are some considerations to keep in mind for the remainder of 2025. We continue to expect our external landscape to be dynamic, and we expect recovery in some markets to take time. We are expecting concentrate sales to run slightly behind unit cases during the third quarter. Based on what we know today, we continue to believe the impact of global trade dynamics on our cost structure will be manageable. Given the strong margin expansion that came through earlier in the year, we no longer expect margins to be back-half weighted in 2025. Lastly, due to our reporting calendar, there will be one additional day in the fourth quarter. So in summary, while the external environment continues to evolve, we're successfully pivoting to continue to deliver top-line growth, margin expansion, and earnings per share growth. In the first half of the year, we've effectively tackled many challenges not anticipated at the outset, and we will continue to adapt to whatever lies ahead. Thanks to the proven strength of our system, we have great confidence we will deliver on our updated 2025 guidance and create enduring value for our stakeholders. And with that, operator, we are ready to take questions.

If you have any additional 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. I was struck by the use of the phrase word pivot, you know, pivoting our plans, adjusting our plans, a couple of times in both of your prepared remarks. And yet you had, you know, very solid, good, strong organic sales growth this quarter. Profitability was really striking. And the outlook for the second half feels comparably strong, frankly, with just a little bit less margin expansion. So maybe I can just really focus on that pivot plans piece to understand maybe more concisely what it is. You know? As you're thinking about the back half of the year, does the environment feel that it's tougher? Does it mean that you know, the sort of puts and takes of which markets you thought would go one way versus another is the key to what that pivot commentary means. But I could use a little clarification on all of that. Thanks.

Sure. I think thank you for noticing that we had a strong first half and by this implies a strong second half, and we certainly are aiming to deliver that. I think how you should interpret the pivot comment is really in the context of us pursuing growth under the all-weather strategy. This year has been characterized by rapid turns of events and twists and turns which has required us to respond with greater agility and speed. So if you just want to compare and contrast Q1 to Q2, in Q1, the U.S. and Europe were slightly weaker, but we pivoted or we adapted with some agility and we got much better coming into Q2 in those developed markets. And yet, in Q2, in a couple of our big emerging markets, partly, they had strong comparisons to the prior year, but we got hit by some early monsoon in India, which is important. So next season plus the India-Pakistan conflict, brief as it was, plus weather in Mexico, which required us to pivot to bring back growth in those parts of the world. Coming into the second half. So it's really, if you like, about the need for the all-weather strategy to be taken up another notch in terms of how fast you can pivot and execute to still deliver the results that we're delivering.

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

Hey. Good morning. So what proteins a space that's on trend with the consumer. It's growing at very strong rates. You obviously have a clear competitive advantage with the Fairlife brand. But given all those factors, you are running into capacity constraints. So just with that as a backdrop, I was hoping you could give us a sense of how much of an unlock the planned U.S. capacity additions are starting in early 2026 for Fairlife, both the total volume, but also that will enable you to manage each of the three Fairlife product areas differently. And then also, can you discuss if there's any international Fairlife plans on the horizon outside of North America? Over the next few years. I know replicating the North America dairy manufacturing footprint would be difficult. So just how realistic is international expansion at some point and then what time frame? Thanks.

Sure. Firstly, Fairlife continues to have strong growth. Double-digit volume growth in the second quarter. Clearly, that's moderating slightly from Q1 and prior year. But we still expect to get volume growth in the second half again, although moderating as we wait for the capacity to come online. I think the team has done a great job of creating some space this year to keep growing. As you point out, the New York facility will come online at the beginning of 2026, obviously. That doesn't all turn on with a flick of the switch on day one as much as one would wish it would. And that will ramp up over 2026, but it will steadily debottleneck our constraints on capacity across all the different Fairlife variants and package sizes. So we have that coming online in 2026. We also have, over time, priority going into the future, options to expand capacity at some of the existing facilities. So I think the narrowing of the corridor is really the second half maybe the first few months of next year, but we're basically gonna get through that and doing really well with Fairlife so far. Secondly, as it relates to international, having made some investments in dairy which were happy in small countries and with small investments, it is worth pointing out that Santa Clara in Mexico also had a strong performance. It's now the number one value-added dairy business in Mexico. So not under the Fairlife brand, but actually a big market with a good position in value-added dairy there. And we continue to look at other international opportunities as you rightly point out. The structure of the dairy industry in the U.S. is differential relative to other parts of the world. But protein is very on-trend. We know that Fairlife and CorePower are strongly differentiated and preferred as products and brands. We are, of course, looking to see if we can deliver those sorts of consumer benefits in other parts of the world in ways that we feel would give us a competitive advantage versus whatever's in the marketplace at the time. More to come.

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

Thank you very much, and good morning, everybody. James, just going back to Mexico and India, just given some of the pivots that you've made in those markets going into the back half, I guess the question is, you know, how quickly do you expect a rebound in those markets? And if there are any other markets as you go into the back half, you would flag as kind of known known kind of watch points going into Q3. I'd also like to just because of the strong profit improvement or profit performance in the first half and in the quarter we just saw, it doesn't it seems to imply maybe a little bit more reinvestment in the back half. And if that's the case, just any color on where that incremental investment may be targeted will be helpful. Thank you.

Yeah. Sure. Firstly, whilst being known to be calm, I'm not wildly known to be patient. So the sooner the volume bounces back, the better. I think in the case of Mexico, clearly, the Q2 last year was the strongest quarter. It's worth being upfront and saying Q3 was the weaker quarter. So I think we're going into a cycling that should help us. We've got some strong plans for Mexico, for one example. On affordability, doubling down on refillables and some of the value offerings, also celebrating our hundredth anniversary in Mexico, which is really about emphasizing the long-standing economic impact, which is going back to some of the Hispanic issues that bled across the border in the first half. And we're pulling together some of the marketing activation and execution activation with our bottling partners. So we're confident, not just in the long term, but also in our ability to get back to growth as we come into Q2 and get out of some of the colder weather and the hurricane that was true in June. In the case of India, India, as we've talked or both John and I have said in previous calls, is never gonna be a straight line. And indeed Q2 was not. But we're very bullish on India overall. The Q2 did decline. There was, as I said, the conflict and the monsoon. But we have a lot of marketing campaigns focused on India. We have also just set up the first kind of refranchising piece with the Jubilant Group for the company-owned bottle that we have in, which is basically the bottom half of India. And that's up and running with a new CEO. And so we think that will bring some new energy and dynamism and focus and proactivity to the execution in the marketplace. So we think we've got a strong plan from a marketing innovation point of view. The local franchise bottlers were doing better than the CBO in the first half. And with some reenergized focus on this transition bottler, we're pretty confident on where we'll go in India. And then as it relates to the unauthorized second question, yes, it does imply a little bit of reinvestment. Second, there's a piece of timing in there had expected more of the productivity in the second half, and we got some more some of it in the first half. Which, of course, moves the money around. And so that's a piece of it, but we also are, as we've said in previous years, we continue to lean into growth. We've got a growth strategy. We're delivering growth, and we're gonna continue to invest into that to drive momentum and assure momentum in the second half but also set ourselves up for a good 2026.

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

Hi. Good morning, everyone. I wanted to ask about the North America market. We've seen a little bit of an improvement in the volume in the unit case volume, still negative, but just any thoughts on the outlook as you move forward in the back half especially on two points, the QSR and the away from home channel more broadly, how you're seeing the trends evolving there. Then also, the trend among the Hispanic consumer, which was a pressure in Q1, and it seems to have gotten better throughout Q2. Thank you.

Sure. Firstly, overall, the U.S. business did a very strong job coming back from a slower start in Q1 and getting sequentially better in Q2. Getting some good revenue growth share was good. And profit was good. So really getting better. And I think that's in the context of a pretty resilient overall consumer. The aggregate spend is holding up. Yes. There's some pressure in those with lower incomes, where we're targeting some affordability and some special focus on marketing and occasions. So I think the overall outlook continues to be resilient, and we're investing for growth in that. Just on the Hispanic consumer, yes, we had a problem in the first half. If you take the end of June, by the end of June, we had basically got back to the share we started the year with. We got back to the brand equity scores. We're looking back, and we got back to the household penetration. Obviously, as that went down into the valley from January to March, you'd have to climb out of the valley from April to June, so it was still a headwind in the second quarter. But the issue is now largely resolved. We're back to where we were, and there was a lot of good stuff on some very targeted contextual advertising against the basically, the false video, and a lot of focus on how local the Coke business is. It's made in the U.S. It's made by U.S. employees. It's distributed by U.S. employees and U.S. retailers. So I think we've kinda put that one behind us for now. And then the away from home channel, obviously, depending on where you are in the away from home channel, you get slightly better or slightly worse footfall and traffic. But I think because really not a different reflection of the overall economy. Where you see some of the bits of the channels where you've got the lower-income consumers a little more focused on affordability offers. So you definitely see that coming up. But the team has done a good job on customer renewals and bringing in new accounts, like Costco and Carnival. So we're seeing some pretty good reaction there, but I don't think one should think about it as that different a representation than the overall market.

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

Alright. Thank you. Good morning. James, I wanted to drill down something. You mentioned that productivity came in better than expected in the first half. So just hoping you could just provide a little bit more color on sort of what drove that upside and then how we should think about that in the back half in some of your productivity initiatives planned for this year. Thank you.

Sure. Two basic sources of the productivity. One was the marketing transformation. We've been on a journey for the last few years on the marketing transformation, which is not just about the effectiveness and the digitization of the advertising, and the segmenting of the advertising, but also about the efficiency of both the producing it and the buying, the media where we use the advertising. And we were able to capture some of those savings and that just from a timing perspective, there was just a little more of them in the first half and the second half, but those were always on the way and it's a product of the work we've been doing over the last couple of years. To really reform how we do the marketing to be not just more effective, but to also bring some efficiency to bear. And then the other piece of the productivity was setting out to be as disciplined as possible on the operating expenses. And to be a little more frugal and to invest our money a little wider as we went in. We were able to just capture some of those benefits as we came into Q2 ahead of the second half. So mainly just getting things done a little quicker than anticipated, which is good news.

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

Hi, everyone. This will be slightly connected, but a bit more specific. North America margins were, you know, incredibly strong in Q2 even with higher marketing on a year-on-year basis. I understand there are so many puts and takes but I would love to get your take on how these margins have been evolving some of the key drivers between perhaps pricing or cost savings, product mix, channel mix. I again, I fully appreciate there are so many drivers every quarter, but the evolution here has been sequentially and directionally positive and moving in the right direction. So I'd love to get your broader thoughts on what you think is driving this and the durability. Thanks so much.

Sure. Firstly, I mean, I'll give you some factors relative to Q2, but as I've done normally, the question comes on Asia Pacific on margins being strange movements in intra-quarter, I would encourage you to take a multi-quarter view of any bits of the business rather than one. Having said that, clearly, the margins got better in Q2 in North America. Part of that was coming from the productivity initiatives as I just described them. Some of it comes a little bit from with the deceleration of some of the vertically integrated businesses, they're mixing in less operating expense so that that kinda makes a difference. The vertically integrated business is tending to have a slightly lower percent margin than the concentrate businesses, so that's another driver of what's going on. I think what's also important to understand is none of this is happening in the absence of continuing to invest behind our brands. We were still very strongly investing not just in innovation, but actually in absolute marketing terms in the U.S. market to continue to drive growth. So it's not whilst the margin has been improving in the U.S. marketplace, over time, and if you go back four years, it was not in a great place, so I think it's kinda more normalized, and what it's a feature of is that normalization of productivity first, the most important story is continuing to invest heavily behind our portfolio, our innovation, our execution to drive growth and gain share.

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

Hey, guys. Good morning. I guess three questions in a row on margins, but this will be a bit different. Obviously, productivity coming in a little bit better. The margins look great. At the same time, the impact from foreign currency seems to be abating. And if it continues in this way, it might even move in a positive direction as we get into next year. Can you maybe just talk about the operating leverage across the P&L given how much has changed so far in these really two factors sort of very much moving in your favor? Thanks.

Let me take that one, James. So, yeah, you've got two distinct effects. I think James covered well the drivers of operating leverage on both the gross and operating margin lines, which we continue to expect to deliver the second half of the year, albeit at a slightly lower rate than we had previously flagged. And then on the currency front, it was as you all know, we hedge as a risk management tool to help us smooth fluctuations and provide greater certainty at the local market level. And year to date, the main influence has been the performance of the G10 currencies, which we hedge on a consistent basis. And there, those hedges are somewhat offsetting the actual dollar weakness that we have seen against those currencies. Emerging on the emerging markets front, not as much. And so as we look to the second half of the year and we'll provide more color in October on our outlook for 2026, the updated guidance reflects a softening of the negative impact that we had been experiencing on the overall currency front. So net net, slightly better environment. We continue to hedge to, as I said, to smooth the fluctuations that we typically experience. We'll provide an update for 2026 on the October call.

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

Great. Thank you very much. James, can you talk a little bit about globally what you're seeing in terms of consumer strength? The sense I got and maybe I misheard, but the sense I got was that you were a little bit surprised by some pockets of consumer weakness globally apart from the weather, apart from geopolitical issues. So is that right? What are you seeing from the consumer globally? And if things did weaken a bit in June, how has that progressed into July? Thank you.

Yeah. Thanks a lot. Yeah. I mean, let me just stand back again on the volume around the world. The second quarter we had good performances and improving sequentially. So North America improved sequentially. Europe was up. Middle East was up. Africa was up. China was up. And apart from the two that I mentioned in terms of the weaker performance, India and Mexico, there was a little bit of weakness in Japan, but there was also some, I think the one that's kind of was the most I don't know if it goes far as surprising, but let's go with surprising just to take the argument. It was more Thailand, Indonesia, Vietnam, the ASEAN markets, we saw some weakness in Q2, which is perhaps a little more than we've been expecting. So I would say overall, that the global economy and the global consumer remains resilient. There have been some swings in countries a bit like I said at the beginning and answer one of the questions. You know, things have come in and out at greater speed than perhaps historically. And so something can get worse and then better again at a faster velocity than perhaps, in the past. And there have obviously been some geopolitical events that happened in Q2, and they've come in and out quickly to some of them. So the rate of surprise is kind of speeded up. I think you gotta stand back and go, actually, overall, there was a pretty resilient consumer environment pluses and minuses by the countries. If I had to say one that was a little surprising, it would be ASEAN. Leaving aside weather and things like that. But we're confident we're investing in the right programs for the second half, marketing, innovation, RGM, execution, to make sure that as we drive our top-line algorithm for the second half, that will come with a better volume component.

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

Good morning. I wanted to ask on the potential innovation into PureCircaCane. And then if you can talk about it, like, in the context of consumer preference, and appetite to expand into more fiber, you see, like, a competitor launching to prebiotic under their main trademark and how it's Simply Pop performing or thoughts on participating more in that segment? Thank you.

Yeah. Thanks a lot. Look. We're always I don't think just us, but I think the industry, given its size, its attractiveness, and its growth potential, we're always looking for opportunities to innovate and see where there's an intersection of new ideas and where consumer preferences are evolving towards. Remembering that actually most innovations don't work in the long run, but I think, you know, it's a good sign that the including ourselves, are trying lots of different things. As it relates to the cane sugar, yes, we're gonna be bringing a Coke sweetened with U.S. cane sugar into the market this fall. And I think that will be an enduring option for consumers. Actually, we use cane sugar in a number of our other brands in the U.S. portfolio from lemonades to teas, some of the coffee stuff, some of the vitamin water drinks. So that it's blended into some of our other products, and so we are definitely looking to use the whole toolbox, the whole toolkit of available sweetening options to some extent where there are consumer preferences. So we will continue to do that. And as we experiment, yes, you know, with fiber, I think you're referring to the Coke with fiber in Japan. And so that's, you know, been an interesting option. And we collected some valuable learnings for it. So we just continue to focus on trying things, understanding it takes a long time to build a new franchise with consumers, but you gotta try things. And we know our success rates, you know, substantially above the industry. But it's still a question of it takes time and commitment to build something new.

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

Thanks, operator, and good morning, everyone. James, I wanted to ask a follow-up question on Fairlife and just in your response to Dara's question, you talked about the growth has kinda moderated sequentially, and you expect it to moderate further in the back half of the year. I'm assuming that that's simply related to the capacity constraints you mentioned and that your outlook or expectations for category growth or the competitive environment haven't shifted. So maybe just confirming that. And then just on that last point, I hope you hopefully get some perspective. On the competitive environment and how you see that evolving in the back half of the year and into 2026. Thanks.

Sure. Yes. I can confirm the moderation we're expecting is the law of big numbers and the capacity constraint rather than a weakening of the proposition relative to the competition. Now we're still very excited about the opportunity for Fairlife and CorePower. And the new and the Fairlife nutrition plan. I have no doubt in my mind that if we had more capacity we could sell more product. Today, tomorrow, and going into the rest of the year. So it really is a capacity narrowing of the bottleneck that we're experiencing. Of course, it's getting bigger and bigger and bigger that the percentages will come down even if the absolutes continue to be big in growth terms. And, yes, it's not surprising that you know, when our competitors and other people see the standout growth and success of a product like Fairlife and CorePower, they will naturally seek to see if they can launch and that's the nature of the industry, and it keeps us all on our toes to know the competition is there. So we'll be very focused on doing the best of Fairlife, not just on the marketing, but on the execution. And, of course, increasingly, as we have new capacity, with new innovations and new thinking on where we can take the Fairlife brand and the CorePower brand. But exciting times ahead.

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

Hey, guys. Good morning. Thanks for taking the question. It seems like we've gotten the whole call without actually talking about Europe. So wanted to ask there. You know, James, it seems like as we get into the back half, EMEA is probably gonna be, you know, driving the bus a bit from a unit case perspective. Just wanted to get your perspectives on how the consumer there is gonna be held up better relative to other developed markets you see the second half playing out across EMEA? Thanks very much.

Yeah. So you interchanged Europe and EMEA, so I'll kinda break that down. Europe certainly did better in the second quarter. It had positive volume growth. It had a mix of pretty balanced growth across the different aspects and both east and west contributing to the growth. And so I think it still worth saying that Europe is a bit like the U.S. in the sense that there's a pretty resilient consumer overall in aggregate. But at the lower end of the income spectrum, we do see a lot of value-seeking and affordability behavior. So we're having to double down on that. We had and within that, we had a great quarter in terms of Coke Zero Sugar, and Sprite and Fuze Tea, and I think there were some really good programs on Fanta as well. So Europe overall, a great start. As it relates to other bits of EMEA, overall, we gained value in EMEA. Africa grew volumes despite cycling some pretty tough comps, and obviously, the macros can be pretty dynamic. In Africa, EMEA, it was driven by Coke and flavors, and some great execution by the system.

Our next question comes from Michael Lavery from Piper Sandler. Please go ahead. Your line is open.

Thank you. Good morning. Just wanted to switch maybe a little longer-term question on coffee. You've obviously got brands like Georgia and Costa that are strong in certain markets, but globally, it's a big attractive category. I guess maybe just would love to hear some of what you're learning as you reflect on your strategy there and what it might take to win and how your participation in the category might evolve over time.

Yeah. Thanks, Michael. Yeah. Costa I think that counts as if we're gonna count Georgia as one attempt, Costa would count as our fourth attempt in coffee because we've got Georgia, Costa with we tried with an investment in Curacao. There was something in the sixties called Duncan, d u. N c a n coffee. So we've totally recognize what you're pointing out, which is that coffee is a large fragmented, growing category in the total beverage industry. So it's clearly attractive if we in the bottling system can find ways to participate more deeply in that category. Now having said that, our investment in Costa is not where we wanted it to be from an investment hypothesis point of view. I mean, the business is still a good business. But it's not quite delivered on the different verticals of growth that we were hoping to accelerate much quicker, the ready-to-drink coffee Express and the at-home business. Therefore, the business remains more weighted towards stores. And in the stores, we've been driving the affordability and actually doing a good job on refreshing the stores and driving the speed of service. But still, the investment hypothesis is originally intended not has not played out this despite the improvement in the store business, so I think I would say we're in the mode of reflecting on what we've learned thinking about how we might want to find new avenues to grow in the coffee category while continuing to run the cost of business successfully because it's still a lot of money we put down, and we wanted that money to work as hard as possible.

Next question comes from Carlos Laboy from HSBC. Please go ahead. Your line is open.

Yes. Good morning. This question may be perhaps for John. John, for years, we've heard you talk about wanting to refranchise for the purpose of focusing more on creating demand. With most of this refranchising done now, how is the focus and capability of creating demand of recruiting new consumers intensifying?

Thanks, Carlos. First, maybe just a comment on the refranchising. So we still got a couple of big chunks to go. And yet we are, as we've discussed in the past, we're very focused on getting those over the line as quickly as is feasible. You know, and adjacent to that, and it's I think it's been a feature of the last few years, is this underlying emphasis on driving top-line growth through an increasingly strong growth portfolio of brands. We have thirty billion-dollar brands in our portfolio today. About half of them organic, the other half inorganic. There's a lot of runway left on those brands and the marketing and innovation transformation that we have also discussed in prior meetings. There is still a tremendous amount to do there. So we expect to double down even more on both the existing portfolio that we have and then through the innovation lens to either continue to develop either organically or stay opportunistic on the inorganic front. That's part one. Part two is I think the relationship that we have with our bottling partners around the world has evolved significantly. In the past few years. With even greater clarity on what we expect from each other. And as a result, stronger partnerships that lead to overall better execution. With a scaled business, the daily execution piece requires both of us to be at our best. And a sort of a net-net outcome of the refranchising that you just asked about is that it allows us to do so. And it allows us to have franchises in the hands of partners who are equally committed to raising the bar.

Our last question today will come from Robert Moskow from TD Cowen. Please go ahead. Your line is open.

Hi. Thank you for the question. John, I just wanted to get a sense of your level of conviction that concentrate volume returns to positive territory in the back half of the year. You know, there appear to have been some transitory elements negatively impacting Q2. And also a tough comp. And then secondly, just in terms of phasing, it would appear that the fourth quarter has a tough comp in terms of concentrate volume. Am I looking at that correctly? And is there anything that you can add to that? Thanks.

Sure. So yeah. So we, you know, our guidance for the full year reflects a confidence that we will have positive volume growth in the second half of the year. I think you're up to two quarters. Q3, we're certainly cycling a more modest prior year. I think rather than overly focused on the prior year, I think our ability to influence the next six months is what's most important. And if you know, if you look at Q2, and you take away a couple of the I would call them anomalies in some of the key markets. Yeah. There's still pretty good underlying momentum in the business. We have the opportunity on the back of a stronger than expected first half on the profit front to have more optionality on how we continue to invest some of our efficiencies. Which we plan to do. So we've got a robust second half on the investment front. Underlying trends in general are good, and a couple of the outliers that have been a headwind in recent months we are comfortable that they can get back on track.

Ladies and gentlemen, this concludes our question and answer session. I would like to turn the call back over to James Quincey for any closing remarks.

Thank you, operator. So to summarize, we believe we're well-positioned to deliver on our updated 2025 ambitions and guidance. We're continuing to build our systems to drive long-term growth and we're confident we will continue to create enduring value for our stakeholders. 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.