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Text: I'm here with James Quincey, our chairman and chief executive officer; and John Murphy, our chief financial officer.
Before we begin, please note we've posted schedules under the financial information tab in the investors section of our company website at www.
You can also find schedules in the same section of our website that provide an analysis of our gross and operating margins.
After a strong first half of the year, we saw continued momentum in our business in the third quarter.
While the global recovery remains asynchronous, our people and our systems are leverage the learnings to deliver good results and emerge stronger.
And while markets are at different stages of reopening around the world, our local businesses have been increasingly resilient through restrictions and lockdowns.
As a result, our underlying volumes have accelerated on a two-year basis with quarterly growth versus 2019 for the first time since the pandemic began.
This improvement has been supported by our transformation agenda, which set us on a path to more efficient and effective marketing, as well as more disciplined and intelligent innovation.
We're investing accordingly behind our portfolio of loved brands and are seeing signs of early traction.
Given strong results year to date and increased visibility into the rest of the year, we expect to deliver organic revenue at the high end of our previously provided range and are raising bottom line and cash flow guidance for the full year.
Then John will discuss our financials and raised guidance and some early considerations for 2022.
In the first half of 2021, mobility and business levels improved in many markets as lockdowns eased and vaccinations increased.
The recovery has not been a straight line and continues to be uneven around the world.
But despite the asynchronous recovery, in the third quarter, our volumes surpassed 2019 levels for the first time since the pandemic began.
Although not yet back to 2019 levels as a percent of our business, we saw sequential improvement in away-from-home volumes on a two-year basis as consumers returned to many of their former routines.
At-home volumes also showed ongoing strength even as away-from-home channels improved.
The quarter was off to a promising start in July, but the Delta variant impacted several markets, resulting in a softer August, followed by improvement in September as the variant began to lessen in some of our key markets.
The pandemic continues to be a key factor across our operating environment, in addition to the ongoing pressure points in our supply chain.
However, our network system is leveraging the learnings from the past 18 months, sharing best practices and skillfully executing by applying revenue growth management and working our supply chain levers to capitalize on the strengths of our brands and mitigate disruptions.
The industry is growing, and we continue to gain share.
Our overall value share improved year on year and remains above 2019 levels.
We are pleased to report gains across categories, as well as both within at-home and away-from-home channels.
Our operating units are combining the power of scale with the deep knowledge required to win locally in an environment that remains dynamic.
So, diving a little into the key drivers across our geographies, starting with Asia Pacific.
In China, media investments across categories are yielding promising signs.
Results in the quarter reflect strict COVID lockdowns and some weather-related disruption in August while September marked sequential improvement.
Japan's state of emergency was lifted at the end of the quarter after consumers spent the majority of 2021 in lockdown.
Strengthened execution across our teams and innovation have helped lessen impacts, and our consumer base has grown beyond 2019 levels.
In India, we participated strongly in the recovery by focusing on affordability and omnichannel growth through eB2B.
We grew both Trademark Coke and local icon, Thums Up, using effective marketing activations.
We had share gains in ASEAN and the South Pacific operating units despite pandemic-related restrictions in all of its top markets.
Our investments behind sparkling flavors and Coca-Cola Zero Sugar will continue to create value when lockdowns are lifted.
In EMEA, in Europe, we gained value share across nearly all categories as restrictions eased.
While weather, a slower recovery in tourism and the Delta surge had an impact, our global campaigns for key brands, including Coca-Cola Zero Sugar, Sprite, and Fanta, helped drive sparkling's share.
As vaccinations accelerated in Eurasia and the Middle East, we maintained momentum through effective revenue growth management initiatives, resulting in top line that expanded faster than the macro environment in those top markets.
Our results in Africa were balanced across regions and categories during this quarter despite a third wave of the pandemic that resulted in targeted lockdowns.
Vaccination rates remain on the low side relative to the rest of the world, and our focus remains on affordability and single-serve packs as mobility increases in countries like Egypt and Nigeria.
We maintained strong momentum in North America despite a COVID resurgence in many states, leading to stalling consumer sentiments and supply chain challenges that resulted in both missed opportunities and incremental costs.
The at-home channel remains healthy.
And although away-from-home growth accelerated early in the quarter, labor shortages have constrained capacity with some on-premise customers.
Recent price actions to offset higher input costs have been effective with lower-than-expected price elasticities to date, and promotional levels remain below 2019.
In Latin America, successful commercial initiatives, including affordability packs, increased availability of our key products and strong customer execution in both modern and traditional trade, drove volume growth across all major markets amid an improving COVID environment.
Improvement in single-serve mix, some pricing actions and connecting brand strategies to on-premise customers to drive further recovery in the away-from-home channel all contributed to strong price/mix.
Within global ventures, Costa benefited from retail store recovery as the U.K. reopened with improved reach and frequency from its enhanced loyalty program.
Costa continues to expand across platforms into new markets in partnership with our bottlers, resulting in growing brand awareness.
Our bottling investments group performance was driven by India and the Philippines.
BIG saw strict lockdowns in several markets, as well as rising inflation but has continued to see share gains year to date in South Africa.
Adverse impacts have been well managed through package and category mix improvements along with cost controls, preserving progress on our operating margin during the pandemic.
Global category teams are working with our operating units to build an engine to drive effective marketing at scale and innovation which can be amplified across the world.
Highlights from this quarter include Coca-Cola Zero Sugar's new recipe has rolled out in more than 50 countries and has had accelerated growth in the last three months.
In September, Trademark Coca-Cola's new global brand philosophy, Real Magic, was unveiled, featuring a refreshed look for our iconic logo, the Hug.
The Real Magic platform takes a digital-first approach, and our execution feature a range of experiences that are tailored to Gen Z and leverage passion points like gaming and music to attract the new generation of drinkers.
Sparkling flavors gained share in the quarter driven by investments in targeted brand-country combinations with a focus on occasions and zero sugar offerings.
In China, Sprite volume growth was accelerated by leveraging the global Let's Be Clear campaign during summer music festivals.
Similarly, the #WhatTheFanta campaign focuses on snacking and is driving growth across all key metrics in Europe.
The hydration, sports, tea, and coffee categories are seeing a good return on spend behind global brands.
AHA's expansion into new markets this year has shown flexibility to adapt to local customer and consumer needs.
In advanced hydration, functional benefits have helped to stretch brand power and drive share for Aquarius as it becomes more of a global brand.
Tea and coffee have had success with Fuze Tea in Europe and both Ayataka and Costa ready-to-drink in Japan.
There is an opportunity to recover share in Georgia Coffee as the at-work occasion returns.
Our juice portfolio gained share this quarter, helped by Minute Maid Pulpy performance in China, Del Valle growth in Latin America and strong results across brands in Africa.
In dairy, fairlife is set to become the first billion-dollar brand in our dairy portfolio and has recently launched its joint venture in China.
Our experimentation with Topo Chico Hard Seltzer is expanding, and we're gathering valuable insights globally, including the importance of building the category in regions where it is nascent.
We are seeing encouraging performance where the flavored alcoholic beverage category is growing rapidly, and we have on-shelf presence.
Molson Coors recently announced the national rollout of Topo Chico Hard Seltzer in the US with new Margarita flavors.
We also recently announced the expansion of our relationship with Molson Coors to bring the brand into Canada.
As the pandemic recovery has progressed, we've seen challenges and disruptions in many parts of the world, in addition to inflationary forces that could persist.
We have years of experience in dealing with these types of environments and are enhancing our strong capabilities that enable us to do so.
We are using the crucial tool of revenue growth management and its many forms and are executing in collaboration with our bottling partners.
We continue to refine our ability to optimize price and package offerings according to occasions, brands and channels, striking the right balance between premiumization and affordability.
In addition to streamlining our portfolio, targeting more disciplined innovation, intelligent experimentation and transforming our marketing model, we're also building strong digital capabilities.
We have taken an enterprise approach and are progressing on the rollout of multi-category eB2B platforms with our bottlers globally.
As an example, Wabi is seeing strong growth outside its home market of Latin America has more than 50 categories contributing meaningfully to its sales on the platform.
Additionally, we are delivering outsized growth through a powerful and growing omnichannel presence across regions.
We're driving incremental incidents with partners like foodservice aggregators.
North America, for example, has grown attachment rates by mid-single digits with third-party and restaurant-owned platforms.
And we're gaining share in e-commerce with significant wins in Eurasia and hitting record levels in Latin America this quarter.
I'd also like to reiterate that sustainability is an integral part of our business strategy and is a key driver of future growth.
From 2018 when we launched World Without Waste through today, we've made much progress against our pillars to design, collect and partner to deliver against our goals.
Our commitment to reduce waste globally is also closely connected to our climate ambitions because collecting more empty packages, using more recycled material, lightweighting our bottles and using plant-based materials are all ways we are embracing the collective effort to decarbonize the global economy.
We strive to provide stakeholders with clear progress against our goals through our annual business and ESG report and our World Without Waste reports, including using the Global Reporting Initiative, SASB, and TCFD reporting framework, as well as disclosures through other publicly available avenues like CDP and the Ellen MacArthur Foundation.
We continuously revisit our ESG reporting and disclosures to ensure our leadership position.
We do not take our responsibility lightly, and we carefully and thoroughly vet long-term objectives with our system partners and only commit new goals with a clear, actionable plan.
As we look at our year-to-date performance as a system, it's clear that we are emerging stronger from the pandemic, delivering solid results under a more network structure.
In the third quarter, we delivered another set of strong results, building on the momentum we've seen this year.
Our Q3 organic revenue was up 14% with concentrate shipments up 8% and price/mix up 6%.
Price/mix was led by strong pricing in North America and Latin America and further improvement in away-from-home channels in many markets.
Unit case growth was 6% with absolute unit cases ahead of 2019 levels for the first time this year and a sequential improvement versus the second quarter on a two-year basis.
Concentrate shipment outpaced unit cases in the quarter due to inventory build by some of our bottling partners to manage through near-term disruption.
Comparable gross margin for the quarter was up approximately 160 basis points versus prior year, driven by pricing in the market, positive mix and timing of shipments.
Despite some pressure points in the supply chain, we're successfully pulling the levers at our disposal to mitigate impacts to the best of our ability.
We continued to invest as many markets reopened during the quarter and significantly stepped up our marketing dollars versus prior year.
As a result, our comparable operating margin compressed by 40 basis points year over year, more than offsetting the flow-through from the strong top line.
Below operating income, we saw some leverage come through from the other income line and a lower tax rate for the quarter that was driven by our updated effective tax rate for the full year to 18.6% from 19.1% previously.
Putting all of this together, third-quarter comparable earnings per share of $0.65 was an increase of 18% year over year, including a three-point benefit from currency.
We also delivered strong year to date free cash flow of $8.5 billion.
Given our strong results and with one quarter remaining, we have good visibility and are raising guidance for the full year.
We now expect to deliver organic revenue growth of 13% to 14%, which is at the high end of our previously provided range, and comparable earnings per share growth of 15% to 17% in 2021.
Our updated guidance for free cash flow of approximately $10.5 billion represent significant progress over the past few years and particularly during the COVID era.
This progress is further dimensionalized as follows: We expect to achieve this year a dividend payout ratio below our long-term target of 75% of free cash flow for the time since 2015.
We anticipate delivering another year of free cash flow conversion above 100%.
And finally, our expected free cash flow has almost doubled since 2017.
Our improving cash flow position will allow us to be even more vigorous in pursuit of our capital allocation priorities.
First and foremost, to invest in our business.
Secondly, continuing our track record to grow our dividend.
Thirdly, to seek opportune M&A.
And finally, with excess cash to repurchase our shares.
So, as we think about Q4, a few things to keep in mind.
One, the recovery phase looks different around the world, and we expect that to continue.
Two, we continue to see a minimal commodity impact due to hedges we have in place for the remainder of the year.
Three, from a marketing perspective, we expect to increase consumer-facing marketing spend toward levels similar to 2019 while improving the quality of that spend and allocating it in a more targeted manner.
Four, our currency outlook continues to contemplate a tailwind of 1% to 2% to the top line and approximately 2% to 3% to comparable earnings per share in 2021 based on current spot rates and our hedge position.
Last but not least, our current full-year guidance has built in the leveling out of our concentrate shipments that are running ahead year to date due to timing considering that we have six fewer days in the fourth quarter.
It's not typical for us to provide commentary on the year ahead at this stage, but I would like to highlight a few points regarding 2022 given the dynamics we are already seeing.
While there are puts and takes to consider from the pandemic looking into next year, we're confident in the underlying top line trajectory, supported by our transformation work, our innovation agenda and a more efficient and effective approach to marketing.
Along with this ongoing momentum in revenues, we also expect to see some higher costs.
We are not immune to the commodity inflation that has been impacting the world for the better part of 2021 nor the rapidly changing environment.
We've been successful with hedges that were put in place to mitigate the impact of input cost inflation, and those will begin to roll off in 2022.
Based on current rates and hedge position, we'd expect commodity inflation to have a mid-single-digit impact on our cost of goods sold in 2022.
We've been proactively accelerating our revenue growth management and productivity levers to offset some of this pressure as we look out to next year.
And we're closely monitoring the moving parts in the supply chain to ensure we are well positioned to meet demand.
Moving to marketing dollars.
We'll continue to invest purposefully in our brands and markets to support top line growth with spend more heavily weighted toward consumer-facing activity.
Regarding currency, if we were to assume current rates and our hedge position, there would be an approximate two to three-point currency headwind to revenue and a two to three-point headwind to earnings for the full-year 2022.
Of course, volatility remains, and several factors could have an impact on our currency outlook between now and February.
Overall, as vaccinations continue to progress globally, we are in a better position today to navigate this environment, and we feel good about the potential for our business.
We look forward to coming back with more specific items after the fourth quarter.
The alignment of our system and its deft navigation through a challenging supply environment and an asynchronous pandemic recovery have been key enablers to emerging stronger.
We're confident in our updated guidance and our ability to further leverage our strong capabilities to drive sustainable top line growth and maximize returns.
With that, operator, we are ready to take questions.

user
q3 non-gaap earnings per share $0.65.
raises full-year guidance.
qtrly organic revenues (non-gaap) grew 14%.
expects to deliver organic revenue (non-gaap) growth of 13% to 14%.
expects to deliver comparable earnings per share (non-gaap) growth of 15% to 17% in fy.
comparable earnings per share (non-gaap) is expected to include an approximate 2% currency tailwind for q4.
qtrly global unit case volume grew 6%.
expects to generate fy free cash flow (non-gaap) of approximately $10.5 billion.
comparable net revenues (non-gaap) are expected to include an approximate even currency impact for q4.
qtrly revenue performance included 8% growth in concentrate sales and 6% growth in price/mix.
expects elevated commodity inflation in fy 2022.
net revenues (non-gaap) are expected to include an approximate 2% to 3% currency headwind in 2022.
comparable cost of goods sold (non-gaap) is expected to include a mid single-digit percentage commodity headwind in fy 2022.
comparable earnings per share (non-gaap) is expected to include an approximate 2% to 3% currency headwind for fy 2022.

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