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Operator: [Operator’s Instructions] Our first comes from Dara Mohsenian of Morgan Stanley.
Dara Mohsenian: Clearly, some other set of smart effects in the third quarter and obviously boost confidence for the year with the build-up for the full year. I’d like to have a little more attitude towards 2024. You know. You don’t need to provide express figures on the outlook, but I just hope you can give us an idea of how you feel about the price outlook for next year, given the strength of the third quarter and perhaps split them up into higher parts. Stocks vs. Mix vs. Hyperinflationary Market Elements and what portends the competitive environment for the coming year on the value front.
James Quincey: Let me share a couple of thoughts, Dara. First of all, break down the third quarter, because I think it’s instructive when you think about the end of the year and the next. First, there are some issues in the third quarter that are consequences of the more inflationary environment of 2022. And obviously, that’s going to go away as we move into the fourth quarter and, obviously, next year. And then there’s the normal value. And then there are a couple of value issues that come from those markets with higher inflation, Argentina, Turkey and several African markets, which, given the degrees of inflation, make a difference in the overall objective of the business. And as John Como discusses in his currency forecast, we expect some degree of negativity from those markets next year.
But we assume some degree of positivity in that regard in terms of price/mix next year. The only thing that remains uncertain — the only sure thing about markets with high inflation — is that it will end unpredictably. So it’s too early to get a full picture of what that will look like in 2024. And obviously, we’ll take inventory when we get to February. So, net-net, you’ll have continued moderation towards the landing zone in evolved economies. There are some emerging markets that are experiencing below-normal inflation, namely China. And then there’s a combination of emerging markets and the overall venture through high-inflation markets is going to be particularly important. This will provide some parameters for thinking about how this will play out in the fourth quarter and over the next year.
Operator: Next up is from Lauren Lieberman of Barclays.
Lauren Lieberman: So, one of the things that I thought was really appealing was in the press release, when you in particular, first of all, it was helpful that you mentioned the express contribution of inflationary costs. But one thing I found that was 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 cases. So I think historically, logic and elasticity would say more price, 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 it does that allows for that kind of combination. And then also, if you can communicate to us about the expansion of transactions in those markets, if it’s evolving, what’s its speed compared to unit boxes?
First of all, I’d like to point out that we’ve been hunting for many years, but most especially this year and we’ll continue next year, that no matter how much inflation there is in the environment, we have to protect the scale of our franchise of customers and see it grow. In other words, we need to see a positive expansion in volume or transactions in the environment. And that’s why our marketing, innovation, RGM, and execution strategy has focused not only on price gain in those environments, but making sure that volume expansion is built into them; So we’re taking that approach. And in terms of regions where there’s been inflation, where there’s volume, I mean, the two most important pieces of the puzzle are Latin America and EMEA.
And if we take all of this in order, in Latin America, stock inflation is very obviously driven through Argentina. The rest of the content, speaking, is in the same vein, as inflation has been prevalent there for an extended period of time. It’s an environment where we know very well how to function. And we’ve been assigned a wonderful company there and they’re masters in marketing innovation execution, 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 country director there in 2001 and 2002, when they experienced a sharp devaluation and a default on their debt. and it’s kind of a component of what’s happening in some Latin American markets and that’s why we’re able to execute it.
As far as EMEA is concerned, it is divided into two parts. One is the European environment where inflation, just like in the US, is moderating and the dynamics in Europe revolve more around a moderate degree of inflation and the fact that the summer has been relatively poor in terms of weather and the customer is perhaps under a bit more pressure than the US. The other part 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, Egypt to some extent. And then, when inflation peaks, we see effects on volume. But overall, we managed to get through it, so on the basis of an overall segment, we were given the step.
And in fact, as I said, we’re looking to grow the customer franchise, although in some of those markets, in any quarter, the volume can be negative because inflation tends to be much higher than the system.
Trader: Next up is Goldman Sachs’ Bonnie Herzog.
Bonnie Herzog: All right. I had a query about your marketing investments. They increased and, I assume, affected operating margins for the quarter; So I’m just hoping to bring a little more color to those rollovers. And then, James, you talked about your goal of continuing to make an inversion before the curve. So could you give us a little more color about 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 headwinds on currencies. I’m trying to see how flexible it is to balance those reinvestments with the growth of EPS in dollars.
James Quincey: Okay. Let me take a look to unpack this a bit. So we came here after COVID in the last few years and said we expected an uptick. And we’re going to invest in expansion while it’s there, then let’s check back in anticipation of something. And that modus operandi, I’m not sure I would call additional marketing a drag on the bottom line, rather than a driving force to drive the bottom line and the bottom line that we’re seeing. So we think this technique works, obviously, as evidenced by the fact that we’ve looked at the gains and the results. I think it’s a model to follow, as long as we can continue to publicize this until the end of this year and next year, we’ll be happy to do that.
That said, to the extent that 2024 brings unforeseen surprises, we’re going to pivot, whether it’s domestically, regionally, or globally, we’re going to pivot with speed like we did in the second quarter of 2020, when COVID hit and we reduced marketing spending in this environment. So we think we’ve developed a much greater degree of flexibility to move, so a move should be mandatory anywhere in the world. But first, we’ll focus on expansion. And I think the last thing I would say is that if you think about the balance of all those elements, if you take. . . If you zoom out a little bit and take a broader attitude of the consistent drawdown margin because, obviously, marketing is just one component of all the other elements, if you look at the consistent fluctuation margin during, I don’t know, over the last five years, we’ll see that it’s increased about 0. 5 numbers per year. which is broadly in line with the leverage implicit in the long-term expansion model.
Earnings Call TranscriptJames QuinceyJohn Murphyse:KOQ3 2023Robin HalpernYahoo FinanceShow more. . . Show less
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