Earnings Call Transcript - KO Q1 2021

Operator, Operator

At this time, I'd like to welcome everyone to the Coca-Cola Company's First Quarter Earnings Results Conference Call. Today's call is being recorded. I would like to remind everyone that the purpose of this conference is to talk with investors and therefore, questions from the media will not be addressed. Media participants should contact Coca-Cola's media relations department if they have any questions. I would now like to introduce Mr. Tim Leveridge, Vice President of Investor Relations, Financial Planning, and Analysis. Mr. Leveridge, you may now begin. Ladies and gentlemen, this is the operator. I apologize, but there will be a slight delay in today’s conference. Please hold and the conference will resume momentarily. Thank you for your patience.

Tim Leveridge, Vice President of Investor Relations

Good morning and thank you for joining us today. I'm here with James Quincey, our Chairman and Chief Executive Officer; and John Murphy, our Chief Financial Officer. Before we begin, please note that we posted schedules under the Financial Information tab in the investors section of our company website at www.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 find schedules in the same section of our company website that provide an analysis of gross and operating margins. In addition, this conference call may contain forward-looking statements including statements concerning long-term earnings objectives and should be considered in conjunction with cautionary statements contained in our earnings release and in the company's most recent periodic SEC report. Following prepared remarks this morning, we'll turn the call over to your questions. Please limit yourself to one question. If you have more than one, please ask your most pressing question first and then re-enter the queue. Now I'd like to turn the call over to James.

James Quincey, Chairman and CEO

Thanks, Tim, and good morning, everyone. In what remains a highly dynamic environment, our first quarter results show promising signs that a broader recovery is on the horizon. We're encouraged by early results in markets where mobility is on the rise. This morning, I'll share what we're seeing around the world and provide an update on the actions we've taken to accelerate our transformation, including improvements in our portfolio, innovation, and marketing approaches enabled by the evolution of our culture and our network organization. Then, I'll hand over the call to John to discuss the financial details of the quarter, and how we'll continue to deliver on our objectives over the course of the year. In the first quarter, we positioned our business for recovery while executing against our emerging stronger agenda, equipping our system to win. At the start of the year, pandemic-related lockdowns were still impacting many markets. We moved quickly as conditions changed, improving along the way and getting better at managing each wave and its resulting lockdowns. During the quarter, we saw mobility increase in some parts of the world where lockdowns eased and vaccinations accelerated. Leveraging our learnings, we drove sequential improvement in our business throughout the quarter. And while we saw mid-single-digit volume declines through mid-February, trends have improved since then. We're pleased to say that March marked a return to volume levels seen in March 2019 prior to the pandemic. We continue to see ongoing strength in at-home channels offset by away-from-home trends, which have improved sequentially, but remain pressured relative to pre-pandemic levels. We're working with our customers and bottling partners to sustain at-home momentum and capture improving away-from-home demand. For example, in Latin America, our Prospera program with our bottlers helps the traditional trade thrive through assistance with their marketing efforts, resulting in outperformance in this critical channel. In Great Britain, we launched Open, a business accelerator program to support pubs, bars, and cafes. In North America, our use of meal bundles is driving incidence in pickup and delivery transactions with foodservice customers. In 2020, we gained underlying share in both at-home and away-from-home channels, offset by negative channel mix. This continues to be the dynamic affecting our share year-to-date. Through our ongoing initiatives and as away-from-home demand improves over the course of the year, we will seek to build on these wins in 2021. There are clear opportunities to re-accelerate share positions as the recovery plays out, and we will invest to drive momentum with a focus on flexibility. In markets at the forefront of the recovery, we've seen early signs that our actions taken during the pandemic are helping us outpace recovery. It's important to note that the path to a full recovery remains asynchronous around the world. Many markets haven't yet turned a corner and are still managing through the restrictions. Looking around the world in Asia Pacific, China continues to lead the recovery with volume in the first quarter ahead of 2019 results and foot traffic almost back to pre-pandemic levels. Strong performance in India and Southwest Asia was driven by effective marketing across brands, affordable solutions, and distribution expansion with 250,000 new outlets and 45% more new coolers. Despite the unexpected state of emergency earlier in the year, Japan expanded its successful RGM initiatives geographically and across brands to help drive improvements later in the quarter. In EMEA, vaccine rollout in Europe has been slower than anticipated, and many countries have been impacted by ongoing lockdowns. In Eurasia and the Middle East, brand Coke recruited 4.4 million consumers through affordability packages and a focus on at-home occasions. New marketing campaigns drove improvement in flavored sparkling soft drinks, and FUZE TEA registered an all-time high value share in Turkey. In Africa, mass vaccination is expected to take longer than in the developed markets. Despite ongoing volatility, Africa worked closely with our bottlers to deliver volume growth led by stepped-up execution through cooler placement and affordability packs like returnable glass bottles. In North America, the year is off to a good start. Ongoing strength in at-home channels was driven by core brands in our Sparkling portfolio as well as Simply, Fairlife, and Gold Peak, all with encouraging results. Away from home began to improve in March as vaccinations and mobility picked up. In Latin America, we leveraged our core brands, digital initiatives, and refillable packages to recover ahead of the economy and our industry despite ongoing restrictions. While away from home continues to be impacted by lockdowns, we're expanding the at-home consumption opportunity leveraging consumer dynamics like indulgence of single-serve multi-packs. Global Ventures continue to be impacted by lockdowns in the UK. But as restrictions loosen, we're focusing on driving digital engagement and traffic back to the cost of stores. Cost of express machines continued to deliver strong performance. Turning to our transformation, our operating units are up and running and off to a very good start in the rollout of our new model. Across markets, our newly networked organization has us working more collaboratively with the overall enterprise in mind. Our operating unit and category leadership teams are working together to identify the most promising combinations across the industry based on economic outlook, consumer trends, channel dynamics, and execution imperatives. We're using more disciplined resource allocation to capture the biggest opportunities while making ongoing portfolio decisions faster and at scale. We're focused on our streamlined growth portfolio actively and thoughtfully transitioning brands to more powerful trademarks using a phased approach to bring the consumer with us on the journey. And we're maximizing shelf space and new product launches and higher velocity products to drive higher-quality growth. As we discussed at CAGNY, we're focusing on what we do best, marketing our loved brands in more efficient and effective ways. As the Sprite Let's Be Clear campaign kicked off in markets from Asia to Africa to Latin America, the message is resonating with consumers, with impressions, views, and engagement levels above last year, and intent-to-purchase metrics showing promising signs. This campaign aligns with our transition to a more sustainable clear bottle, which is important in helping us achieve our world without waste goals. Our media and creative agency reviews are progressing, and we're also executing more targeted opportunities in addition to the big strategic shifts. For instance, we've taken a scaled, digitized approach to buying trade materials, resulting in up to 15% cost reduction and improved user experience, all while offering more consistent, better quality, and sustainable alternatives. We've extended this pooled buying opportunity to our bottlers, many of whom are already on board to share the benefits system-wide. Our more disciplined innovation approach is yielding results as we balance big bets with intelligent experimentation. Using our network approach, we're scaling our best innovations quickly and effectively, while being disciplined with those that don't get the traction required for further investment. Local experiments like Aquarius with functional benefits and Ayataka Cafe Matcha Latte in Japan, Fanta's exciting mystery flavor innovation in Europe, and package innovations like a 13.2-ounce recycled PT bottle in North America could all be lifted and shifted globally over time, similar to what we're doing this year with half flavored sparkling water. Our big bets for 2021 include ongoing work to scale our coffee platform on Costa. We're expanding ready-to-drink coffee in China and taking a portfolio approach to complement our powerful Georgia coffee brand in Japan. We're also rolling out an enhanced formula and package designed for Coca Cola Zero Sugar this month in Europe and Latin America and across markets globally later this year. The improved recipe brings its taste even closer to that of the iconic Coca Cola original taste. These were influenced by consumer insights and are focused on constant improvement. And despite its enormous success, Coca Cola Zero Sugar still represents a relatively small percentage of the trademark. We continue to respond to consumer desires for lower sugar options, and the rollout will be supported by a global occasion-based marketing campaign. Finally, it's early days, but we're excited to come back and report on expanded experimentation in flavored alcoholic beverages with Topo Chico Hard Seltzer in Latin America, Europe, and most recently the US. We also continue to rapidly digitize our ecosystem. For example, our Chatbot in South Africa engages with consumers on social media to increase away-from-home transactions. In China, we've used digital campaigns to harness consumer data to drive traffic and incidents leading to incremental growth. We're using machine learning and AI tools to stay on top of rapidly evolving consumer trends and identify emerging needs. Our dedicated digital transformation structure is leading to strong online-to-offline growth. We've seen ecommerce share gains in key advanced markets like North America, Japan, and Great Britain. And in markets like Turkey, where the channel is still developing, we've seen more than tripled sales and gained almost 10 points of market share versus last year. As always, we're supporting these initiatives with strong revenue growth management and execution. Through RGM, we continue to capture at-home occasions with multi-pack options in both premium and affordable segments, while expanding distribution of smaller packaging like our sleek cans in China. We have affordability plays like successful refillables in Latin America, the Philippines, and now Africa. As part of our new organization, we're dedicating more resources to RGM, continuing to raise the bar to even higher standards. In many markets, we're working with our bottling partners to optimize cooler placement, driving incremental volume through outstanding customer service, higher cooler productivity, and innovation. Our bottling partners are executing strongly, and together we are working on initiatives across the enterprise to identify more efficiency. We're operating in a networked way, leveraging our platform services organization to scale our collected data, marketing, digital, and supply chain capabilities. Our system continues to evolve, as shown by the pending combination of Coca Cola European partners and Coca Cola Amatil. Just this morning, we announced our intent to list Coca Cola Beverages Africa as an independent African bottler through an initial public offering. I'm especially proud of how we're delivering on our purpose as a company. Every action is guided by our ambition to create a more sustainable business and better shared future that makes a difference in people's lives, our communities, and the planet. Throughout the pandemic, we focused on helping communities through relief funds from the company and the Coca Cola Foundation. In this next phase, we are supporting vaccination efforts in regions where distribution has been slower. For instance, in Brazil, our system has partnered with the country's Ministry of Health to co-create a vaccine awareness campaign. We're using our network to deliver 700,000 posters with vaccine information to more than 350,000 mom and pop stores. Tomorrow we will release our 2020 business and ESG report where we will highlight last year's progress. While 2020 was a milestone year in terms of meeting and exceeding some previous goals, such as women's empowerment and global water replenishment, we continue to work toward an even more ambitious agenda. This includes our 2025 and 2030 packaging goals, our 2030 climate goal, and our new 2030 water security strategy, with more details to come later this year. In conclusion, we're optimistic about the future and bullish about our ability to continue to deliver on the objectives we laid out at the height of the crisis: more consumers, more share, better system economics, and a positive stakeholder impact. Now I'll turn the call to John to discuss how we're delivering results through a continued dynamic environment.

John Murphy, CFO

Thank you, James, and good morning to everybody on the call. Today, I will highlight our first quarter performance and go over our top line and earnings guidance which we are reiterating. Then I'll provide a progress update on working capital, our ability to manage through the current commodity environment, and other factors that may impact our outlook. 2021 is off to a good start with the quarter showing steady sequential monthly improvement. We're leveraging our learnings and strategic initiatives from 2020 and leaning into growth in a thoughtful way. Our Q1 organic revenue was up 6% driven by concentrates shipments of 5% and price mix improvement of 1%. By shipments benefit from certain timing impacts and the five additional days this quarter versus last year. Unit case volume was flat versus the toughest quarterly compare of 2020. March volume was in line with 2019 levels, largely driven by strength in Asia Pacific. Comparable gross margins although still down year-over-year improved sequentially driven by less pressure from channel and package mix. While currency was still somewhat of a drag, it was less of a headwind than prior quarters. Comparable operating margin expanded through ongoing discipline cost management. We continue to reintroduce marketing spend in a targeted way, particularly as we ramp up investments in markets that are seeing recovery. First quarter comparable EPS of $0.55 is an increase of 8% year-over-year and was driven by top line growth, margin improvement, and some contribution from equity income offset by currency headwinds. Regarding our ongoing tax case with the IRS, there are no material updates since our last report. Our decisions and actions from last year certainly were not easy, but we are seeing the results of our efforts start to come through. Our organization is embracing the changes as we move forward into the recovery phase. We stayed very focused on driving a healthy top line, and we remain on a journey to maximize returns, including strong cash flow generation. We never relented on our cash flow goals and indeed have had an even sharper focus on managing capital spend and working capital. Since we embarked on a journey toward best-in-class working capital performance, we've made great strides in extending our payment terms, generating a working capital improvement of more than a billion dollars over two years. In the same vein, we are implementing accounts receivables factoring programs, which are rolling out across a number of markets, and also looking at initiatives to better manage inventory days. At the center of these efforts is a robust digitization and automation agenda. In addition, and you've heard us talk conceptually about the network model. This is a great example of the network in action. When you put the right people from different parts of the organization against key initiatives, it delivers a step change in performance. Last quarter, we said that despite rising commodity environments, we expected a relatively benign impact in 2021 given our hedged positions. While this continues to be the case, we're closely monitoring upward pressure in some inputs, such as high fructose corn syrup, PT, metals, and other packaging materials that impact us as well as our bottling partners. Given the environment, we will continue to benefit from revenue growth management initiatives through intelligently diverse price tag architecture. We can produce a range of options that meet the needs of consumers across the income spectrum while also capturing value for customers. 2020 provided great learnings on how to be more surgical and data-driven in our promotions, and we will continue to be purposeful in our approach, driven by the consumer and the strength of our brands. We will also continue to pursue productivity across the supply chain, pushing all levers at our disposal. Since we last provided guidance, the US dollar has strengthened. As we noted in our release, we now expect currency to be a tailwind of approximately 1% to 2% to the top line, and approximately 2% to 3% to comparable EPS in 2021, based on current spot rates and our hedged positions. For the full year, we now expect an underlying effective tax rate of 19.1%. Putting it all together, our quarterly performance and the momentum we saw in March give us confidence in our ability to achieve our 2021 guidance. We expect high single-digit organic revenue growth and high single-digit to low double-digit growth in comparable earnings per share. We still expect recovery to be asynchronous and to see signs of return to normal in more markets later in 2021. We are preparing our end-to-end supply chain for stronger demand and will fuel the momentum in recovering markets as they emerge from the pandemic by accelerating investments in our brands. There's no doubt that uncertainty remains. Europe continues to see challenges; many countries and regions like Latin America and Africa expect further waves and slower vaccine distribution. India is seeing a surge in cases and responding with localized lockdowns. But as we begin to lap the most difficult periods from last year, we feel good about our position, and our ability to navigate the environment as a company and as a system. Based on the lessons we've learned and the agility provided by our new networked organization, we remain confident that our actions and the progress we've made will enable us to deliver 2021 earnings at or above 2019 levels. With that operator, we are ready to take questions.

Operator, Operator

Our first question comes from Dara Mohsenian with Morgan Stanley.

Dara Mohsenian, Analyst

Hey, guys. So clearly, top line growth in Q1, and it recovered to a greater extent than the market expected. You guys mentioned a good start to the year with sequential improvement. So, I guess, a, can you just discuss volume trends in March in markets where restrictions have loosened and mobility has picked up, such as the US, maybe contrast that with the markets where restrictions are still in place and what that portends going forward? And then, b, totally understand it's a very fluid environment. But with March volume already back to 2019 levels with the top-line upside in the quarter, can you just help me understand the unchanged full-year top-line outlook? Is it just that it's early given the volatility, and we only have one quarter in the books to become more positive on the full year? Just sort of trying to understand your mindset on the full-year revenue guidance relative to the Q1 upside. Thanks.

James Quincey, Chairman and CEO

Sure. Thanks, Dara. So firstly, the first quarter was strong. Absolutely, we gained momentum, and we achieved that good momentum in the first quarter, which is really the fruition of the emerging stronger plan we set out a year ago, saying we wanted to get back to 2019 levels well ahead of the economy by gaining more share, more customers, and better system economics. I think that's what you're starting to see happen in the first quarter. Obviously, we've been driving that by focusing on the brands and on the innovation. The bottlers have been executing in the marketplace, and it's certainly heartening to see us get back to 2019 volume levels in March. We did all of that while finishing the implementation of the reorganization, so the employees on the company side were able to both deliver the results and stand up the new organization with the operating units and platform services, really hit the ground running. So, I think it is actually a super creditable performance in the first quarter. Secondly, regarding your question about guidance, ultimately, it's early; and it's not early just in a normal sense; it’s early in the context of the pandemic. Breaking the news today is that weekly new cases of COVID have hit an all-time peak. While vaccinations are rising in many countries, US, UK, et cetera, the flipside is there are actually new highs in terms of cases, obviously in a number of developing markets and also in continental Europe. So, the visibility into the guidance is very much linked to the trajectory of the pandemic and as it relates to our business, the trajectory of the lockdowns. As we've talked about in previous quarters, lockdowns impact us directly due to the degree of lockdown. There are still lockdowns coming on in Europe, as well as some in developing markets. Conversely, as markets start to open, it's worth remembering it's not an on/off switch. There’s a phasing of how markets tend to reopen. That's true for the US as well. For instance, in the US, the fountain volumes were still negative in March because, while people are going out to restaurants and mobility is increasing, it's not back to what it was. The occupancy levels of offices are nowhere near 100%. So reopening is not an on/off switch; there's a rebuilding process with a series of phases of reopening. This is a very important factor and is somewhat unpredictable regarding the guidance. So it's too early to call, not in a business sense, but in terms of lockdown and reopening. The reality is that there are more cases now than there were a while ago. We still feel very confident in our guidance on both the top and bottom line, but there's a lot of managing left to do and we’re certainly focused on giving ourselves the flexibility and agility to manage it. My third point, which I think is worth making, is that unlike normal times, one should not automatically assume that more revenue is always going to flow straight down to the bottom line. As we did in 2020, we will be very judicious in our marketing investments where we believe reopening and demand is coming back, but we won't invest if we don't think the response in the marketplace is there. If we see that demand is coming in at the higher end, and revenue starts to accelerate, we will also likely reaccelerate the restitution of the marketing spend. Conversely, if for whatever reason revenue starts to look a little weaker, then we are likely to hold back on some of the marketing. So, I think it's important as you think about the rest of the year that you don't think of it as normal times; one has to think about how we are using resources judiciously and wanting to invest to drive growth and get back to normal.

Operator, Operator

Your next question comes from the line of Bryan Spillane with Bank of America.

Bryan Spillane, Analyst

Hey, thank you, operator. Good morning, everyone. John, I wanted to pick up on some of the comments you made relative to inflation, and I guess kind of thinking about it past '21 and into '22, just given the recent trends, which have elevated pretty meaningfully across a lot of inputs really across our whole coverage universe. If that stays in effect for '22, can you talk a little bit about what you can do working with the system with the bottlers to try to manage that inflation, and really beyond revenue management? So just how much, what type of actions can you take in terms of procurement, maybe finding inefficiencies that exist between the Coca-Cola Company and the bottling systems, just really trying to understand, in a scenario where inflation stays meaningfully elevated in a way that we haven't seen in a long time, just what types of things you can contemplate to try to help the system manage that inflation.

John Murphy, CFO

Thank you, Bryan. Good morning. Good topic. One that we are looking at with our bottling partners around the world in a very holistic manner; managing inflation is not new to the system. It’s an area that needs to be looked at locally and working closely in partnership with our bottlers. As you're saying, the inflationary pressures, particularly surrounding some of our key commodities, are looking like they will be more of a headwind in '22. In '21, as we said in the release, we are pretty well covered and in good shape. When you think about the actions we take, first and foremost, it's important to highlight that as an overarching principle, we typically look to take pricing in line with inflation. I would expect that principle to be adhered to as we move into the back half of '21, and even into '22. Secondly, while I know you mentioned beyond revenue growth management (RGM), it's important to reinforce the value that RGM brings in executing a pricing strategy effectively and meaningfully on a local basis. That will continue to be a key priority. Thirdly, in terms of productivity, I would point to our supply chain, particularly with our bottling partners; over the last 12 months, coming through the pandemic and emerging from it, the level of engagement we've had to unlock value in the supply chain has been phenomenal. I expect that momentum to continue throughout this year and into 2022. We've had the benefits of leveraging our cross-enterprise procurement group, which works on behalf of the entire system globally, allowing us to achieve some of the most competitive pricing on key inputs. So, taking an overarching holistic view, we have a proven practice of being able to take pricing in line with inflation, leverage RGM for intelligent execution, and increasingly operate as a global system to utilize our scale.

Operator, Operator

Your next question comes from the line of Nik Modi with RBC Capital Markets.

Nik Modi, Analyst

Thank you. Good morning, everyone. James, I was hoping you could provide some tangible examples of how the company's new decision-making infrastructure has manifested in better outcomes, generally, and maybe just kind of contrast that to what those decisions would have looked like under the older model. Thank you.

James Quincey, Chairman and CEO

Sure, Nik, a few examples. One, I think John's already mentioned, the cash flow; we struggled for many years to achieve best-in-class cash conversion or working capital. The work done by the finance network has produced a great result. That’s clearly flowing through not just in terms of the theoretical amount of days working capital, but in the actual cash coming into the company in the first quarter, which was a strong result—something we have struggled to achieve in the past. Another example is we have been rolling out a global campaign on Sprite, which has gotten excellent early traction in consumer engagement and purchase intent. That was developed by the category leads and the key operating units, rolled out across the world, something we were unable to do historically. We believe that is making some significant impact. The supply chain optimization working with bottlers and a focus on reducing unit costs and increasing data transparency is happening as well. You can look at some of the platform services where we're starting to implement a single global solution. Examples include buying trade materials through global platforms driving significant savings for ourselves and the system. Hopefully, later this month, we'll turn on our latest SAP update, transitioning from the one done 20 years ago, which was probably one of the world's most complicated and therefore most expensive, to a more effective solution. Across the company, from marketing and engaging consumers through operations to the bottlers, we're able to make contact points faster and achieve better solutions.

Operator, Operator

Your next question comes from the line of Lauren Lieberman with Barclays.

Lauren Lieberman, Analyst

Great, thanks so much. Good morning. I want to talk a little bit about profitability because it was interesting to me that I think margins in almost every division outside of EMEA were comfortably ahead of where they were in the first quarter of 2019. Knowing that COVID comps weren't necessarily a dynamic for all regions in the first quarter of last year, if I still benchmark back to '19, the profitability improvements are significant. I was curious how much you think of that margin improvement is tied to broad cost management initiatives across the board and RGM, inclusive, versus the timing of marketing spending needed to support the business. It may be different regionally as well. Thanks.

James Quincey, Chairman and CEO

Yes. Thanks, Lauren. Look, clearly, the reinvestment of marketing will vary somewhat by region in 2021 for the reasons I outlined in my first answer. It’s important to recognize that 2021 will be somewhat atypical, with markets where we judge the situation such that we don’t have normal marketing levels favoring margins at that point in time. It’s essential to break it apart and look at it by region. We certainly are not coming out with some numerical margin target for many of the same reasons that we removed the previous target. Our focus is ultimately on growing the business. Embedded in our long-term growth model is an implicit assumption that we can steadily improve margins over time because there is a lot of efficiency work going on within cost of goods sold and the DME, particularly the non-working part of the DME. A lot of focus is on the agency roster and how we allocate spending before we even engage with consumers. Obviously, the network organization was designed to support growth aspirations while also being more efficient. All these factors will contribute, but I would be remiss not to include the impact of RGM, because leveraging it also helps on both gross margin and operating income margins. We will be pulling all these levers throughout 2021, but again, it won’t be a fully normal year in every region. You will notice some unusual effects.

Operator, Operator

Your next question comes from the line of Carlos Laboy with HSBC.

Carlos Laboy, Analyst

Yes. Good morning, everyone. Could you give us a sense of where you are seeing notable progress this past year on digital transformation, perhaps tied into this inflation and margin question, by commenting on how digital tools are helping you mitigate or stay ahead of inflationary pressure in some markets that might be getting ahead of the curve?

James Quincey, Chairman and CEO

The digital transformation is much more than just coping with inflation, although, of course, some tools will help us manage any inflationary spikes. Clearly, you can look at the digital transformation in terms of our engagement with consumers. For instance, China started the year very strongly, not just compared to 2020 but also to 2019. There's been a much bigger shift into digital engagement with consumers even with our own Coke On apps in Japan, leading to a large uptick in monthly active consumers. There is tremendous progress in how we engage through digital means and directly with consumers in a digital relationship. Additionally, I mentioned the example of buying materials with digital platforms. Importantly, we’re making excellent progress in improving the company's and the bottlers' data interoperability, and ultimately all those insights and efficiencies help us manage inflationary pressures, whether we leverage the insights for consumer engagement or to drive RGM strategies, or identify efficiencies. In a way, digital is becoming just the foundation of how business is conducted.

John Murphy, CFO

Maybe just to add one comment there, James. If you think about the emerging stronger program that we've outlined over the last six to nine months, it wouldn't have been possible to implement this three years ago. The degree to which we've been able to operate in a fast and efficient manner across the globe to deliver this program is all due to our digitization.

Operator, Operator

Your next question comes from the line of Steve Powers with Deutsche Bank.

Steve Powers, Analyst

Thank you. Maybe pivoting back to the top line. March volumes back to even with 2019 is just very key and promising milestone. We’ve seen sequential progress over the last few quarters, but I guess I'm curious whether that trend back to 2019 levels has been relatively smooth on a global basis or whether there's been more volatility underneath the surface than we may appreciate looking at the headline numbers. Maybe if you could frame for us how performance versus 2019 has trended over the past few months and how you expect those trends to evolve over the course of the year in terms of whether it will be relatively smooth and even or lumpy with case counts and, ultimately, do you expect to be back to growth versus '19 when the dust settles in April? Or is that too ambitious?

James Quincey, Chairman and CEO

The progress, when you stand back and look at the numbers in aggregate, shows how March marked a significant improvement relative to both 2020 and 2019. It’s worth noting that April was the deepest hole we fell into in 2020. We adapted the business and achieved sequential improvement, dropping from minus 25 to negative teens, and then to negative single digits throughout the rest of 2020. Coming into 2021, as expected, performance improved compared to January and February, which were still below 2019 levels; and March was above that line. April has started well, but it's obviously going to have some unusual dynamics given we're cycling off extremely low volumes. While March showed improvement, we cannot guarantee that this trend will continue smoothly throughout the year. The uncertainty remains, mainly linked to the risk of additional lockdowns. Just because March has bounced back to prior levels doesn't guarantee that will remain consistent. The trajectory of the pandemic is still volatile, and the impact on volumes is intricately tied to the degree of lockdowns in different regions. That said, I believe we're on the right path, but there will be variability on a country basis. Recovery is not guaranteed to be synchronous.

Operator, Operator

Your next question comes from the line of Bonnie Herzog with Goldman Sachs.

Bonnie Herzog, Analyst

All right, thank you, and good morning, everyone. I was hoping to switch gears a little bit and maybe hear a little bit more color behind your decision to IPO Africa. I know you guys have explored a sale in the past, but why do you think this is the right decision for that business? How do you expect this will impact the performance of the business going forward and any potential benefits you might see? Thanks.

James Quincey, Chairman and CEO

Sure, thanks Bonnie. It's certainly always been our intention to reduce our ownership in Coca-Cola Beverages Africa (CCBA) according to our strategy, ultimately becoming the smallest Coke bottler in the world. We were always contemplating how we would re-franchise CCBA. CCBA is a strong, well-structured, capable bottler, and we have always considered one of the options to have it operate as a stand-alone entity in Africa. We've reached the conclusion that, if one thinks about the future potential of the African market and the long-term growth there—considering it has the youngest billion people—we believe it’s right for the development of the business to have an African-headquartered bottler operating on the continent. We believe in Africa as a continent and as an economy, and we think CCBA is a great, capable bottler that can help lead our ability to grow in that region. An IPO will facilitate setting it up as a growth source for many years to come.

Operator, Operator

Your next question comes from the line of Andrea Teixeira with J.P. Morgan.

Andrea Teixeira, Analyst

Thank you, operator, and good morning. Can you quantify how much the impact of the winter storms had on your volumes in Q1? As a follow up to your earlier comments, can you please give us an idea how you're trending in Q2, similarly to how you helped us in the first quarter? Just a quick one on the US tax dispute. What is your base case in terms of timing for the appeal at this point and the impact on your cash flow?

John Murphy, CFO

Yes. I'll take it. Maybe start with the tax question. Andrea, thank you for the questions. But let's start with the tax question. In terms of timing, we do not have a clear picture at the moment. We are dependent on the outcome of another case before any developments occur with our own case, and we have no visibility into that outcome. We will keep you apprised as we know more. Regarding the storms in the US, they did not have a material impact on our business. With regard to volumes in Q2, we're still early in the quarter, and not a lot to say at the moment. The key highlights are that March showed significant improvement in many markets where there is improving mobility, and we will continue to see a close connection between mobility and performance.

Operator, Operator

Your next question comes from line of Kaumil Gajrawala from Credit Suisse.

Kaumil Gajrawala, Analyst

Hi. Good morning, everyone, and fantastic pronunciation, operator. I don’t get that frequently. Thank you. If I may ask James and John about competition and maybe particularly in the United States, looks like Pepsi is getting some momentum. We obviously just heard from them on Friday. Here, it seems, pricing remains rational. But perhaps from competitiveness, ex-pricing, maybe that's increasing. Could you just talk about what you're seeing there? Thanks.

James Quincey, Chairman and CEO

We always welcome seeing other companies invest in the beverage industry, as that creates more consumer engagement. Of course, we pay attention to what they are doing, because hopefully, we can learn from them. There are many highly capable competitors out there, so we like to learn from them. Ultimately, we focus on what we can control. In the US, particularly channel mix aside, we gain share and we feel confident that as channel trends improve and the away-from-home business returns—in fact, it started to do so in March—we will be able to capitalize on those trends. Regarding promotional activity, we are seeing rational pricing and promotional environments in the US. We'll certainly be looking to further build on that with our RGM capabilities along with the bottling system to effectively drive and leverage the investments we are collectively making as a system in marketing and execution.

Operator, Operator

Your next question comes from the line of Rob Ottenstein with Evercore ISI.

Rob Ottenstein, Analyst

Great, thank you very much. A couple of questions on Topo Chico. It looks like a very strong start in the US with about a 3% market share, but you started even earlier, I think in October in Mexico and Brazil, and now rolling out in Europe. Can you talk to us a little bit about how you feel about the execution of the bottling network with an adult beverage? Any signs or trends in terms of repeat and some of the earlier market feedback, and any general learnings that you’ve had so far as you evaluate what could be a new growth engine for the company? Thank you.

James Quincey, Chairman and CEO

Thanks, Rob. In the markets where it's been longer—such as Latin America and Europe, about 40 markets between them—there are two primary observations. First, the level of market acceptance tends to depend on prior category development, which we have found to differ across regions. Second, we're clearly in the process of learning how to compete in this category, both from a branding perspective and execution standpoint. However, we're starting to observe improving trends and good repeat rates in the various markets where it's been launched. In Mexico, for example, we are still building our distribution; however, the results have been encouraging in Europe where category interest is a bit stronger. In the US, while the overall share is 3%, I emphasize that Topo Chico, as a brand, is well-known already, making the trial introduction relatively straightforward. The key focus, of course, will be repeat purchases; we have yet to collect solid repeat data in the US, but I would note that in Texas, where we concentrated part of our launch, it has even hit nearly a 20% share in the first couple of weeks after launch. So, we are excited about the early outcomes, but ultimately, it will depend on the product’s repeat performance.

Operator, Operator

Your next question comes from the line of Kevin Grundy with Jefferies.

Kevin Grundy, Analyst

Great. Thanks. Good morning, everyone, and congratulations on the nice progress this quarter. James, I wanted to come back to your Asia Pacific business, specifically China. Obviously, a really strong result comes on the heels of PepsiCo’s strong results in China as well. China is obviously ahead of the pandemic compared to other countries, and now you're seeing strong consumer demand there. A few questions, please: 1) Can you talk about what you're seeing by channels in terms of at-home versus away-from-home behavior? 2) Could you comment briefly on trends in April relative to your strong results in the first quarter? And lastly, how do you see strong demand in China informing your understanding of recovery in other markets? Thank you.

James Quincey, Chairman and CEO

In terms of your questions, we are indeed seeing robust results in China. Obviously, we are starting to compare against the more difficult period of 2020, particularly as consumer demand rebounds. For the channels, we see that as the reopening unfolds, there are indeed phases or waves of business returning. The initial phase sees people returning to dining out, which is showing great results, particularly in food service sectors. That part of food service has returned first. The next phase related to office and commuting, as people start going back to work—this is still below full levels, especially outside the core city centers. The third phase would be large gatherings like movie theaters, social gatherings, and sporting events, which isn't completely back yet. As we think about the overall picture in China, it has benefited from increased consumer engagement and a disruption in digital consumption that have propelled our growth. This phased approach of reopening applies across other markets as well. We're investing alongside our bottlers to capitalize on this growth, and we’re seeing encouraging outcomes.

Operator, Operator

Your next question comes from the line of Sean King with UBS.

Sean King, Analyst

Hey, thanks. This happens to a number of regions, but the APAC concentrate sales came in 11 points ahead of the unit case volume. What drove that gap besides calendar shifts, and should we expect a reversal in this dynamic, or is it something that is going to continue as we see markets reopen?

James Quincey, Chairman and CEO

So for APAC, specifically regarding your question, yes, APAC has run ahead mainly due to the extra days in the quarter. Additionally, we had a timing impact regarding Chinese New Year; that was indeed a factor. Overall, this trend is something we will continue to monitor and evaluate as we look at our performance throughout the year.

Operator, Operator

Your next question comes from the line of Laurent Grandet with Guggenheim.

Laurent Grandet, Analyst

Yes, good morning, everyone. I’d like to focus on emerging markets. You mentioned in your prepared remarks that the volume case is correlated to consumer mobility driven by vaccination rates. I understand vaccination rates should be about 70% by the end of the year in developed markets, but unfortunately, just about 20% in emerging markets. Should we consider that emerging markets will be slower to recover? If so, could you provide some significant thoughts on this trend, potentially differentiating between regions?

James Quincey, Chairman and CEO

Clearly, the vaccination rates in developed markets will eclipse those in emerging markets throughout this year. It's critical to add that the response from local markets to the dimensions of cases and the policy actions taken is what influences our business most directly. The overall impact arises significantly from the degree of lockdown. Thus, it's less about the percentage of vaccinations and more tied to how countries respond to case loads with lockdowns. Some countries have relatively low vaccination rates because they managed to curtail outbreaks through strict lockdowns. Unfortunately, there are regions that do not have the means to enforce stringent lockdowns, and their markets remain more open. We'll continue to adapt our business strategies to support local retailers while engaging with consumers as these conditions vary.

Operator, Operator

Your next question comes from the line of Bill Chappell with Truist Securities.

Bill Chappell, Analyst

Thanks, good morning. I just want to follow up on a near-term issue that is specific to the US. It seems evident that the US will have different reopening dynamics than everywhere else. The bulk of the population will be vaccinated within the next month, just as schools are getting out, and the weather improves. Sporting events are discussing full-capacity attendance in June; how are you prepared for that potential scenario? Is your bottling network poised for a business explosion in the on-premise segment or do you envision a more gradual and steady reopening throughout the summer?

James Quincey, Chairman and CEO

I think the phases of reopening are going to happen quite quickly in the US. If I look at what's already underway, I’d say that dining and drinking in the evening—what previously was trending negative—is now trending positive as we see more people dining out since March. As schools and workplaces reopen, we are not nearly at full capacity in offices yet, so I expect these trends to also accelerate quickly. Other regions, where the vaccination rollout has been slower or delayed due to various factors, may experience a more gradual reopening. Thanks very much, everyone. It's been a pleasure to talk with you all. We had an excellent first quarter, which is certainly encouraging. Still, many part of the world are yet to emerge from the pandemic. As we navigate this dynamic environment, we will continue to evolve and do better. We are well positioned for recovery as it plays out, both as an organization and as a system. As always, we thank you for your interest, your investment in our company, and for joining us today. Thank you.

Operator, Operator

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