At this time, I'd like to welcome everyone to The Coca-Cola Company's Fourth Quarter and Full Year 2022 Earnings Results Conference Call. Today's call is being recorded. If you have any objections, please disconnect at this time. All participants will be on listen-only mode until the formal question-and-answer portion of the call.

I would like to remind everyone that the purpose of this conference is to talk with investors, and therefore, questions from the media will not be addressed. Media participants should contact Coca-Cola's Media Relations department, if they have any questions. I would now like to introduce Mr. Tim Leveridge, Vice President of IR and FP&A. Mr.

Leveridge, you may now begin..

Good morning, and thank you for joining us. I'm here with James Quincey, our Chairman and Chief Executive Officer; and John Murphy, our President and Chief Financial Officer. We posted schedules under Financial Information in the Investors section of our company website at coca-colacompany.com.

These schedules reconcile certain non-GAAP financial measures, which may be referred to by our senior executives during this morning's discussion to our results as reported under Generally Accepted Accounting Principles. You can also find schedules in the same section of our website that provide an analysis of our gross and operating margins.

In addition, this call may contain forward-looking statements including statements concerning long-term earnings objectives, which should be considered in conjunction with cautionary statements contained in our earnings release and in the company's periodic SEC reports. Following prepared remarks, we will turn the call over for questions.

Please limit yourself to one question. If you have more than one, please ask your most pressing first, and then reenter the queue. Now, let me turn the call over to James..

firstly, pursuing excellence globally and winning locally through relentless consumer centricity to continue the top line momentum; secondly, investing for the long-term health of the business and raising the bar across all elements of our strategic flywheel; thirdly, generating US dollar EPS growth to deliver value for our shareowners.

We continue to build the right capabilities and strengthen the system alignment to deliver in a dynamic world, and we continue to invest to raise the bar. We are executing more efficiently and effectively on a local level while maintaining flexibility on a global level.

Throughout 2022, we saw many examples of harnessing our enhanced capabilities to win locally. Our new marketing model is working. We've linked occasions and passion points to drive engagement. We're experimenting to optimize marketing. This is driving deeper connections with consumers, reaching them in unique and new ways.

We are tying our beverages to consumption occasions and engaging consumers through local experiences. For example, in Vietnam, to support the reopening of away-from-home accounts, we launched the pilot of Coke is Cooking campaign in October. In this month-long campaign to help drive traffic back to stores, we partner with more than 700 food shops.

We created thousands of food and Coke combo deals that consumers purchased at these food shops, along with Coke is Cooking merchandising and digital support by our local influencers. This was the first time we used an on-ground event as a commercial asset, creating a social and digital content generator.

The campaign resulted in more than 1 million combo transactions and 20% uplift for participating merchants. We're leveraging passion points locally to create immersive experiences and drive consumption. For example, in Latin America, our live music strategy created memorable in-person and digital experiences, elevating consumer engagement.

We partnered with Rock in Rio, one of the biggest music festivals in the world, and created new opportunities for consumers to access content through live streams and in the metaverse.

As a result, we boosted our reach from approximately 700,000 attendees to more than 45 million consumers across the region, and our sales inside the festival increased 23% versus the last festival.

In India, the Thums Up, Stump Cam was a never before seen activation for cricket fans where consumers could scan a QR code on product label and get access to exclusive match moments of the ICC T20 Cricket World Cup through a camera installed on one of the wickets.

Throughout the 45-day tournament, we use first-party data and artificial intelligence to send personalized content to consumers based on their favorite matches, and we amplified the experience through sports influencers.

This campaign showed strong results with Thums Up growing volume ahead of our total sparkling portfolio in India during the activation period, contributing to strong volume growth for Thums Up for the full year. This drove about 1/4 of India's total volume growth for the year.

Thums Up also experienced its highest monthly market share jump during the activation period. We are driving consumer interest and action through digital experiences using the power of partnerships across platforms.

For example, in Germany, we partnered with our key online customer and created voice-based branded experiences with its voice assistant to drive engagement and grow positive brand perception. This allowed consumers to learn more about Coca-Cola products and shop on voice assistant-enabled devices using only their voice.

The campaign delivered strong results with a reach of 11 million impressions. Additionally, consumers that engaged with its voice-based experience had a 25% add-to-cart rate. And lastly, we're delivering new and unexpected innovation by leveraging Gen Z insights. In the US, we launched Minute Maid Aguas Frescas.

The product is made with real fruit juices, is noncarbonated and comes in three exciting flavors. It was originally available as a limited launch in 16-ounce ready-to-drink cans.

A disruptive end-to-end digital media marketing campaign created early momentum, which led us to quickly scale this experiment to our Freestyle platform and other fountain offerings. In 2022, the product had a 60% repeat rate and won the Best New Product award from Convenience Store News.

We have been building our revenue growth management and execution capabilities for many years, and we've made good progress, as shown by our ability to offset much of the inflation we saw in 2022 and delivered strong volume and transaction growth.

There is still much work to be done to maximize revenue by further segmenting our markets and consumers based on additional variables. We are leveraging digital and data-backed insights to better understand our consumers. This will help drive affordable propositions for basket incidence growth and recruit new drinkers.

It will also lead to premiumization to drive price and mix. For example, in Europe, we grew both volume and value share for the last year. We partnered with key customers to drive growth through affordability and premiumization initiatives that tapped into the key consumption occasions of meals and breaks.

This end-to-end execution resulted in higher basket incidents and buying households across all key channels in Europe. Globally, this strong system execution focus generated 80 million additional shopping trips for our products and added 17 million households to our base.

Through our stepped-up capabilities, we are getting better at synchronizing demand creation and demand fulfillment, driving top-tier value creation for our customers. We measure success by the value we create for our stakeholders and by how we are creating a better shared future for people, communities and the planet.

During 2022, we made progress across these sustainability priorities. We leveraged our marketing power to drive growth of our low- and no-calorie beverages and continue to provide smaller package choices to enable consumers to manage sugar intake.

Approximately two-thirds of the products in our portfolio have less than 100 calories per 12-ounce serving. On packaging, we've set a new industry-leading goal to have 25% of our volume globally being refillable or reusable packaging by 2030.

Additionally, we are continuing to increase cooler energy efficiency and the use of HFC free coolers to make progress on our science-based targets, while creating a clear road map with our system and suppliers to achieve our carbon emissions reduction ambition.

On water, as part of our 2030 water security strategy, we stepped up investments in nature-based water solutions exemplified by the work we're doing with the Nature Conservancy and other partners. Globally, we are working to strengthen the links between replenishment projects and nature-based solutions.

We further embedded sustainability into our strategy by linking diversity equity inclusion performance measures to our executive annual incentive program and by linking water and our PET packaging measures to our executives' long-term incentive program.

Overall, we continue to focus on using our leadership and scale to drive change while delivering results and building resilience. Finally, before I hand it over to John, I want to acknowledge that our strong results in 2022 reflect the collective efforts of our system partners and the growth mindset of our system employees.

Guided by our purpose, we are investing behind our capabilities and further cultivating our growth mindset to be well positioned to create value and deliver on our objectives. While we have momentum in our business, we know uncertainty remains as we turn the page to a new year.

We will continue to focus on expanding the sphere of what we can control to drive growth in 2023 and beyond. We'll talk about this in more detail when we return to CAGNY in person next Tuesday and would encourage all of you to listen in. With that, I'll turn the call over to John..

transition tax payments of approximately $720 million; a scheduled increase of $335 million versus 2022; payments associated with various M&A transactions of approximately $350 million. Excluding these, our implied free cash flow conversion would be within our long-term guidance.

This guidance does not include any payments related to our ongoing US income tax dispute with the IRS. Recently, the tax court issued an opinion on a case involving a separate company. The tax court will now apply this opinion to our case and ultimately render a final decision in our case, allowing us to move forward with the appeals process.

As previously discussed, we intend to assert our claims on appeal, vigorously defend our position and believe we will ultimately prevail. Overall, we don't expect this to have a bearing on our ability to deliver on our capital allocation agenda and drive long-term business growth. There are some considerations to keep in mind for 2023.

We expect price mix to moderate through the year as we cycle our pricing initiatives from the prior year. While the inflationary environment appears to be cooling, we are still expecting to see elevated inflation, across our operating costs.

We have stepped up our marketing investments for the last few years and we will continue to invest to support momentum. And given the ongoing backdrop of rising interest rates, we expect to see higher net interest expense given our effective exposure to floating rate debt.

Finally, due to our reporting calendar, there will be one less day in the first quarter and one additional day in the fourth quarter. Having delivered strong results in 2022, we are focused on driving a top line-led growth equation in many types of environments.

We are well positioned to deliver on guidance for 2023, thanks to the incredible people we have around the world, the strong alignment we have with our bottling partners and the great plans we have for the coming year. With that, operator, we are ready to take questions..

[Operator Instructions] Our first question comes from Lauren Lieberman from Barclays. Please go ahead. Your line is open..

Great. Thanks, good morning. I guess in light of John's comment, just have a top line led growth equation.

I was hoping you could talk a little bit through the outlook for 2023 on top line just kind of puts and takes how you think about that 7 to 8 relative to the mid-teens put up in the fourth quarter and just kind of more color overall on that revenue outlook for this year would be great? Thanks..

Yeah, sure. Good morning, Lauren. Firstly, as John said, we feel confident about our outlook to drive the year from the top line. Let me connect that perhaps starting to 2022. As we commented, we saw steady volume growth through the year, including the fourth quarter. I know we reported a headline number of minus one.

But if you accommodate the suspension of Russia and the COVID restrictions in China and take a three-year CAGR of volume growth, you see a pretty constant growth momentum through the year. And we would also comment that, that growth momentum has continued into the beginning of 2023.

So we see strong underlying volume momentum or ongoing volume momentum that we have been able to achieve by our focus on the marketing innovation, the RGM and the execution to accommodate the need for affordability and premiumization in the face of inflation.

And as John commented, we do see both inflation moderating as we go through 2023 and of course, our own pricing PMO beginning to moderate as we go through '23 in part because, the input costs inflation is moderating, but also because we begin to cycle some of the price increases from 2022.

And what that's likely to net out as obviously, we've given a seven to eight for the full year. And what we're likely to see is the beginning of the Q1, we're likely to see revenue growth more close to what -- the sort of levels we were achieving coming out of last year.

And that then logically, the organic growth rate moderates as we get towards the end of the year, looking to close out on a more normalized level of revenue growth. And then when you average that out, you get to the seven to eight.

So, I think we're going to see good momentum through the year, moderating revenue growth rate as a function of moderating inflation ultimately.

And what will remain is a good, strong underlying momentum of our business that has been powering the last five years, and we are confident we'll continue to power the years ahead at the sort of level of top line relative to the long-term growth model that we have previously talked about..

Great. Okay. Just a quick -- just clarifying point on that, I apologize.

So, just to think about volumes and whether you want to talk about it in terms of concentrate sales or unit case volume, do you still expect growth in the second half of the year from a volume standpoint, or do you expect, not still, do you expect?.

Yes. So look, the long-term -- firstly, we had good growth last year, and we started the year with growth in unit case growth, obviously with PMO. As we look forward, what's normal on our revenue growth rate, we have called out, we expect to get a balance of the growth between unit cases and price/ mix on an ongoing basis.

Exactly how that turns out in the second half will depend on the environment or the dynamics and whether inflation does moderate, how much pressure the consumer does come under.

Our central view is we will continue to see unit case growth in the second half, combined with price/mix moderating, as I talked about, as the organic -- overall organic trend. But our focus remains executing against our plan. And obviously, that involves not just a focus on the marketing and the innovation.

But within the RGM, we have, as one of our objectives, to maintain consumers within our franchise by leveraging our pricing and packaging strategies to support affordability around the world to keep the lower -- perhaps lower-income consumers in the franchise, which, of course, is to some extent an underpinning on volume.

We prefer that as a strategy than to have more price and less volume. So again, our central view is to see continued level of unit case growth in the second half with obviously a moderating price mix to get to the overall revenue. But we're going to manage the business. In the end, we don't know exactly what's going to happen.

There are lots of scenarios as to how this might play out, but we're confident we can drive the momentum of the business..

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

Hey, good morning, guys.

So just a follow-up on that, James, can you give us a little bit of detail regionally on expectations for 2023? I know you're not going to quantify it, but just how you're thinking about the business conceptually relative to the results you delivered in Q4 here and take us around the world regionally? And then I guess just, secondly, if I can slip a clarification in, you're obviously starting off the year with top line guidance higher than you typically do, higher than long-term algorithm, higher than you started 2022 at despite delivering great results in 2022.

It's a less visible world in theory externally. So I guess it sounded more like a good start so far this year. You have a lot of visibility given that, and that's what's driving some of that confidence, but I'd love to hear from your vantage point what sort of gives you the confidence there? Thanks..

Sure. I'll take that in reverse order, Dara. We'll count that as two halves of a question rather than two questions. Let me give you another way of thinking about 2023 because I agree, there is a good deal of uncertainty on how this might play out. But there's been a tremendous amount of volatility and uncertainty over the last five years or four years.

If you were to take a compound annual growth rate of unit cases and price/mix over the last, I don't know, four or five years and look at that number, I think you'd end up with something around two on volume and four or five on price. So you could look back and say, wow, we were on a crazy ride there. But in the end, we've got a good number.

And so I look at 2023, so yes, something unexpected is bound to happen. But as we have expanded our ability to influence our own business, we have been adaptable in the face of all sorts of circumstances and being able to deliver the results we want, which is winning locally and turning that into our US dollar EPS growth.

And so that's what gives us the confidence. We don't know what's going to happen, but we do know we've generated a lot of momentum, a lot of flexibility and a lot of agility to be able to manage through what's going to come at us. And so that's really the source of the confidence rather than being able to say we know what the future holds entirely.

And as we look around the world, taking the various different pieces, starting in Europe perhaps or in EMEA, clearly, Europe is under some more pressure. The impacts of the conflict drove a much greater spike in -- short-term spike in inflation. That's playing itself through.

It looks like the European economies are going to avoid a technical recession, but clearly, consumer demand is softening, and I think that's likely to continue into the rest of the year. And looking at the other markets in EMEA, if you're a resource seller, you're doing well. If you're a resource buyer, you're under more pressure.

Obviously, Turkey, tragic situation with the earthquake, but also the economy has been under pressure already. So the emerging markets there are a full range. And similarly, in Africa, South Africa is important to us. They've got a very big problem in terms of energy, which is hampering the economic growth. So, there's more pressure in EMEA.

The US continues to be strong. We've got momentum in the business on the top line, doing well. The situation seems to be moderating without causing a hard landing. As of yet, we expect to see the pressure to continue to moderate, but the economy and the consumption, at least of beverages, continues to be good.

Latin America, similarly, there's been -- obviously, there's some places which continue to have very high inflation and the economic problems like the Argentinas of the world. But Latin America is doing well. And then out to Asia, obviously, the reopening of China is going to be a positive for the business, certainly on a cycle basis. India is flying.

ASEAN, we expect come back up as those two large economies do well, and we think that will also do well for Japan. So we see both a continued acceleration or continued growth in a number of markets, some doing really well, but the general context being a moderation of the inflation.

And then the zillion dollar question always comes back to is the process of bringing inflation down going to be hard, soft or perfect landing, and that we will see..

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

Thanks, operator. Good morning. Just a question for John. I guess two -- just related to cash flow and interest expense. I know you talked about net interest expense being up for the year in '23. Can you just give us a little bit more detail in terms of -- I think consensus is sitting at like $600 million for net interest.

So just, if you could give us a little more help in terms of where we should be on net interest expense. And then on free cash flow, you talked about the drivers that knock it down in '23.

Would we expect that, as we kind of go into '24, '25, like that should normalize? So is this more kind of contained within this year and then you expect to normalize going forward? Thank you..

Thanks, Bryan. Let me start the second question. The key drivers for '23, we have on top of underlying -- strong underlying performance, we'll have two significant buckets. One is we are stepping up our capital investments to support the growth agenda in a number of our operations around the world. And so that's a $400 million increase in '23.

And then we have approximately $700 million related to an uptick in the transition tax and some M&A-related initiatives. So for 2024, we'll continue to invest in the business as the business needs, especially when it comes to providing capital for our growth plans. The transition tax goes up a couple of hundred million in 2024.

That will be the second last year of the transition tax date that ends in 2025. So you can do the math on the variance that's gone in from 2023 to 2024. We expect the underlying performance to continue. We'll invest as we need to in the business to support the growth agenda.

And we do have, I'd say, a couple of hundred million extra in 2024 million under transition tax. And then with regard to interest, yeah, as we've highlighted, we -- with our current debt portfolio, we will see an uptick in 2023 in interest charges and interest -- sorry, interest expense.

And I'm not going to go into the specific numbers, but you can expect a couple of points of deleverage primarily driven by interest expense as we navigate through this year..

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

Yes. Hey, good morning. Thank you. James, maybe going back to the top line.

For a while, you've been making simultaneous efforts to drive both affordability, on the one hand, and then premiumization on the other hand, and I think doing a good job along the way, balancing those, in some ways, competing efforts to net out in a way that ends up in both positive volume and positive price/mix territory.

I guess the question is, as you as you look at 2023, do you see more opportunity in your efforts to optimize revenue growth on the value side and the affordability side, or is it on the premiumization side? And to the extent that there's a leaning, how does that impact where you prioritize incremental investments?.

Yeah. Thanks, Steve. Absolutely, we see opportunities in 2023 and, frankly, beyond to continue to leverage the capability around RGM to both use affordability to keep typically lower income consumers enacted and engaged with our brand franchises whilst also pursuing premiumization. And then it's going to be dynamic implementation as we go forward.

We're going to see continuations into 2023 of different sorts of packaging options, whether they be drives around returnables, whether they be drives, which obviously tend, given the economics of returnables to have lower price points, whether you see, for example, in emerging markets, the greater use of 1-liter packaging instead of larger packaging for at-home occasions, we're going to continue to see a lot of opportunity to push forward right across the world with affordability options.

And given that they tend to be dilutive to margins, we also look for all those consumer opportunities for premiumization, whether it be directly a brand launch.

I mean things like the Jack and Coke will be accretive to revenue, or directly within some of our brands to use the sleek cans and the smaller cans to kind of put more premium packaging into the marketplace. It will be an ongoing -- ongoing effort, and we don't see the runway of that running out anytime soon..

Our next question comes from Nik Modi from RBC Capital Markets. Please go ahead. Your line is open..

Thanks. Good morning everyone. I just -- James, I just wanted to follow up on the last question regarding all the affordability packaging.

Just based on the historical kind of observations across the world, how does it work with retail? I mean are these incremental phasings you're getting, or is it replacing older pack sizes that might have a lot more type sensitivity?.

It can be both, Nik. And obviously, it depends whether we're talking about supermarkets, convenience stores or small mom-and-pops. The more we're talking about smaller stores or convenience or the mom-and-pops, the more it is replacement.

Obviously, we make a big focus even in those smaller formats to gain incremental space, whether it'd be in the coal vaults or on the floor with our own coolers and our own racks. That absolutely does increase the beverage category phasings.

But there's nothing wrong in any given store with looking at the SKU layout and saying, look, I'm going to take some of these SKUs and make them -- replace them with more affordable SKUs.

And I'm going to take some of them and put more premium options in such that the total mix works not just for us, but also for the customer and, ultimately, for the consumer. It's got to work for the consumer.

Otherwise, it's not going to rotate faster than the setup that's already in there because in the end, the customer is going to support these strategies because it works for them, because it works for the consumer, and everyone is better off with the implementation.

So, yes, a mix of incremental versus cannibalized phasings, ultimately, by focusing on the consumer, you get a better answer for them, that creates a better answer for the customer, that creates a better answer for the coke system..

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

Thank you. Good morning, everyone. I was hoping you could provide a little more color on your plans for reinvestments this year and then maybe frame for us whether it will be stepped up versus last year.

Also, how are you thinking about your marketing spend this year? Do you also have plans for that to accelerate? I guess, I'm ultimately trying to understand, how much flexibility you have to balance the momentum. You're certainly seeing in your business with reinvesting, while at the same time, letting some of the strength flow to the bottom line.

Thanks..

Yes, sure. We're clearly going to, as we have in 2021 and 2022, have a bias to invest for growth. That's our starting point.

And as we demonstrated in the early years of the pandemic, if we see overall or in any specific countries that, that allocation towards driving growth is inappropriate at some sort of level, we've demonstrated the ability to act quickly to redirect the money either somewhere else or to let it go to the bottom line.

So we're going to use all the data we get in from the field to be very dynamic in our resource allocation. We largely feel, we have achieved an appropriate level of marketing.

Yes, that's going to increase in 2023 because we're growing the business in the same way, as John mentioned, we're going to increase our CapEx to support the bits of the business where CapEx needs to flow. But we are going to manage all of this with an agile hand depending on the circumstances.

We talked in the answer -- the answers to the other questions that we don't know what the year will hold.

We have a central view that it's growth-orientated, the balances, volume and price that accommodates different pressures around the world and different speeds of moderation of inflation, but it's a bias towards growth, and we will be fast and adaptable in the face of anything different..

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

Hey, good morning, everybody. Can you maybe touch on briefly what you're seeing from the retail environment? We're seeing more and more articles on retailers pushing back on price increases across really all of CPG.

If you could maybe just give us a sense of what you're seeing in your categories?.

Sure. I mean, first, one has to kind of break down the, global dynamic because each major region or each country is a different place. But let me start with the central idea that we pursue, which is we need to earn the right pay price.

It's not our strategy to think of our business as commoditized where prices just flow up and down in a kind of mechanical way.

We need to own our pricing by delivering for the consumers value that they appreciate through the marketing, through the innovation, through the RGM, the pricing and packaging work, through the execution such that they see value in our brands that can sustain the pricing that the input costs are driving us towards.

And that ultimately then has to work for the customers. And because it has to work for the consumers, it then flows down the customers. So we've earned the right to price with the consumers.

Then we can go to our customer partners and say, 'Look, we think that we can lead the beverage category to grow faster than your business.' Yes, we believe we're going to be more competitive because we understand the consumers and we're going to gain share, but we can lead the beverage category, deliver more growth for you and be a disproportionate share of your rate revenue growth relative to other categories,' which is what, for example, was demonstrated last year in Europe, where I think we led -- we added more revenue growth than any other system for retailers in Europe last year.

And that is the platform on which we then fold in the conversations around pricing and packaging for any given year. So yes, of course, there's pressure in the marketplace. But in the end, we have an approach we believe, is consumer-centric and that drives growth for the customers because they also want to keep the consumers too..

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

Hi. Good morning. So clearly, the past several years have had big variability in your channel and package mix within the overall price/mix equation with mobility constraints and sharp recoveries thereafter.

Just taking John's commentary on a price-driven year for next year, James talking about still – volume will still be a factor, I guess, what I'm wondering is just underlying what's in that price/mix, whether you think channel and package mix have normalized, right? Said another way, there's – we're not really talking about recoveries in those line items and what's going forward will be kind of more offensive or growing from a normalized base.

And so do you think you're back to that normalized base on – from a channel and package mix from which to grow? And then in 2023, do you have any thoughts on what the contribution is from price relative to channel or package mix? Thanks..

So firstly, in any given country, channel mix has largely recovered 2019 levels. Yes, there are some exceptions like China, which is only just now reopening, and a couple of other countries.

And when I say, largely normalized, if you take something like the US, clearly, there are a number of away-from-home outlets that have dropped out of the marketplace. So there's a tail or there's a last piece of the recovery channel that is not going to happen overnight and may not happen for some time to come.

But in headline terms, other than a little bit of positive channel effect perhaps in the first half, I think we can put a line on the channel mix being – or the recovery of the channel mix relative to the pandemic being a major driver of price/mix going forward.

Yes, package mix will continue to be a factor, as it has been in previous years and prior to the pandemic, Clearly, as we pursue a dual strategy of keeping consumers in this franchise with affordability and looking for premiumization opportunities, the two can somewhat offset each other, one's dilutive, one's accretive, but they're both valuable strategies that need to taken forward.

So I think predominantly, what you're going to see in 2023 is the ongoing moderation of rate pricing, both as we cycle rate increases or price increases from 2022 and as inflation in general and inflation specifically to us, whether it be in SG&A, or in commodities begins to moderate..

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

Yes. Good morning, everyone. The Latin American bottlers keep guiding for stepped-up investments in traditional trade DSD capabilities to fully exploit this new cooperation framework they have with your firm.

Do you think, this is already kicking into the systems financial performance and the model, in your view, adaptable to other parts of the world where the promise of maybe higher ROIC and stepped-up bottling CapEx, can drive system growth?.

Yeah. Let me take that in parts. The features that we have in the long-term relationship model in Latin America, we're rolling those out in a number of other places.

And clearly, the more we can intensify whatever the framework gets called, the degree of alignment towards investing to capture the opportunities in the marketplace, the better off we're going to be, us and our bottling partners, in any given geography.

So absolutely, we continue to see opportunities to work even closer together to capture opportunities in the marketplace. The nature of those investments, the nature of the opportunity are not exactly the same as Latin America. Clearly, the trade structure differs around the world.

Latin America has a number of particular features that not necessarily replicated in the US or Europe or Japan, for example. But the overall concept of a tighter longer term investment focus on the opportunities is really going to drive -- continue to drive performance into the future years.

And I think, in Latin America, we've got a great business there collectively as a system because we focused on investing into the marketplace and into the traditional trade for a very long time, along with all the other customers in Latin America.

But there are still plenty of opportunities to go both from the top line and from the point of view of improving returns.

So I think you'll find or everyone will find that the Latin American bottlers, as bottlers around the world are -- that we see a lot -- collectively, we see a lot of opportunities ahead of us to drive the top line and to continue to improve returns on the bottling assets..

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

Thank you, operator, and good morning.

James, as we think about the 7% to 8% organic sales growth guidance, what is the price/mix carryover into 2023? You said it, obviously, will moderate, but what is -- are you embedding any additional pricing that is not in the trade yet? And how are you planning for China volumes in 2023? What is the benefit from there, or any mix dynamics we should be aware of? Thank you..

Yeah. So we're certainly planning for China to become more normalized, reopening ala the US and Europe. And so we will see a more normal level of volume in China and a recovery to the 2019 or growth on the 2019 numbers as time come through as we go through the year in China.

And then in terms of the carryover, clearly, there's some carryover, particularly in the first half from 2022. But we will be taking pricing in 2023. Now having said we will be taking pricing, the world is very different. I mean, there are countries where inflation is well over 50%. So pricing is taken multiple times a year.

Argentina is an obvious example. So in the developed markets, it's likely we'll trend more back towards more standard cycles of pricing, but there will be price increases across the world in 2023 to reflect both the continuing inflation in import and SG&A costs.

Obviously, we need to, as I talked about in the previous answer, earn the right to that pricing, but there will be pricing in 2023..

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

Great. Thank you very much and congratulations on a terrific year. So over the last few years, James, you and your team have made significant cultural changes, organizational changes, changes to the product portfolio.

As you look at 2023, what are the key initiatives that you're looking to drive to set up for continued strong growth over the next decade or so longer-term and perhaps weaved into that answer, where things are on Costa, on BODYARMOR and on any other new initiatives that you think would be helpful to discuss? Thank you..

Yes. Great. Thanks, Rob. And certainly, we will unpack a little more of this at the CAGNY presentation and the CAGNY conversation. So I'm sure I won't do full justice to the question in this session. In terms of the initiatives in the marketplace, we have an aspiration of being a total beverage company everywhere. That's not going to happen overnight.

And so we need to make progress in a disciplined way in different category, country combinations, as we've talked about, to establish leadership positions, preferably quality leadership positions, in the next set of country category combinations on our journey to the total aspiration.

And within that, there are ones that are off to the races and flying away. And there are ones where we still need to demonstrate to ourselves we can execute against the vision. If I take the two you called out, Costa, BODYARMOR, to start with, the essential thesis behind coffee remains the same. It's a huge market. It's growing.

There's lots of money in it. If we can find a path, there's a tremendous growth opportunity for the Coke system there. We've got a vision. The reality is timing was very unfortunate getting it just before the pandemic.

In strategic terms, despite all the experimentation, despite all the learning, despite all the initial steps, in big strategic terms, we haven't advanced because, essentially, COVID put it on hold for three years. We now need to get the execution ramped up for cost against the vision and in the coming years demonstrate that, that holds water.

BODYARMOR, great job. We obviously incorporated that into the company last year. And I think we -- whilst we always expect some level of disruption as we move a business that has been grown quickly and prepared for sale by the founders into the Coke system, there's often some disruption in the short-term.

But frankly, I think there was more in 2022 than we would -- than we expected or would have liked. But we have a good plan going forward in 2023 that will kind of reset BODYARMOR on a good path and in a complementary way to Powerade.

Other initiatives, which we're looking very interested in the degree of traction in some of the alcohol experiments, particularly looking to see Jack and Coke do well. Early data in Mexico launched at the end of last year was encouraging ahead of expectations. The US launch will be very interesting at the end of March.

And all of that will be backed up by the continued work on the culture and organization, whilst it will never -- nothing ever settles. It never ends. But I think, really, it's about continuing to stand up and execute against the internal initiatives we've already launched. The organization is coming together.

We made a few tweaks in North America coming into the year, but the organization is getting up and running and starting to harm. The marketing model change is starting to show good results and promise. So, I think, it's a question of seeing through the things we've launched to really up our game in the coming years..

Our last question today will come from Charlie Higgs from Redburn. Please, go ahead. Your line is open..

Hi, James, John. I hope you’re both well. My final question is just on India, where it looks like it's had just a record year.

Could you maybe just expand a little bit more on India? Is it still being driven by the affordable price point strategy? Are you adding distribution that means, maybe this volume growth is actually sustainable over the long term? And then, James, maybe you could just give us some color on your long-term view on India. Thanks..

Yes. India had a cracking year last year and is off to a strong start this year. I think, the -- our overall backdrop to this is, firstly, that the Indian economy and the Indian consumer base is approaching, in highest level terms, a level of GDP per head, at which historically, the beverage industry has tended to accelerate its development.

And so, we are very encouraged by the potential in India to develop a fantastic beverage industry and beverage opportunity. I mean, ultimately, the development of industry is very nascent in India, and there's a huge potential to build the industry over many decades.

And so, that's being driven, not just by the affordable entry price points, although they are growing. Really, it's a question of actually everything. It's growing on all dimensions. It's growing in terms of the depth of the different brands. It's growing in distribution. It's growing in number of packages.

And so, I think, there's a huge long potential in India. It won't, in all likelihood, be a straight line, but there is huge potential in India.

And really in a way, India exemplifies the very long-term opportunity of a whole set of emerging markets, India, Africa, parts of Eurasia, parts of ASEAN to actually -- they themselves have 80% of the world's population. And the development of the beverage industry is a-third of what it is in the developed market.

They only pay for about I think 3 in 10 of the commercial beverages, which is -- or 2 in 10 of the commercial beverage, whereas 7 in 10 in the developed ones. So India typifies the long-term potential of the beverage industry to keep growing. And I think it's a market that is set to take off..

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

Thank you, operator. So to summarize, we have momentum in our business. We're winning in the marketplace, sustainability embedded in our strategies and strong alignment with our bottling partners.

We are pursuing excellence in brand building, innovation, revenue growth management and execution to add and retain consumers and drive long-term value for our stakeholders. Thank you for your interest, your investment in our company and for joining us this morning. Thank you..

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