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James Robert B. Quincey; Chief Officer; The Coca Cola Company
John Murphy; President and Chief Financial Officer; The Coca Cola Company
Robin Halpern; Vice President and Global Head of International Relations; The Coca Cola Company
Andrea Faria Teixeira; MARYLAND; JPMorgan Chase
Bonnie Lee Herzog; MD and Senior Consumer Analyst; Goldman Sachs Group, Inc. , Research Division
Young Brett Cooper; Senior Analyst and Managing Partner; Consumer Edge Research, LLC
Bryan Douglas Spillane; Director General of Stock Research; BofA Securities, Research Division
Carlos Alberto Laboy; MD, Global Head of Beverage Research and Senior Analyst, Global Beverages; HSBC, Research Directorate
Charlie Higgs; Research Analyst; Redburn (Europe) Limited, Research Division
Christopher Michael Carey; Senior Equity Analyst; Wells Fargo Securities, LLC, Research Division
Dara Warren Mohsenian; MARYLAND; Morgan Stanley, Research Division
Filippo Falorni; Vice-president; Citigroup Inc. , Research Division
Lauren Rae Liberman; MD and Senior Research Analyst; Barclays Bank PLC, Research Division
Peter K. Grom; Head of Research and Equity Analyst; UBS Investment Banking, Research Division
Robert Eduardo Ottenstein; Managing Director and Head of Global Research for Beverages and Household Products; Evercore ISI Institutional Equities, Research Division
William Bates Chappell; MARYLAND; Truist Securities, Inc. , Research Division
Operator
At this time, I’d like to welcome you all to The Coca-Cola Company’s third quarter 2023 earnings conference call. Today’s call is being recorded. If you have any objections, please log out at this time. (Operator’s Instructions) I would like to remind everyone that the goal of this convention is to have interaction with investors and therefore no media issues will be discussed. Media assistants touch Coca-Cola Media Relations if they have any questions. Now I’d like to introduce you to Ms. Robin Halpern, Vice President and Director of Investor Relations. Halpern, you’re good to go.
Robin Halpern
Good morning and thank you for joining us. I’m here with James Quincey, our president and CEO; and John Murphy, our President and Chief Financial Officer. We have published the schedules in Financial Information in the Investors segment of our company’s online page in coca-colacompany. com. These tables reconcile certain non-GAAP monetary measures, which our control arguably referred to in this morning’s discussion, with our effects presented in accordance with sometimes accepted accounting principles. You can also locate in the same segment of our online page calendars that provide research of our expansion and operating margins. In addition, this call may involve forward-looking statements, adding statements relating to long-term earnings targets, which should be considered in conjunction with the cautionary statements involved in our earnings release and in the Company’s periodic reports to the SEC. (Operator’s Instructions) Now I’m going to pass the call on to James.
James Robert B. Quincey
John Murphy
Thank you, James, and hello to one and all. Today, I will comment on our third quarter functionality and highlight our updated guidance for 2023. I will also provide some initial comments on 202four and the steps we are taking to continue achieving our goals. As James mentioned, we had strong effects in the third quarter. Starting with the most sensible line. We increase our biological profit by 11%. The expansion of unit cases was 2%. Excluding the effect of the suspension of our business relationships in Russia, we have recorded positive volume growth in each and every quarter since the beginning of 2021. Concentrate sales were in line with units for the quarter. Price/mix expansion was 9%, driven through price metrics in different segments, adding the effect of some inconsistent inflationary markets, as well as carryover prices entering last year’s base. Comparable gross margin for the quarter increased approximately 130 basis points, driven by underlying expansion and a small benefit from bottler refranchising, partially offset by the effect of headwind exchange rates. Creating comparable and consistent margins increased approximately 20 core issues for the quarter. This progression is basically explained by the strong increase in turnover and the effect of the refranchising of bottlers of consistent agreements, partially offset by an increase in investments in marketing compared to the previous year, as well as by currency exchange points. unfavorable. In total, comparable third-quarter earnings per share of $0. 74 were up 7% year over year, despite expected foreign exchange headwinds of four%. Free money flow was approximately $7. 9 billion so far this year. This was largely due to strong underlying functionality and working capital benefits, partially offset by a transitional tax payment of $720 million and M&A-like bills of $230 million. Our balance sheet is strong and our net debt leverage of 1. 5 times EBITDA is below our diversity target of 2-2. 5 times. We recently signed a letter of intent to refranchise our Filipino bottler. As we move forward in our refranchising process, we aim to improve the functionality profile of our business. In 2015, when Bottling Investments Group accounted for more than 50% of our net income, our return on invested capital was approximately 17%. Today, Bottling Investments Group makes up less than 20% of net sales. And our return on invested capital is greater than 23%, a cumulative total of almost 7 issues. Upon completion of this transaction, our remaining assets within Bottling Investments Group will include India, Africa and several smaller locations, primarily in Asia Pacific. We will continue to be disciplined in our refranchising strategy, ensuring we best position our formula to deliver long-term sustainable expansion. Our trading performance so far this year gives us confidence that we can deliver on our elevated guidance for 2023. This comes with a 10-11% organic earnings expansion, which will be driven through value/mix and will come with positive expansion volumes. We expect prices to moderate in evolved markets in the fourth quarter as we recycle pricing projects from the prior year. There are also some inconsistent inflationary markets that will continue to drive the value/mix ratio. There will be 1 additional day in the fourth quarter. We now expect comparable currency-neutral earnings and a percentage expansion of 13-14%. And based on existing rates and our hedging positions, we now expect foreign exchange rates to constitute an approximately four-point headwind to comparable net earnings and an approximately 6-point currency headwind to comparable earnings consistent with a consistent percentage . for all of 2023. Based on existing rates and hedged positions, we continue to expect commodity value inflation consistent with the case in mid-single-digit diversity. in the single digits on comparable cost of goods sold in 2023. We now expect our underlying effective tax rate for 2023 to be 19%. In total, we reduced comparable earnings based on a percentage expansion of 7% to 8%, compared to $2. 48 in 2022. We still expect to generate approximately $9. 5 billion in free cash flow in 2023 from approximately 11Four billion dollars in money from consistent agreements. This constitutes approximately $1. 9 billion in capital investment. This forecast does not include any bills similar to our US tax dispute with the IRS, which is unlikely to occur in 2023. Given the momentum of our business, the strength of our balance sheet and confident earnings, we expect be waiting to get from the refranchising of the bottlers. We have developed greater flexibility to continue reinvesting in our business and returning capital to shareholders. Although it is too early to provide concrete data for 2024, we must focus some considerations based on what we know today. We are encouraged by the dynamics of our turnover in most of our markets. There are a handful of inconsistent inflationary markets where hedging is unimaginable or expensive. In those markets, we have demonstrated that we can manage financial pressures by adjusting values to local market inflation, and we will continue to adhere to this strategy. Even if some raw materials were to normalize, input prices could also be affected through tensions and conflicts. Regarding advertising spending, our tendency is to continue reinvesting behind our brands while maintaining flexibility. With respect to currencies, assuming existing rates and our hedging positions, there would be an approximately single-digit currency effect on comparable net earnings and an approximately single-digit currency effect on comparable net earnings. a comparable earnings figure consistent with the percentage for the full year 2024. Of course. Several points may have an effect on our financial outlook and our broader business outlook between now and February. In recent years, we have generated earnings per share expansion in US dollar terms and we have many levers to continue on this path. In short, we are encouraged by our business papers and confident in our ability to deliver on our long-term commitments. Thanks to the incredible commitment of our formula workers around the world, we are very transparent about the direction we are taking and are well equipped to implement the methods that will get us there. And we continue to invest to drive long-term sustainable expansion. We remain focused on taking advantage of the opportunities that come our way. With that, however, we are in a position to answer questions.
Operator
(Operator Instructions) The first comes from Morgan Stanley’s Dara Mohsenian.
Dara Warren Mohsenian
So, it’s evident that we saw another strong set of effects in the third quarter, and we obviously increased confidence for the year with the accumulation for the full year. I’d like to have a little more attitude towards 2024. I know you may not need to give express figures on the outlook, but I was just hoping that you could give us some insight into how you feel about the pricing outlook for next year, given the strength of the third quarter and maybe break that down into higher values compared to the mix and the hyperinflationary market elements and what portends the competitive environment for next year on the front of the market. value.
James Robert B. Quincey
Let me share a little with you, Dara. First, breaking down the third quarter, because I think it’s informative as we think about the end of the year and next year. First of all, there are some points in the third quarter that are a result of the more inflationary environment of 2022. And obviously that will disappear as we move into the fourth quarter and obviously next year. And then you have the normal value. And then there are some value issues coming from those higher inflation markets, Argentina, Turkey and several African markets, which, given the inflation levels, make a difference at the overall corporate level. And as John commented in his currency forecast, we expect some degree of negativity from those markets next year. But we assume some degree of positivity here in terms of value/mix next year. The only thing that is unsure, the only thing that is certain about peak inflation markets is that it ends unpredictably. So it’s too early to have a full picture of what that will look like in 2024. And obviously we’ll take stock when we get to February. So, net-net, there will be continued moderation towards the landing zone in evolved economies. There are some emerging markets that are experiencing lower than general inflation, such as China. And then there are a bunch of emerging markets and the overall venture into those higher inflation markets will be especially important. This will provide some metrics to think about how this will play out in the fourth quarter and over the next year.
Operator
Next up is Lauren Lieberman of Barclays.
Lauren Rae Liberman
So, one of the things that I thought was really attractive was in the press release, when you – first of all, it was helpful that you mentioned the express contribution of inflationary costs. But one thing I found attractive was that the regions where inflationary costs were higher were also the regions where there was, at least compared to my expectations, a better-than-expected unit volume of boxes. So, I think historically, it’s true, logic and elasticity would say more prices, less volume. But here you get this unit of case volume. So I’m wondering if you could tell us a little bit about what you’re doing to allow for that kind of combination. And then also, if you can communicate to us about the expansion of transactions in those markets, if so. Conversion: How it’s evolving compared to unit boxes.
James Robert B. Quincey
Of course. First of all, I would like to point out that we have been hunting for many years, but this year we are very focused and we will continue next year, regardless of the degree of inflation in the environment, we must protect ourselves. the scale of our clients’ franchise and watch it grow. In other words, we need to see a positive expansion in transaction volume in the environment. Therefore, our marketing, innovation, RGM and execution strategy has consisted not only of gaining a percentage of costs in that environment, but also of achieving an expansion of the incorporated volume. So we actually took that approach. And in terms of the regions where there has been inflation, where there is volume, I mean, the two biggest pieces of the puzzle are Latin America and EMEA. And if we take all this in order, in Latin America price inflation is obviously driven through Argentina. The rest of the content, rarely speaking, follows the same line, with inflation predominating there for a prolonged period. And it is an environment in which we know very well how to function. And they gave us a great company there, and they were given great care in executing marketing innovation, execution, RGM. And then Argentina is a roller coaster, given its inflation point and its economic situation. I can say this from personal experience, as I was national director there in 2001 and 2002, when they experienced a sharp devaluation and debt default. So, it’s anything that we know how to operate, and it’s kind of a component of what’s happening in some of the Latin American markets, so we can execute it. Regarding EMEA, divided into two components. One is the European environment where inflation, like in the United States, is moderating and the dynamics in Europe are more around a moderate degree of inflation and the fact that the summer has been relatively poor in terms of climatic situations and the customer is perhaps under a little more pressure than the United States. The other component of the EMEA organization is Eurasia and Africa. And in that context, there are a number of markets with very high inflation, such as Turkey, Zimbabwe to some extent, Nigeria to some extent and Egypt to some extent. And there, when inflation reaches a peak, we see volume effects. But overall, we managed to overcome it in a way that, in the entire segment, we managed to do it. And in fact, we’re looking to, as I said, maintain and grow the customer franchise, even though in some of those markets, in any given quarter, the volume is possibly negative because inflation tends to be much more powerful than inflation. . the system.
Operator
Next up is Goldman Sachs’ Bonnie Herzog.
Bonnie Lee Herzog
It is ok. I had a query about your marketing investments. They were going up and, I guess, they hit operating margins in the quarter. So I’m just hoping to bring a little more color to those rollovers. And then, James, you discussed your goal of continuing to make an inversion before the curve. So could you give us a little more color on how you think about this?And then, at the end of the day, how much of your profits do you plan to reinvest in marketing, whether it’s this year?And then more importantly, how do you see the scenario next year, especially against the backdrop of increased exchange rate headwinds?I’m trying to see how flexible it will be to balance rollovers with earnings per share growth in dollars.
James Robert B. Quincey
Alright. Let me take a look to unravel this a little. So we came into post-Covid in the last few years and said we expected a rebound. And we’re going to invest in the expansion while it’s there, rather than trying to pull back in anticipation of something. And this modus o consistent with andi, I’m not sure I would characterize more marketing as a drag on the effects, but rather as a motivating force to drive the effects and the monetary effects that we’re seeing. So we believe that this technique is obviously working, as evidenced by the fact that we have noticed the most sensitive line and the back line. I think as a model, to the extent that we can continue to announce that through the end of this year and into next year, we would be happy to do that. That said, to the extent that 2024 brings unexpected surprises, we will pivot, whether in a country, a region or globally, we will pivot with speed as we did in the second quarter of 2020 when COVID arrived, and slowed down the process of marketing in that environment. Therefore, we believe that we have developed a much greater degree of flexibility in moving and that we deserve to make a movement mandatory anywhere in the world. But as a starting point, we’ll focus on expansion. And I think the last thing I would say is that if you think about the balance of all of this, if you take a. . . if you step back a little bit and take a broader attitude of inconsistent variation range because obviously marketing is just one component . Of all the other elements, if we look at the constant liquidation spread over the last, I don’t know, five years, we will see that it is higher by about 0Arrayfive issues consistent with the year. Array which is broadly consistent with the leverage implied in the long-term expansion model. And that is one of our objectives. This may not happen every quarter, because the quarters are very irregular, but it is part of how we design our strategy.
Operator
Next up is Robert Ottenstein of Evercore ISI.
Robert Édouard Ottenstein
Super. James, in the past you’ve talked about this: The Coca-Cola Company has talked about moving the customer from basic packages to plus packages, I think you call them incident packages or premium priced packages, I would say I love having a concept and maybe we’ll just concentrate on the U. S. Where you are on this journey, how much room there is for the mix, and is that anything you can do in a weaker economic environment where the customer is also looking for more pricing options and affordability.
James Robert B. Quincey
Of course. Thanks Roberto. Look, I certainly think there is a huge opportunity in the US market to take advantage of greater packaging diversity. We are not taking advantage of all the opportunities that exist. And taking advantage of greater packaging diversity helps in an environment where, as has been the case lately in the United States, certain customer segments are feeling stressed about available income streams and seeking more affordable options. , whether in terms of revenue stream or in terms of the channels they share and spend on, which are more susceptible to premium options. Therefore, the market will offer the option of greater segmentation and greater diversity of packaging. We can do more in the US market, whether in the nature and diversity of sizes and shapes of PET cans or bottles. So I think there are a lot of opportunities in the United States to continue to leverage packaging diversity to meet customer desires and put into practice the RGM equations that we have the opportunity to do in the United States. And in the end it is enough to take a look at other parts of the world, in Latin America. The United States or Europe, which are relatively evolved bloodless markets, are seeing that we are effectively using more packages there to offer the activities that clients need.
Operator
Next up is JPMorgan’s Andrea Teixeira.
Andrea Faria Teixeira
So, John, I appreciate your comment on the expansion of EPS in 2024. And James, you said you’d like to see volume expansion, which is notoriously encouraging and in line with what you said in the last earnings call. But given the many things they’ve replaced recently and the weakness of consumers in evolved markets in the first place, is there anything that has replaced their thinking?And secondly, with regard to the fact that 80% of the volumes are, of course, foreign and given that, obviously, the effect of LPG medicines is changing, I think it would be dismissive not to ask the question, given the considerations of investors. Can you explain how you proactively deal with this potential risk?Obviously, this sounds similar to what you say. I’ve done so over the years in terms of sugar content and portion control, but I’m curious how investors deserve to think about the equipment they have.
John Murphy
Thank you Andrea. So to the first point, if you think about 2023 relative to where we were 12 months ago and where we are heading for the rest of this year, it is in an environment that has seen the same types of headwinds in ForEx and great part of the volatility. and I would expect this to continue for the next 12 months or so. And we have demonstrated, as we have highlighted in the situation and in various forums, the levers that we have developed in recent years to manage well this era with so much volatility and uncertainty. And I hope 2024 will be a similar year. So, I would like to point out to you that many of the levers are advanced marketing and innovation, profit expansion control functions that I believe are becoming more powerful year after year, and the overall execution of our formula in the market. So, the industry continues to be strong and we anticipate that will also be a component of our underlying equation for 2024. To the point you raised, this is a domain that we are very focused on. There are still many reviews about what effect this will have, if any. I would say, if you go further and lock us in, the end result of our overall beverage strategy over the last few years is that we are well placed to offer possible features and characteristics tailored to the motivations and desires of the respective people. We will continue to monitor the space, but we believe in the overall beverage strategy: 68% of our current products are low or zero calories. And we continue to invest in innovation and potential features to deal with whatever comes along. . .
Operator
Next up is Chris Carey of Wells Fargo Securities.
Christopher Michael Carey
I wanted to ask you a question about Coca-Cola, Zero. La expansion slowed a bit over the course of the year, compared to an exceptional unit expansion last year. I was wondering if you could rethink where we are with franchises, the opportunities you’re seeing, and if maybe we’re reaching thresholds just with the expansion of offering.
James Robert B. Quincey
Of course, I Chris. No think we’re reaching a threshold in terms of Coke Zero expansion. In fact, I believe, on the contrary, that there are huge prospects for Coke Zero in the future. I think what we’re seeing in the very short term is the effect on some of the major markets of Coke Zero, which is Europe. They also had a very bad summer and were there for a couple of months, which makes it seem like things sank in the third quarter. quarter. But I believe that Coke Zero has a long way to go in the future, and we will continue to invest in this task and are positive about its long-term prospects.
Operator
The following is from Bill Chappell of Truist Securities.
William Bates Chappell
Just a little bit about China and, I guess, to some extent, Africa. Maybe you can; Evidently, this isn’t the first time we’ve heard that the customer takes a while to recover. What can we do to speed this up in terms of pricing or promotion?And did you see any genuine adjustment in that customer as the quarter went on, where you ended the quarter maybe with a little bit more green shoots and things are looking up as we get to the fourth?
James Robert B. Quincey
Yes, of course, Bill. Obviously, I hate the concept of waiting for something to take a stand on the macroeconomic front. It certainly helps when there’s a tailwind in the general environment, but we’re not going to wait for that. We are very focused on making an investment to check the opportunities and regain momentum, especially in the bubbly business, and we have a lot of RGMs and execution opportunities to pursue in China. In addition, we want to mobilize and organize a very strong Chinese New Year, which will take place in early 2024. And we made a number of decisions in the third quarter, which had a slight effect on the margin of the APAC segment. Really focus, invest early, and make prioritization decisions so that we can really move Chinese corporations forward, hoping that tailwinds in the macroeconomy will bring an edge, but we can’t wait for that to happen. We want to focus on controlling what we can control and investing to drive business forward.
Operator
Next up is that of Charlie Higgs of Redburn Atlantic.
Charlie Higgs
I have a query about BIG and James Filipinas. Et, maybe you can communicate about the highest point of the Philippines, the functionality of the country?And I guess, from a transaction, why now and why CCEP?And then, John, can you give us some insight into what the deal could mean for the FY24 outlook if it comes to fruition, perhaps on the industry sidelines, EPS?And then maybe just comment when you said that some of the proceeds from non-operating activities can be used for buybacks, do we read that as BIG divestitures?
James Robert B. Quincey
Of course. Let me start there, Charlie. We have an obviously stated goal: to be the smallest bottler in the world, and over time we have refranchised our operations. Ultimately we have essentially four parts: the Philippines, a giant CCBA, a significant component of the formula in India, and then a number, a small number of other countries, about a quarter of each roughly speaking. Therefore, we are refranchising the bottling operations that we own for the long term. As far as the Philippines is concerned, we have had smart years in recent years, a smart rebound despite some ups and downs, given the availability or as I said, lack of availability of some must-have products along the way. . But actually, overall, we’ve had a very smart run over the last few years. Therefore, we look for the right time and the right components to be successful again. I think the most important thing is that it is a combination of a family of long-term local investors, the Aboitiz Group, and some experience in CCEP formulas. So I think it’s the right combination of components that can combine their bottling experience and their knowledge of the Philippine market – the Philippine market to continue the history of what has been achieved. John, do you need to make the other components?
John Murphy
As far as deals go, Charlie, we’ll be with you through February, assuming the deal closes. We are making wonderful progress on this right now. And without giving away any major details, as you know from history, this will bring earnings headwinds and tailwinds at the margins. And main points, we’ll give more main points in February. And in relation to the last component of your long question, I would say the following. One is that, I think, we’ve developed a strong position and created flexibility, given the momentum that we have in the business, the stronger balance sheet that we have today compared to a few years ago, and the fact that we’ve been able to sell products from non-operational sources. sources, i. e. basically the refranchise of the bottler. We remain very focused on reinvesting in the business and returning the capital. And by reviewing some of those products, we’ll compare their most productive use, adding buyback percentages beyond the target of the existing dilution policy. So we’ll communicate that in February.
Operator
Next up is Bryan Spillane of Bank of America.
Bryan Douglas Spillane
I only had an explanation and then a question. The explanation is this: have you told us to what extent hyperinflation costs only the overall price/combination at the point of total enterprise?
James Robert B. Quincey
No, we haven’t given an express number, but it’s 2. 5 numbers. It depends on the countries you need to load into and where you need to cut the line. But think of 2. 5 numbers in the third quarter.
Bryan Douglas Spillane
It is ok. And then my query is just about North America. I think in the press release, unit case volumes were strong and you said you had gained market share. And then James, I think in his clever remarks, talked about developing faster. from home than at home. So can you give us a little bit more attitude about what’s happening in North America in terms of relative channel functionality and anything else you can practice in terms of value-seeking habit among consumers?I’m just looking to get a greater understanding of how your business is performing and what’s happening in the category during the quarter.
James Robert B. Quincey
Of course. First, let me start by saying that the Nielsen universe constitutes a little less than a component of our business in the United States. Therefore, the measured channels constitute slightly less than a component of the overall activity. And what’s happening in the customer landscape is, in a way, simplifying it: customers with low income sources are the ones that are under the most pressure, and the grocery shopping case that is under the most pressure is when they buy for home. It is therefore the maximum activity captured by Nielsen. And the part of the market where expansion is most powerful is where customers are far from home. So there is still a rebound and strong expansion in outside channels, not just in some restaurants, but also in entertainment, travel, leisure, hospitality and those types of things. So we are seeing further expansion in this component of the market, which is not measured. This is, therefore, what constitutes the strength of American activity as a whole and its income. So we are seeing a kind of divergence in customer habit between home and away. Clearly, it is transparent who is under pressure of available source of income. And then this is reflected in the measurement channels observed in relation to the entire market.
Operator
Next up is Peter Grom of UBS.
Peter K. Grom
So I wanted to answer Bryan’s question. I mean, James, you talked about the personal label industry and reduction channels in your opening comments. But I think you also talked about that, compared to the second quarter, they have a The effect was similar in Europe, although less pronounced in markets like the U. S. and China. So I’d like to know your take on why you think it was less pronounced in those markets. And then, taking a look at Q4 and Q24, how do you think that downward momentum will evolve?
James Robert B. Quincey
Alright. So I think, look, the European customer is under a little more pressure than the American customer from a disposable source of income perspective. It is the starting point. I think that’s why we’re seeing a little more decrease or adjustment in basket length in Europe compared to the United States. And I think that’s true sometimes. And then the question of which categories are under the most pressure depends on the strength of the logo and the client’s prioritization of occasions. So if you want to save money, you don’t focus on the average of everything, but decide on some categories and keep your possible options in other categories. Therefore, our purpose is to ensure that our logos are priced so that they are possible options when purchasing. If there is to be a relief in overall spending, this will notably occur in other categories as they move into personal labels. And we maintain the strong points of our logo because we add price to them in the product, in marketing and innovation. So that’s the general dynamic as we see it. And that is the difference between the United States and Europe.
Operator
Next up comes from Citi’s Filippo Falorni.
Filippo Falorni
James, you said that business in India is very strong, but China is weak. First, could you tell us how much China weighed in the quarter and what your expectations are for the next one?Year? And then, from a value/mix standpoint, the value/mix of one segment of the segment was one of the lowest of its other segments. I know it probably has an effect on geographic diversity. But can it also communicate to us about the valuable environment in Asia-Pacific?
James Robert B. Quincey
Of course. Yes. I mean, China was apparently a drag in terms of volume in the segment. More importantly, from a margin perspective, it is very important not to exceed the numbers for any given quarter, given the abnormal nature of – these are sales of concentrates, several stages behind the chain of origin from the consumer. That’s why I think it’s vital to take an average of four quarters. In the third quarter, as I mentioned a little earlier, we made a number of decisions related to portfolio prioritization with respect to China and investing for a quick start in 2024 in several markets in the Asia-Pacific region, whether it be Japan or China. Array So there are investments in this area. The overall pricing environment is relatively clear. Inflation in China is relatively minimal. In Japan, we have recently taken prices into account, taking into account inflation in Japan, which is very different from the last 30 years. And then the rest of the inflation is kind of relatively apparent CPI in the rest of ASEAN and Australia. And that’s really what motivates him. I think we see Q3 in Asia Pacific more as an anomaly in terms of price/mix than a trend.
Operator
Next up is HSBC’s Carlos Laboy.
Carlos Alberto Laboy
Can you tell us about the type of virtual investments that U. S. bottlers are making and that you are helping them with?Are they more profit-oriented or more focused on the power and costs of the source chain?In short, what I’m trying to perceive is how are virtual investments converting U. S. bottlers and their capabilities?
James Robert B. Quincey
What’s the last component of the question, Carlos?
Carlos Alberto Laboy
How are those virtual investments converting those bottlers and their capabilities?
James Robert B. Quincey
Of course. I mean that the American bottler, like the rest of the foreign bottlers, is making a series of virtual investments. And in fact, it is both. The answer is neither, it is both. We have a long history of investing in generation to drive efficiency across the sourcing, production and logistics chain, from outdated generation investments to AI and now generative AI, which are another feature. So there’s a lot going on and there’s a lot of connectivity between the bottlers on the enterprise software side because they’re all connected – essentially they all employ or most of them employ some form of shared platform to advance the issues they’re dealing with. internally under the so-called CONA. So there is a lot of investment to ensure that the origin chain is as effective as imaginable and a lot of help from ecosystem partners to make that happen. And then as for the rest, I mean, they are making an investment in the market that is digitizing dating with largely non-modern commerce. Obviously, when you communicate with large consumers in fashion retail, that interaction is already largely virtualized. The focus here is on expanding the connection, from the perspective of the chain of origin, stock visibility and forecasting efficiency, but the connectivity already exists. And then for off-chain consumers, it’s really about whether you can get them to access, in undeniable terms, a form of B2B platform so that there are 24/7 ordering opportunities. week, knowing that if you can digitize the quotes, then you have a tendency to go deeper. and more productive. And then once that exists, leveraging an AI component, which several bottlers around the world have worked on in coordination, a sort of AI-based B2B dating in a form of platform that can then provide them with ordering suggestions. acquisition. And it’s also helping to breathe life into the business. In this sense, American bottlers follow a similar path to that of foreign bottlers.
Operator
Our last one will come from Brett Cooper of Consumer Edge.
Young Brett Cooper
Not necessarily because of the effects of the third quarter or the current year, but over many years, Coca-Cola’s expansion into the carbonated and non-carbonated sectors has not been particularly different, while there seems to be a greater opportunity for expansion in the non-sparkling sector, given only the difference. Percentage of market you have and the implementation of category group management. So, can you tell us about a barrier to top expansion in the non-sparkling sector or what I’m probably missing?And then I guess Part B is right within that framework. Can you tell us about your ability to expand new categories for the company, such as hot coffee or alcohol?
James Robert B. Quincey
Of course. We, our purpose is to do justice to the brands in the portfolio. And certainly, you can argue that the categories where we’ve declined in percentages have a natural opportunity to gain in percentages. But of course, that’s whatever you have to take away from someone else. The other way of looking at the global is to say that the beverage industry seen from a global attitude refers to the CAGNY page with all the other people on it, the vast majority of the page is truly white space. In other words, the beverage industry is not created yet. And really, the concept that sparkling wines continue to grow is a representation of us, that we are in a position of strength to create the industry in white spaces with our most successful and powerful brands. The continued expansion of sparkling wines therefore deserves to be a feature of our future adventure. And then in the non-gas categories, of course, we look to earn a constant percentage. Historically, we have talked about looking to move from a performer to a challenger, from a leader to quality leadership. And I think what is taking place is a long-term construction. If you take a long-term view and look at the steady percentage of overall business from lackluster brands, it has been slowly increasing, but it has been increasing over the last two decades. Therefore, we start from a point of view focused on the consumer, on the allocation of resources and capital, and on obtaining the right to move from former consistent prestige to challenger prestige and leader position. Nothing drastic will happen overnight. But it is a dynamic that has grown in recent years and decades. And we are confident in the option to rebuild the industry or develop it further in the future. Alright. That was the last question, he said. Alright. In conclusion, thank you all very much. We demonstrated, I hope you can see, in the third quarter that we continued to generate volumes, profit expansion and consistent incremental profits at a constant percentage in US dollars by executing our all-weather strategy. And we are convinced that we can create long-term prices. So thank you for your interest and your investment in the company and for your participation this morning.
Operator
Ladies and gentlemen, this concludes the convening of today’s convention. Thank you for participating. You can now log out.