Earnings Call Transcript
COCA COLA CO (KO)
Earnings Call Transcript - KO Q4 2022
Operator, Operator
At this time, I'd like to welcome everyone to The Coca-Cola Company's Fourth Quarter and Full Year 2022 Earnings Results Conference Call. Today's call is being recorded. If you have any objections, please disconnect at this time. All participants will be on listen-only mode until the formal question-and-answer portion of the call. I would like to remind everyone that the purpose of this conference is to talk with investors, and therefore, questions from the media will not be addressed. Media participants should contact Coca-Cola's Media Relations department if they have any questions. I would now like to introduce Mr. Tim Leveridge, Vice President of IR and FP&A. Mr. Leveridge, you may now begin.
Tim Leveridge, Vice President of IR and FP&A
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 posted schedules under Financial Information in the Investors section of our company website at coca-colacompany.com. These schedules reconcile certain non-GAAP financial measures, which may be referred to by our senior executives during this morning's discussion to our results as reported under Generally Accepted Accounting Principles. You can also find schedules in the same section of our website that provide an analysis of our gross and operating margins. In addition, this call may contain forward-looking statements including statements concerning long-term earnings objectives, which should be considered in conjunction with cautionary statements contained in our earnings release and in the company's periodic SEC reports. Following prepared remarks, we will turn the call over for questions. Please limit yourself to one question. If you have more than one, please ask your most pressing first, and then reenter the queue. Now, let me turn the call over to James.
James Quincey, Chairman and CEO
Thanks, Tim, and good morning, everyone. 2022 was a strong year for us. We executed well and grew amidst a challenging macro environment. We did this in part by focusing on expanding the sphere of what we can control. We delivered on our top line and bottom line guidance, and we continue to create value by investing in our loved brands, even as we faced a very dynamic backdrop. Today, I'll reflect on our fourth quarter and the year's performance and set the stage for 2023. I'll also share how we're operating differently today, which makes us confident in our ability to deliver our 2023 guidance, and well equipped for a future that continues to be volatile and uncertain. John will then discuss our results and our 2023 outlook in more detail. During the fourth quarter, the environment remained dynamic as inflation, geopolitical tensions, pandemic-related mobility restrictions and currency volatility persisted. Despite this range of factors, consumer demand held up relatively well, and our industry remains strong. In the fourth quarter, we remain focused on our growth strategy and continued to create value for our consumers and customers. We maintained agility to navigate this challenging environment and delivered 15% organic revenue growth in the quarter, with strong growth across operating segments. This was driven by pricing actions across markets and revenue growth management initiatives to retain and add consumers. While we saw robust volume growth across many markets, this was more than offset by the suspension of our business in Russia and the impact on consumption, driven by varying levels of pandemic-related mobility restrictions and the surge in COVID cases in China. Overall, throughout 2022, we have maintained consistent volume growth relative to 2019. We've gained both volume and value share for the consolidated business for both the quarter and the year. So far, in 2023, the volume growth trends versus 2019 are in line with last year, and we are laser-focused on executing on our growth plans. Our streamlined portfolio of global and local brands and stepped-up consumer-facing investments continue to fuel the competitive edge of the Coca-Cola system to deliver value in any environment. Our network organizational structure enables this strategy. We've connected our operating units, our functions and our platform services organization for strong end-to-end coordination, which helps us identify key opportunities for meaningful long-term growth. And on top of this, we remain well aligned with our bottling partners, which further builds on our strength as a network system. As we look to 2023, many uncertainties remain in the macro economy, whether from economic policies, consumer demand, inflation, supply chain, war and geopolitics. Instead of trying to forecast and predict the many directions things could move, we are focused on delivering on our key objectives: firstly, pursuing excellence globally and winning locally through relentless consumer centricity to continue the top line momentum; secondly, investing for the long-term health of the business and raising the bar across all elements of our strategic flywheel; thirdly, generating US dollar EPS growth to deliver value for our shareowners. We continue to build the right capabilities and strengthen the system alignment to deliver in a dynamic world, and we continue to invest to raise the bar. We are executing more efficiently and effectively on a local level while maintaining flexibility on a global level. Throughout 2022, we saw many examples of harnessing our enhanced capabilities to win locally. Our new marketing model is working. We've linked occasions and passion points to drive engagement. We're experimenting to optimize marketing. This is driving deeper connections with consumers, reaching them in unique and new ways. We are tying our beverages to consumption occasions and engaging consumers through local experiences. For example, in Vietnam, to support the reopening of away-from-home accounts, we launched the pilot of Coke is Cooking campaign in October. In this month-long campaign to help drive traffic back to stores, we partnered with more than 700 food shops. We created thousands of food and Coke combo deals that consumers purchased at these food shops, along with Coke is Cooking merchandising and digital support by our local influencers. This was the first time we used an on-ground event as a commercial asset, creating a social and digital content generator. The campaign resulted in more than 1 million combo transactions and 20% uplift for participating merchants. We're leveraging passion points locally to create immersive experiences and drive consumption. For example, in Latin America, our live music strategy created memorable in-person and digital experiences, elevating consumer engagement. We partnered with Rock in Rio, one of the biggest music festivals in the world, and created new opportunities for consumers to access content through live streams and in the metaverse. As a result, we boosted our reach from approximately 700,000 attendees to more than 45 million consumers across the region, and our sales inside the festival increased 23% versus the last festival. In India, the Thums Up, Stump Cam was a never before seen activation for cricket fans where consumers could scan a QR code on product label and get access to exclusive match moments of the ICC T20 Cricket World Cup through a camera installed on one of the wickets. Throughout the 45-day tournament, we used first-party data and artificial intelligence to send personalized content to consumers based on their favorite matches, and we amplified the experience through sports influencers. This campaign showed strong results with Thums Up growing volume ahead of our total sparkling portfolio in India during the activation period, contributing to strong volume growth for Thums Up for the full year. This drove about one-fourth of India's total volume growth for the year. Thums Up also experienced its highest monthly market share jump during the activation period. We are driving consumer interest and action through digital experiences using the power of partnerships across platforms. For example, in Germany, we partnered with our key online customer and created voice-based branded experiences with its voice assistant to drive engagement and grow positive brand perception. This allowed consumers to learn more about Coca-Cola products and shop on voice assistant-enabled devices using only their voice. The campaign delivered strong results with a reach of 11 million impressions. Additionally, consumers that engaged with its voice-based experience had a 25% add-to-cart rate. And lastly, we're delivering new and unexpected innovation by leveraging Gen Z insights. In the US, we launched Minute Maid Aguas Frescas. The product is made with real fruit juices, is non-carbonated and comes in three exciting flavors. It was originally available as a limited launch in 16-ounce ready-to-drink cans. A disruptive end-to-end digital media marketing campaign created early momentum, which led us to quickly scale this experiment to our Freestyle platform and other fountain offerings. In 2022, the product had a 60% repeat rate and won the Best New Product award from Convenience Store News. We have been building our revenue growth management and execution capabilities for many years, and we've made good progress, as shown by our ability to offset much of the inflation we saw in 2022 and delivered strong volume and transaction growth. There is still much work to be done to maximize revenue by further segmenting our markets and consumers based on additional variables. We are leveraging digital and data-backed insights to better understand our consumers. This will help drive affordable propositions for basket incidence growth and recruit new drinkers. It will also lead to premiumization to drive price and mix. For example, in Europe, we grew both volume and value share for the last year. We partnered with key customers to drive growth through affordability and premiumization initiatives that tapped into the key consumption occasions of meals and breaks. This end-to-end execution resulted in higher basket incidents and buying households across all key channels in Europe. Globally, this strong system execution focus generated 80 million additional shopping trips for our products and added 17 million households to our base. Through our stepped-up capabilities, we are getting better at synchronizing demand creation and demand fulfillment, driving top-tier value creation for our customers. We measure success by the value we create for our stakeholders and by how we are creating a better shared future for people, communities and the planet. During 2022, we made progress across these sustainability priorities. We leveraged our marketing power to drive growth of our low- and no-calorie beverages and continue to provide smaller package choices to enable consumers to manage sugar intake. Approximately two-thirds of the products in our portfolio have less than 100 calories per 12-ounce serving. On packaging, we've set a new industry-leading goal to have 25% of our volume globally being refillable or reusable packaging by 2030. Additionally, we are continuing to increase cooler energy efficiency and the use of HFC-free coolers to make progress on our science-based targets while creating a clear road map with our system and suppliers to achieve our carbon emissions reduction ambition. On water, as part of our 2030 water security strategy, we stepped up investments in nature-based water solutions exemplified by the work we're doing with the Nature Conservancy and other partners. Globally, we are working to strengthen the links between replenishment projects and nature-based solutions. We further embedded sustainability into our strategy by linking diversity equity inclusion performance measures to our executive annual incentive program and by linking water and our PET packaging measures to our executives' long-term incentive program. Overall, we continue to focus on using our leadership and scale to drive change while delivering results and building resilience. Finally, before I hand it over to John, I want to acknowledge that our strong results in 2022 reflect the collective efforts of our system partners and the growth mindset of our system employees. Guided by our purpose, we are investing behind our capabilities and further cultivating our growth mindset to be well positioned to create value and deliver on our objectives. While we have momentum in our business, we know uncertainty remains as we turn the page to a new year. We will continue to focus on expanding the sphere of what we can control to drive growth in 2023 and beyond. We'll talk about this in more detail when we return to CAGNY in person next Tuesday and would encourage all of you to listen in. With that, I'll turn the call over to John.
John Murphy, President and CFO
Thank you, James, and good morning, everyone. In the fourth quarter, we continued to drive strong top line-led results as we execute for growth in a dynamic operating environment. We grew organic revenues 15%. Unit cases declined 1% as broad-based growth across most markets and investments in the marketplace were more than offset by the suspension of business in Russia and the decline in China. Concentrate sales were 3 points ahead of unit cases for the quarter, primarily driven by one additional day and the timing of concentrate shipments. Our price/mix growth of 12% was driven by pricing actions across operating segments along with revenue growth management initiatives and favorable channel and package mix. Comparable gross margin for the quarter was down approximately 90 basis points versus the prior year, mainly driven by currency headwinds in a volatile macro backdrop and the mechanical effect of consolidating the BODYARMOR finished goods business. Underlying gross margin was in line with the prior year, driven by strong organic revenue growth offset by higher commodity costs. We continued to significantly accelerate our marketing investments to engage and retain existing consumers as well as, again, new consumers. Despite higher costs across the P&L, increased marketing and currency headwinds, comparable operating margin expanded 65 basis points for the quarter. This was primarily driven by underlying operating margin expansion due to robust top line growth across operating segments. Importantly, this resulted in full year comparable operating margin being in line with the prior year despite significant currency acquisition and cost headwinds. Below the line, we were impacted by higher net interest expense, along with lower other income due to cycling higher pension income from the prior year. Therefore, fourth quarter comparable EPS of $0.45 was in line with last year despite higher-than-expected currency headwinds. This resulted in full year comparable EPS of $2.48, an increase of 7% versus the prior year, driven by strong underlying business performance, partially offset by 10 points of currency headwinds. For the year, we delivered free cash flow of $9.5 billion, a decline of 15% versus the prior year. Much of the decline versus our expectations occurred due to the deliberate buildup of inventory in the face of a volatile commodity environment and higher-than-anticipated tax payments. Additionally, cash flow was impacted by cycling working capital benefits from the prior year and higher incentive payments in 2022. Even with these items, our underlying cash flow generation remains strong, and we continue to make progress on our cash flow agenda. Our three-year average free cash flow conversion ratio is above 100%, ahead of our long-term target. Our balance sheet remains strong with our net debt leverage of 1.8 times EBITDA as of the end of 2022, which is below our targeted range of 2 to 2.5 times. Our capital allocation priorities remain the same, and we continue to prioritize investing in the business to drive long-term growth, as well as delivering dividend growth for our shareowners. At the same time, we remain mindful of maintaining our financial flexibility amidst the ongoing tax dispute with the IRS and are learning from the last few years of how important it is to build resilience in all of our plans. As James mentioned, in 2023, we expect the operating environment to remain dynamic. We have the right portfolio, a very focused strategy, a flexible and adaptable structure and a system with the ability to reinvest in the business. This gives us the confidence that we will continue to deliver on our three key objectives; pursuing excellence globally, and winning locally; investing for the long-term health of the business; generating US dollar EPS growth. With that in mind, this morning, we provided guidance for 2023 that builds on our strong results in 2022. We expect organic revenue growth of 7% to 8%, primarily led by price/mix amidst the ongoing inflationary environment. And we expect comparable currency-neutral earnings per share growth of 7% to 9% versus 2022. Since we provided our initial outlook on currency in October, the currency environment has improved, but remains volatile. Based on current rates and our hedge positions, we anticipate an approximate two to three-point currency headwind to comparable net revenues and an approximate three to four-point currency headwind to comparable earnings per share for full year 2023. Based on current rates and hedge positions, we expect per-case commodity price inflation in the range of a mid-single-digit impact on comparable cost of goods sold in 2023. We continue to expect our underlying effective tax rate to be 19.5% for 2023. And all in, we expect comparable earnings per share growth of 4% to 5% versus $2.48 in 2022. We expect to generate approximately $9.5 billion of free cash flow in 2023 through approximately $11.4 billion in cash from operations less approximately $1.9 billion in capital investments. I would like to highlight that included in the $11.4 billion of cash from operations are two discrete items: transition tax payments of approximately $720 million; a scheduled increase of $335 million versus 2022; payments associated with various M&A transactions of approximately $350 million. Excluding these, our implied free cash flow conversion would be within our long-term guidance. This guidance does not include any payments related to our ongoing US income tax dispute with the IRS. Recently, the tax court issued an opinion on a case involving a separate company. The tax court will now apply this opinion to our case and ultimately render a final decision in our case, allowing us to move forward with the appeals process. As previously discussed, we intend to assert our claims on appeal, vigorously defend our position and believe we will ultimately prevail. Overall, we don't expect this to have a bearing on our ability to deliver on our capital allocation agenda and drive long-term business growth. There are some considerations to keep in mind for 2023. We expect price mix to moderate through the year as we cycle our pricing initiatives from the prior year. While the inflationary environment appears to be cooling, we are still expecting to see elevated inflation across our operating costs. We have stepped up our marketing investments for the last few years and we will continue to invest to support momentum. And given the ongoing backdrop of rising interest rates, we expect to see higher net interest expense given our effective exposure to floating rate debt. Finally, due to our reporting calendar, there will be one less day in the first quarter and one additional day in the fourth quarter. Having delivered strong results in 2022, we are focused on driving a top line-led growth equation in many types of environments. We are well positioned to deliver on guidance for 2023, thanks to the incredible people we have around the world, the strong alignment we have with our bottling partners and the great plans we have for the coming year. With that, operator, we are ready to take questions.
Operator, Operator
Our first question comes from Lauren Lieberman from Barclays. Please go ahead. Your line is open.
Lauren Lieberman, Analyst
Great. Thanks, good morning. I guess in light of John's comment, just have a top line led growth equation. I was hoping you could talk a little bit through the outlook for 2023 on top line just kind of puts and takes how you think about that 7 to 8 relative to the mid-teens put up in the fourth quarter and just kind of more color overall on that revenue outlook for this year would be great? Thanks.
James Quincey, Chairman and CEO
Good morning, Lauren. As John mentioned, we are optimistic about our ability to drive top-line growth this year. Looking back at 2022, we experienced steady volume growth throughout the year, including the fourth quarter. Although we reported a headline number of minus one, if we account for the suspension of operations in Russia and the COVID restrictions in China, and consider a three-year compound annual growth rate of volume, we can see a consistent growth momentum. This momentum has carried into the start of 2023. We are seeing strong underlying volume momentum, which we attribute to our focus on marketing innovation, revenue growth management, and adapting to meet the demand for affordability and premiumization amid inflation. We expect inflation to moderate during 2023, and our pricing strategy will also start to stabilize. This is partly due to a decrease in input cost inflation and also because we are beginning to cycle through some of the price increases from 2022. For the full year, we anticipate a revenue growth of around seven to eight percent, with growth in the first quarter likely reflecting the performance we achieved at the end of last year. We expect the organic growth rate to slow as we approach the end of the year, leading to a more normalized level of revenue growth. Overall, we foresee good momentum throughout the year, with a moderating revenue growth rate driven by lessening inflation. Nonetheless, we maintain a strong underlying momentum in our business that has sustained us over the past five years, and we are confident it will continue to do so in the future, aligned with our long-term growth model.
Lauren Lieberman, Analyst
Just to clarify, do you still expect growth in the second half of the year in terms of volume, whether that's concentrate sales or unit case volume?
James Quincey, Chairman and CEO
Yes. We experienced good growth last year, and we started this year with growth in unit cases, particularly with PMO. Looking ahead, we anticipate a balance between growth in unit cases and price/mix for ongoing revenue growth. The specifics for the second half will depend on various factors, including inflation and consumer pressures. We believe we will continue to see unit case growth in the second half, along with a moderating price/mix as part of our overall organic trend. Our focus is on executing our plan, which includes attention to marketing and innovation. One of our objectives is to maintain consumers within our franchise by utilizing pricing and packaging strategies to promote affordability worldwide, particularly for lower-income consumers, as this supports volume growth. We prefer this strategy over prioritizing price increases at the expense of volume. Overall, we expect continued unit case growth in the second half, alongside a moderating price mix for revenue. While we are prepared to manage the business amid various potential scenarios, we are confident in our ability to maintain momentum.
Operator, Operator
Our next question comes from Dara Mohsenian from Morgan Stanley. Please go ahead. Your line is open.
Dara Mohsenian, Analyst
Hey, good morning, guys. So just a follow-up on that, James, can you give us a little bit of detail regionally on expectations for 2023? I know you're not going to quantify it, but just how you're thinking about the business conceptually relative to the results you delivered in Q4 here and take us around the world regionally? And then I guess just, secondly, if I can slip a clarification in, you're obviously starting off the year with top line guidance higher than you typically do, higher than long-term algorithm, higher than you started 2022 at despite delivering great results in 2022. It's a less visible world in theory externally. So I guess it sounded more like a good start so far this year. You have a lot of visibility given that, and that's what's driving some of that confidence, but I'd love to hear from your vantage point what sort of gives you the confidence there? Thanks.
James Quincey, Chairman and CEO
Sure. I’ll address that in two parts. First, I want to provide another perspective on 2023. I recognize there is considerable uncertainty about how things may unfold. The past four to five years have experienced significant volatility and uncertainty. If you analyze the compound annual growth rate of unit cases and pricing mix from that time frame, you’d see something around two for volume and four or five for price. Looking back, it’s clear we’ve been on quite a journey, yet we still achieved strong results. Therefore, as I reflect on 2023, while unexpected events are likely, our enhanced ability to influence our business has allowed us to adapt to various conditions, enabling us to achieve our goals, especially in local markets which translate into our dollar earnings growth. This adaptability is what underpins our confidence. While we can’t predict the future with certainty, we have built significant momentum, flexibility, and agility to navigate whatever challenges lie ahead. Turning to the global landscape, starting with Europe or EMEA, it's evident that Europe faces additional pressure. The conflict has led to a sharp, short-term spike in inflation that’s affecting the economy. Although it appears the European economies will avoid a technical recession, consumer demand is weakening, which is likely to persist through the remainder of the year. In EMEA, if you're selling resources, you’re thriving, but if you’re buying them, you’re feeling the strain. The tragic earthquake in Turkey has compounded existing economic challenges. The emerging markets in that region vary widely. In Africa, South Africa is crucial to our plans, yet it’s grappling with significant energy issues that are stifling economic growth. Overall, while EMEA is under increased pressure, the U.S. remains strong, and we see positive business momentum without any signs of a hard landing so far. We anticipate continued moderation in pressure, with both the economy and beverage consumption showing resilience. In Latin America, despite high inflation in some countries like Argentina, the overall situation is positive. Looking towards Asia, the reopening of China is expected to benefit our business over time, while India is performing exceptionally well. We expect to see improvements in the ASEAN region as these robust economies thrive, which should also positively impact Japan. Overall, we observe sustained growth across several markets, but the overarching theme is a trend toward moderating inflation. The ongoing question remains whether the journey to reduce inflation will be difficult, smooth, or successful, which we will observe in due time.
Operator, Operator
Our next question comes from Bryan Spillane from Bank of America. Please go ahead. Your line is open.
Bryan Spillane, Analyst
Thanks, operator. Good morning. I have a question for John regarding cash flow and interest expense. You mentioned that net interest expense is expected to increase for 2023. Could you provide more details on this? I believe consensus estimates net interest at about $600 million, so any additional guidance on where we should expect net interest expense would be helpful. Also, regarding free cash flow, you discussed factors that could reduce it in 2023. Looking into 2024 and 2025, should we anticipate a normalization? Is this issue more isolated to this year, with expectations of normalization going forward? Thank you.
John Murphy, President and CFO
Thank you, Bryan. To address the second question, the key drivers for 2023 include strong underlying performance alongside two significant factors. First, we are increasing our capital investments to support our growth initiatives in various operations globally, amounting to a $400 million rise in 2023. Additionally, there is around $700 million tied to an increase in the transition tax and some mergers and acquisitions-related activities. For 2024, we will keep investing in the business as required, particularly to fund our growth plans. The transition tax will increase by a couple of hundred million in 2024, which is the second to last year of the transition tax period that concludes in 2025. You can calculate the changes from 2023 to 2024 accordingly. We anticipate that the underlying performance will persist, and we will invest as necessary to support our growth agenda. There will also be a few hundred million additional under transition tax in 2024. Regarding interest, as mentioned, with our current debt portfolio, we will encounter an increase in interest charges and expenses in 2023. While I won’t provide specific figures, expect a couple of points of deleveraging mainly due to interest expenses as we progress through this year.
Operator, Operator
Our next question comes from Steve Powers from Deutsche Bank. Please go ahead. Your line is open.
Steve Powers, Analyst
Yes, hey, good morning. Thank you. James, maybe going back to the top line. For a while, you've been making simultaneous efforts to drive both affordability, on the one hand, and then premiumization on the other hand, and I think doing a good job along the way, balancing those, in some ways, competing efforts to net out in a way that ends up in both positive volume and positive price/mix territory. I guess the question is, as you look at 2023, do you see more opportunity in your efforts to optimize revenue growth on the value side and the affordability side, or is it on the premiumization side? And to the extent that there's a leaning, how does that impact where you prioritize incremental investments?
James Quincey, Chairman and CEO
Thank you, Steve. We see opportunities in 2023 and even beyond to leverage our capabilities in revenue growth management. This involves using affordability to engage lower-income consumers with our brand while also pursuing premiumization. We will implement these strategies dynamically moving forward. In 2023, we expect to see various packaging options, such as increased use of returnable containers, which typically have lower price points, and smaller 1-liter packages in emerging markets for home consumption. There is a significant opportunity to enhance affordability worldwide. While these options may reduce margins, we will also explore premiumization opportunities, whether through new brand launches like Jack and Coke that will contribute to revenue or by introducing more premium packaging options, such as sleek cans and smaller sizes. This will be a continuous effort, and we believe there is plenty of room for growth in this area for the foreseeable future.
Operator, Operator
Our next question comes from Nik Modi from RBC Capital Markets. Please go ahead. Your line is open.
Nik Modi, Analyst
Thanks. Good morning everyone. I wanted to follow up on the last question about the affordability packaging. Based on historical observations around the world, how does this work with retail? Are these incremental phases you're observing, or are they replacing older pack sizes that may have more sensitivity?
James Quincey, Chairman and CEO
It can be both, Nik. It depends on whether we're discussing supermarkets, convenience stores, or small local shops. When considering smaller stores or convenience shops, it tends to be more about replacement. We place a strong emphasis on securing additional space in these smaller formats, whether that be in cooler vaults or on the sales floor with our coolers and racks. This does increase the phasing within the beverage category. However, it's perfectly fine for any store to review its SKU layout and decide to replace some SKUs with more affordable options while also introducing premium choices, ensuring that the total mix benefits us, the customer, and ultimately the consumer. It must work for the consumer; otherwise, it won't shift faster than the existing setup. Ultimately, the customer will support these strategies because they are effective for them and the consumer, resulting in a better situation for everyone involved. Thus, by focusing on the consumer, we achieve a better outcome that enhances the experience for the customer and benefits the entire Coca-Cola system.
Operator, Operator
Our next question comes from Bonnie Herzog from Goldman Sachs. Please go ahead. Your line is open.
Bonnie Herzog, Analyst
Thank you. Good morning, everyone. I was hoping you could provide a little more color on your plans for reinvestments this year and then maybe frame for us whether it will be stepped up versus last year. Also, how are you thinking about your marketing spend this year? Do you also have plans for that to accelerate? I guess, I'm ultimately trying to understand, how much flexibility you have to balance the momentum. You're certainly seeing in your business with reinvesting, while at the same time, letting some of the strength flow to the bottom line. Thanks.
James Quincey, Chairman and CEO
We will continue to focus on growth investments as we did in 2021 and 2022. Our approach is to monitor the allocation of resources, and if we find that directing funds towards growth isn't appropriate in certain regions or overall, we can quickly reallocate that money or allow it to enhance our profits. We intend to be responsive and adaptable with our resource distribution based on the data we gather. We believe our current marketing level is suitable, but we plan to increase it in 2023 as we expand our business. Additionally, we will raise our capital expenditures to support areas that require additional investment. We will manage these changes flexibly depending on the situation. While we cannot predict everything this year, our main focus remains on growth and balancing volume and pricing in response to global pressures and inflation variations. We are committed to being quick and adaptable in any scenario.
Operator, Operator
Our next question comes from Kaumil Gajrawala from Credit Suisse. Please go ahead. Your line is open.
Kaumil Gajrawala, Analyst
Hey, good morning, everybody. Can you maybe touch on briefly what you're seeing from the retail environment? We're seeing more and more articles on retailers pushing back on price increases across really all of CPG. If you could maybe just give us a sense of what you're seeing in your categories?
James Quincey, Chairman and CEO
Sure. First, it's important to understand that each major region or country has its own dynamics. The central idea we focus on is that we need to earn the right to set our prices. Our strategy does not involve viewing our business as a commodity with prices fluctuating mechanically. We aim to control our pricing by providing consumers with value they appreciate through marketing, innovation, pricing strategies, and packaging efforts. This value must be evident to consumers so that it justifies the pricing influenced by rising input costs. Ultimately, this must also benefit our customers. Once we have established our value with consumers, we can approach our retail partners and assert that we can drive faster growth in the beverage category than their overall business. We are confident that we will be more competitive because we understand consumer needs and will gain market share. Our approach is to lead the beverage category and contribute significantly to their revenue growth compared to other categories, as evidenced last year in Europe, where we achieved the highest revenue growth for retailers. This foundation supports our discussions around pricing and packaging each year. While there is pressure in the marketplace, our consumer-centric strategy fosters growth for our customers, who are also focused on retaining consumers.
Operator, Operator
Our next question comes from Chris Carey from Wells Fargo Securities. Please go ahead. Your line is open.
Chris Carey, Analyst
Hi, good morning. So clearly, the past several years have had big variability in your channel and package mix within the overall price/mix equation with mobility constraints and sharp recoveries thereafter. Just taking John's commentary on a price-driven year for next year, James talking about still – volume will still be a factor, I guess, what I'm wondering is just underlying what's in that price/mix, whether you think channel and package mix have normalized, right? Said another way, there's – we're not really talking about recoveries in those line items and what's going forward will be kind of more offensive or growing from a normalized base. And so do you think you're back to that normalized base on – from a channel and package mix from which to grow? And then in 2023, do you have any thoughts on what the contribution is from price relative to channel or package mix? Thanks.
James Quincey, Chairman and CEO
In most countries, the channel mix has mostly returned to the levels seen in 2019, with a few exceptions like China, which is just beginning to reopen. In the United States, for example, some away-from-home outlets have disappeared from the market. This final aspect of the recovery in channel mix is not going to be resolved quickly and may take some time. Overall, aside from a slight positive effect from channels in the first half, we should not expect the recovery of the channel mix to drive significant changes in price/mix moving forward. While package mix will remain important, as it has been in the past, we are adopting a dual strategy to maintain affordability for consumers while seeking premiumization opportunities. These two strategies can offset each other, but both are valuable and should continue to be pursued. In 2023, we anticipate ongoing moderation in rate pricing as we cycle through last year's price increases and as general inflation, specifically impacting us through SG&A and commodities, starts to ease.
Operator, Operator
Our next question comes from Carlos Laboy from HSBC. Please go ahead. Your line is open.
Carlos Laboy, Analyst
Yes. Good morning, everyone. The Latin American bottlers keep guiding for stepped-up investments in traditional trade DSD capabilities to fully exploit this new cooperation framework they have with your firm. Do you think, this is already kicking into the system's financial performance and the model, in your view, adaptable to other parts of the world where the promise of maybe higher ROIC and stepped-up bottling CapEx can drive system growth?
James Quincey, Chairman and CEO
Let me break that down. We're implementing the features of our long-term relationship model from Latin America in various other regions. The more we can strengthen our collaborative framework, the more aligned we will be in investing to seize marketplace opportunities, benefiting both us and our bottling partners in any location. We definitely see ways to enhance our cooperation to tap into these opportunities. However, the specifics of those investments and opportunities vary from what we observe in Latin America, as different regions have distinct trade structures. For instance, the unique characteristics of Latin America are not directly replicated in places like the US, Europe, or Japan. Nevertheless, the overarching idea of a more concentrated long-term investment approach will continue to enhance our performance in the years to come. In Latin America, we have built a solid business by consistently investing in the marketplace and the traditional trade alongside our other customers. There remains a wealth of opportunities to pursue, both in terms of revenue growth and improving returns. Overall, we see abundant prospects for Latin American bottlers, similar to bottlers globally, ensuring strong top-line growth and enhanced returns on our bottling investments.
Operator, Operator
Our next question comes from Andrea Teixeira from JPMorgan. Please go ahead. Your line is open.
Andrea Teixeira, Analyst
Thank you, operator, and good morning. James, as we consider the 7% to 8% organic sales growth guidance, what is the price/mix carryover into 2023? You mentioned it will moderate, but are you incorporating any additional pricing that hasn't yet reached the trade? Also, how are you approaching China volumes in 2023? What benefits can we expect from there, and are there any mix dynamics we should be aware of? Thank you.
James Quincey, Chairman and CEO
Yeah. So we're certainly planning for China to become more normalized, reopening ala the US and Europe. And so we will see a more normal level of volume in China and a recovery to the 2019 or growth on the 2019 numbers as time comes through as we go through the year in China. And then in terms of the carryover, clearly, there's some carryover, particularly in the first half from 2022. But we will be taking pricing in 2023. Now having said we will be taking pricing, the world is very different. I mean, there are countries where inflation is well over 50%. So pricing is taken multiple times a year. Argentina is an obvious example. So in the developed markets, it's likely we'll trend more back towards more standard cycles of pricing, but there will be price increases across the world in 2023 to reflect both the continuing inflation in import and SG&A costs. Obviously, we need to, as I talked about in the previous answer, earn the right to that pricing, but there will be pricing in 2023.
Operator, Operator
Our next question comes from Rob Ottenstein from Evercore. Please go ahead. Your line is open.
Rob Ottenstein, Analyst
Great. Thank you very much and congratulations on a terrific year. So over the last few years, James, you and your team have made significant cultural changes, organizational changes, changes to the product portfolio. As you look at 2023, what are the key initiatives that you're looking to drive to set up for continued strong growth over the next decade or so longer-term and perhaps weaved into that answer, where things are on Costa, on BODYARMOR and on any other new initiatives that you think would be helpful to discuss? Thank you.
James Quincey, Chairman and CEO
Thank you, Rob. We will delve deeper into this during the CAGNY presentation and discussions. I may not fully answer your question now, but regarding our initiatives in the market, we aspire to be a total beverage company globally, which will take time. Our focus is to make steady progress across various category and country combinations to establish quality leadership positions on our path to that goal. Some of these initiatives are progressing well, while others require us to prove we can execute our vision. Focusing on the brands you mentioned, Costa and BODYARMOR, the underlying premise for coffee remains unchanged. It is a vast and growing market with significant revenue potential. If we can navigate successfully, it presents substantial growth opportunities for the Coca-Cola system. However, the timing was unfortunate as we launched just before the pandemic, which halted our progress for three years. Now we need to accelerate our execution in alignment with the vision. As for BODYARMOR, we successfully integrated it into the company last year. While some level of disruption was anticipated during its transition, 2022 saw more challenges than we expected. However, we have a solid plan for 2023 to set BODYARMOR on a favorable trajectory, complementing Powerade. We are also interested in the progress of our alcohol initiatives, particularly the Jack and Coke brand. Early data from our launch in Mexico at the end of last year has exceeded expectations, and we look forward to the U.S. launch at the end of March. Our ongoing work on culture and organization is pivotal, as it is an ongoing process. We are focused on executing the internal initiatives we’ve already launched. The organization is coming together, with some adjustments in North America made this year, and we are starting to see promising results from our marketing model changes. The goal now is to follow through on our initiatives to enhance our performance in the years ahead.
Operator, Operator
Our last question today will come from Charlie Higgs from Redburn. Please, go ahead. Your line is open.
Charlie Higgs, Analyst
Hi, James, John. I hope you’re both well. My final question is just on India, where it looks like it's had just a record year. Could you maybe just expand a little bit more on India? Is it still being driven by the affordable price point strategy? Are you adding distribution that means, maybe this volume growth is actually sustainable over the long term? And then, James, maybe you could just give us some color on your long-term view on India. Thanks.
James Quincey, Chairman and CEO
India had an exceptional year last year and has started this year off strongly. The Indian economy and consumer base are neared a GDP per capita level where the beverage industry typically experiences significant growth. We are very optimistic about the potential to develop a thriving beverage sector in India. The industry is still in its early stages, but there is immense opportunity for growth over many years. This growth is not only driven by affordable price points, which are increasing, but also by many factors including the diversity of brands, improved distribution, and a greater variety of packaging options. There is substantial long-term potential in India. While growth may not be linear, the opportunities are vast. India reflects the broader long-term potential of emerging markets, which comprise 80% of the world's population. The beverage industry in these markets is still only a fraction of what it is in developed regions; consumers in developing markets spend much less on commercial beverages compared to those in developed markets. Therefore, India showcases the long-term growth prospects of the beverage industry, and we believe it is a market poised for significant expansion.
Operator, Operator
Ladies and gentlemen, this concludes our question-and-answer session. I would now like to turn the call over to James Quincey for any closing remarks.
James Quincey, Chairman and CEO
Thank you, operator. So to summarize, we have momentum in our business. We're winning in the marketplace, sustainability embedded in our strategies and strong alignment with our bottling partners. We are pursuing excellence in brand building, innovation, revenue growth management and execution to add and retain consumers and drive long-term value for our stakeholders. Thank you for your interest, your investment in our company and for joining us this morning. Thank you.
Operator, Operator
Gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.