![Coca-Cola Co Logo](https://ik.imagekit.io/kkbzr2uz4cp/stock/nyse/ko.png?tr=w-200)
Coca-Cola Co
NYSE:KO
![Coca-Cola Co Logo](https://ik.imagekit.io/kkbzr2uz4cp/stock/nyse/ko.png)
US |
![]() |
Johnson & Johnson
NYSE:JNJ
|
Pharmaceuticals
|
US |
![]() |
Berkshire Hathaway Inc
NYSE:BRK.A
|
Financial Services
|
US |
![]() |
Bank of America Corp
NYSE:BAC
|
Banking
|
US |
![]() |
Mastercard Inc
NYSE:MA
|
Technology
|
US |
![]() |
Abbvie Inc
NYSE:ABBV
|
Biotechnology
|
US |
![]() |
Pfizer Inc
NYSE:PFE
|
Pharmaceuticals
|
US |
![]() |
Palantir Technologies Inc
NYSE:PLTR
|
Technology
|
US |
![]() |
Nike Inc
NYSE:NKE
|
Textiles, Apparel & Luxury Goods
|
US |
![]() |
Visa Inc
NYSE:V
|
Technology
|
CN |
![]() |
Alibaba Group Holding Ltd
NYSE:BABA
|
Retail
|
US |
![]() |
3M Co
NYSE:MMM
|
Industrial Conglomerates
|
US |
![]() |
JPMorgan Chase & Co
NYSE:JPM
|
Banking
|
US |
![]() |
Coca-Cola Co
NYSE:KO
|
Beverages
|
US |
![]() |
Realty Income Corp
NYSE:O
|
Real Estate
|
US |
![]() |
Walt Disney Co
NYSE:DIS
|
Media
|
US |
![]() |
PayPal Holdings Inc
NASDAQ:PYPL
|
Technology
|
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
52 Week Range |
52.38
73.01
|
Price Target |
|
We'll email you a reminder when the closing price reaches USD.
Choose the stock you wish to monitor with a price alert.
![]() |
Johnson & Johnson
NYSE:JNJ
|
US |
![]() |
Berkshire Hathaway Inc
NYSE:BRK.A
|
US |
![]() |
Bank of America Corp
NYSE:BAC
|
US |
![]() |
Mastercard Inc
NYSE:MA
|
US |
![]() |
Abbvie Inc
NYSE:ABBV
|
US |
![]() |
Pfizer Inc
NYSE:PFE
|
US |
![]() |
Palantir Technologies Inc
NYSE:PLTR
|
US |
![]() |
Nike Inc
NYSE:NKE
|
US |
![]() |
Visa Inc
NYSE:V
|
US |
![]() |
Alibaba Group Holding Ltd
NYSE:BABA
|
CN |
![]() |
3M Co
NYSE:MMM
|
US |
![]() |
JPMorgan Chase & Co
NYSE:JPM
|
US |
![]() |
Coca-Cola Co
NYSE:KO
|
US |
![]() |
Realty Income Corp
NYSE:O
|
US |
![]() |
Walt Disney Co
NYSE:DIS
|
US |
![]() |
PayPal Holdings Inc
NASDAQ:PYPL
|
US |
This alert will be permanently deleted.
![](https://ik.imagekit.io/kkbzr2uz4cp/stock/nyse/ko.png)
Earnings Call Analysis
Q1-2024 Analysis
Coca-Cola Co
The Coca-Cola Company kicked off 2024 with a strong first quarter, continuing the positive momentum from last year. They recorded 11% organic revenue growth and 1% unit case growth despite facing significant currency headwinds. This strong start came despite cycling robust results from the previous year, demonstrating the resilience of their diversified beverage portfolio.
The operating environment varied greatly across Coca-Cola's global markets. In the Asia Pacific region, countries like Japan, South Korea, the Philippines, and Thailand showed strong performance. China, however, experienced slow retail sales growth as consumer confidence remained below pre-pandemic levels. India faced temporary market difficulties but recovered by the end of March. In contrast, the EMEA market benefited from improved macroeconomic trends, particularly in Europe, despite the complex geopolitical situations in Eurasia and the Middle East. Africa continued its upward volume momentum from the previous quarter, and North America saw sequential improvement towards the end of the quarter as consumer elasticity remained favorable.
Coca-Cola's operational strategies and innovations played a pivotal role in maintaining growth. The strategic refranchising of bottlers contributed to margin expansion, demonstrating Coca-Cola's commitment to long-term growth. They continue to invest wisely in their portfolio, benefiting from enhanced resource allocation. Additionally, Coca-Cola's focus on market-specific innovations ensured they remained relevant to local consumers, such as pairing Sprite with spicy foods in EMEA to boost away-from-home channel sales.
Coca-Cola's financial health remains robust. They reported a comparable EPS of $0.72, up 7% year-over-year despite 9% currency headwinds. Free cash flow for the quarter was approximately $160 million, marking an increase from the previous year. The company foresees organic revenue growth of 8% to 9% and comparable currency-neutral EPS growth of 11% to 13% for 2024, driven by strategic pricing and ongoing operational efficiencies. While intense inflationary pricing in certain markets has been a challenge, it is expected to moderate throughout the year.
Coca-Cola's leadership emphasizes a long-term strategic focus, leveraging a dual-brand strategy in sports drinks with BODYARMOR and POWERADE. Despite a non-cash impairment charge for BODYARMOR due to revised projections and increased discount rates, the company is confident in the potential of their sports beverage segment. The fairlife acquisition continues to show promise, with organic scaling driving growth. The company's balance sheet is robust, with a net debt leverage of 1.6 times EBITDA, providing ample capacity for future investments and tax-related contingencies.
In summary, Coca-Cola's strong start to 2024 underscores the effectiveness of their all-weather strategy. By continuing to invest in their diverse beverage portfolio, focusing on market-specific consumer needs, and maintaining financial discipline, Coca-Cola is well-positioned to navigate the challenges of varied global economic conditions while delivering sustainable growth and value to its stakeholders.
At this time, I'd like to welcome everyone to the Coca-Cola Company's First Quarter 2024 Earnings Results Conference Call. Today's call is being recorded. If you have any objections, please disconnect at this time. [Operator Instructions]
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 Ms. Robin Halpern, Vice President and Head of Investor Relations. Ms. Halpern, 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've posted schedules under Financial Information in the Investors section of our company website. These reconcile certain non-GAAP financial measures that may be referred to this morning to 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 growth and operating margins. 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 report. Following prepared remarks, we'll take your questions. [Operator Instructions] Now I will turn the call over to James.
Thanks, Robin, and good morning, everyone. We're off to a good start this year as our first quarter results continued the momentum we've been building by executing our all-weather strategy. The operating backdrop differed greatly across our markets once again, but our powerful portfolio, coupled with our systems capabilities, equip us with the agility we need to deliver on our 2024 guidance, which we are updating today. This morning, I'll discuss the drivers in the quarter and how we use our scale and growth mindset to deliver these strong results. Then I'll highlight how we continue to meet consumer needs and grow our total beverage portfolio. Finally, John will discuss our financial results and updated 2024 guidance. In the first quarter, we grew volume and expanded comparable margins, and we continued to invest across the business. We're managing currency fluctuations to deliver earnings growth as shown by the 7% comparable earnings per share growth despite 9% currency headwinds, and we gained value share in both at-home and away-from-home channels. Across the world, we're continuing to win in the market by leveraging our scale and relying on our local expertise of our bottling partners. In Asia Pacific, momentum continued across a large portion of our business, including Japan and South Korea, Philippines and Thailand. We gained traction in Indonesia with a return to volume growth. India's momentum was impacted by some temporary factors that recovered at the end of March. In China, retail sales growth continues to improve, but consumer confidence is still below 2019 levels. We remain optimistic about the many opportunities ahead of us, and we're stepping up our execution in a number of ways. For example, greater focus on our core business for a more segmented market approach and more surgical horizontal market and execution. In EMEA, we're seeing gradual improvement in macro trends in Europe, leading to improved consumer confidence. We paired Sprite with spicy new locations to drive momentum in away-from-home channels. Fuze Tea and POWERADE also generated strong performance, and Jack Daniels and Coca-Cola expanded to 6 more European markets during the quarter. Africa saw continued volume momentum from last quarter, while navigating a number of markets with significant currency devaluations. Geopolitical and economic challenges in Eurasia and the Middle East continue to affect our business in the region. We are working closely with local partners to manage these challenging dynamics, and we're committed to investing behind the strength of our brands for the long term. North America volume had a slow start to the quarter before posting sequential improvement in each of the last 2 months of the quarter and elasticities remain favorable, leading to ongoing share gains. The launch of Coke Spiced featured compelling in-store displays. Across our sparkling softdrink brands, Zero Sugar sugar performance was strong, and we introduced 12-ounce slim cans to further drive premiumization. Value-added dairy continued across fairlife and Core Power in sports drinks, notwithstanding the noncash impairment charge that John will speak to in more detail. We believe our 2-brand strategy with POWERADE and BODYARMOR is gaining traction, and we've seen improved share trends. While we still have work to do, the stepped up execution by our dedicated sales force in driving improved on-shelf execution and we're encouraged by the continued growth in sports water and the more recent BODYARMOR innovations, including Zero Sugar and Flash I.V. While inflation has moderated and wages continue to trend upward in North America, we're closely monitoring consumer sentiment and traffic trends between at-home and away-from-home consumption. In Latin America, volume momentum continued. Performance was driven by strength in Mexico, Brazil and Colombia, while Argentina continued to experience high inflationary conditions. We have quality leadership across our portfolio in Latin America, with Coca-Cola Zero Sugar continuing its strong performance. Sparkling flavors, sports, juices and alcohol ready-to-drink also performed well during the quarter. Commercial initiatives are driving improved shelf space and basket incidence supported by ongoing outlet digitization. We have suggested order capabilities in digital platforms that reach more than 3 million customers in the region. Across developed markets, the overall inflationary environment is normalizing. However, across developing emerging markets, there continues to be a handful of markets that are experiencing intense inflation, which is driving elevated pricing, offset by incremental currency headwinds. We're proactively managing these volatile environments, and we feel confident we have the playbook to navigate challenges locally, while continuing our momentum at a consolidated level. We're continuing to spin our strategic flywheel faster across total beverage portfolio. And as discussed at CAGNY, we're building loved brands and innovating and delivering bigger, bolder bets. In the first quarter, we launched K-Wave as part of the Coke Creations platform in markets across 5 operating units. K-Wave celebrates Korean pop or K-pop fans, includes a global collaboration with 3 K-pop groups and an AI-based fan experience. Our growing number of Coke Creations are different with each iteration and, by design, are only available for a limited time. This generates buzz and excitement building relevance for the brand and reconsideration for Coke with Gen Z drinkers. We also know that sometimes the most successful lasting innovation is simply improving the taste of existing drinks. Using our deep in-house flavor expertise and understanding of the science of taste, we have worked to refine the recipes for Fanta and Sprite to meet consumer preferences across many markets. These changes bring new consumers to our brands as well as remind current consumers what drew them to their favorite beverages in the first place. The strong Fanta performance in markets from Brazil to Germany to the U.S. this quarter is largely due to this type of innovation, which was supported by marketing messages focused on taste and on tying the brand to snacking occasions at local festivals, like Carnival in Brazil.
Elsewhere in our total beverage portfolio, Minute Maid Zero Sugar kicked off its global campaign in North America, leveraging influencers, social media and connected commerce activations with key customers. We're building on our innovations by driving awareness and excitement through an increasingly digital marketing media mix.
Our total beverage portfolio plays a lead role, as shown by the New Guy campaign in the U.S. this quarter, which featured multiple grounds across categories. Innovation is woven into the fabric of our culture, and we're encouraged by our innovation pipeline as we look forward to the rest of 2024. Moving across the flywheel, we're leaning into integrated execution to drive basket incidence and create incremental value for customers. We work closely with our bottling partners and went bigger with in-store displays to inspire transactions around key events like NCAA March Madness in the U.S., and we'll do this again later this summer with the Olympic and Paralympic Games. As a system to improve quality availability, we increased outlets by 2%, added more than 600,000 cooler doors and increased our share of cold space and overall shelf space in stores. We benefited from global scale, while maintaining local relevance by tying our brands to regional meals occasions. For example, in Japan, we've associated Coke with Wagyu and Yakiniku through the path to purchase, using end-to-end consumer messaging and partnering with key customers in the modern trade and convenience retail. We have seen strong Coca-Cola revenue growth in Japan. While we continue to grow our business, we also strive to positively impact the communities we serve. We do this by focusing on the issues that matter most to our system, and we share our status and learnings each year when we publish our business' sustainability report. Putting it all together, it's early in the year, but we're off to a good start. We have confidence we will achieve our guidance for the year. With that, I'll turn the call over to John.
Thank you, James, and good morning, everyone. Our first quarter results marked a continuation of the underlying momentum in our business, driven by a strong and focused system. We delivered another quarter of volume growth, even as we cycled strong results. Additionally, we completed the refranchising of several bottlers during the quarter, leading to further comparable margin expansion. We progressed on our refranchising agenda, while making sure we best position our system to deliver long-term growth, and we earn a fair return on our investments. We continue to invest behind our portfolio with discipline and flexibility, thanks to our enhanced resource allocation agenda. During the quarter, we grew organic revenues 11%. We had 1% unit case growth. Concentrate sales were behind unit case volume by 3 points, driven by 1 less day in the quarter and the timing of concentrate shipments, primarily in Mexico and the Middle East.
Our price/mix growth of 13% in the quarter was driven by approximately 6 points of intense inflationary pricing across a handful of markets to offset significant currency devaluation, pricing actions across a number of markets and a couple of points of favorable mix. Excluding impacts from intense inflationary pricing, organic revenue growth in the first quarter was at the high end of our long-term growth algorithm. Comparable gross margin for the quarter was up approximately 130 basis points driven by underlying expansion and a benefit from bottler refranchising, partially offset by the impact of currency headwinds. Comparable operating margin expanded approximately 60 basis points for the quarter. This was primarily driven by strong top line growth and bottler refranchising, partially offset by currency headwinds and an increase in marketing investments. Markets experiencing intense inflation represent only a single-digit contribution to our volume, but continue to have an outsized impact on the shape of our P&L. Putting it all together, first quarter comparable EPS of $0.72 was up 7% year-over-year, including 9% currency headwinds, which were driven by currency devaluation in markets experiencing intense inflation. Free cash flow was approximately $160 million, an increase from the prior year. Before moving on, I want to discuss 2 items that are included in our first quarter reported results, a $765 million charge related to the remeasurement of our contingent consideration liability for our acquisition of fairlife. Our final payment related to the fairlife acquisition will take place in 2025. This payment has grown as fairlife has outperformed. We continue to be encouraged by our ability to scale fairlife organically. Secondly, a noncash impairment charge of $760 million related to BODYARMOR. While we are taking a charge to reflect revised projections and a higher discount rate since the acquisition date of BODYARMOR, we believe in the power of our 2 sports brand strategy with POWERADE and BODYARMOR. We're taking actions to help create long-term value, and we're seeing signs that this strategy is working. Our balance sheet remains strong and our net debt leverage of 1.6x EBITDA is below our targeted range of 2 to 2.5x. This gives us ample capacity for potential upcoming payments in 2024 related to the IRS tax case, which we continue to vigorously defend, and the upcoming fairlife payment in 2025. We continue to remain consistent in our approach to prioritizing our capital allocation. We're committed to investing to drive growth and to support our dividend, which we have raised for 62 consecutive years. We're confident our business model has the flexibility to allow us to deliver on our overall objectives. Our updated 2024 guidance reflects the underlying momentum of our business, and we now expect organic revenue growth of 8% to 9%, and comparable currency-neutral earnings per share growth of 11% to 13%. Our revised top line guidance is solely driven by higher-than-expected inflationary pricing in a handful of markets, which we expect to moderate throughout the year. Bottler refranchising is still expected to be a 4- to 5-point headwind to comparable net revenues and a 2-point headwind to comparable earnings per share, but will have a positive impact on both our margins and the return profile of our business. Based on current rates and our hedge positions, we anticipate an approximate 4- to 5-point currency headwind to comparable net revenues, and an approximate 7 to 8-point currency headwind to comparable earnings per share for full year 2024. This increase in currency headwind is driven by intense inflationary markets, while the rest of the currency basket is relatively neutral to our results. Our underlying effective tax rate for 2024 is now expected to be 19%. All in, we continue to expect comparable earnings per share growth of 4% to 5% versus $2.69 in 2023. There are some considerations to keep in mind. We estimate the ongoing conflict in the Middle East had approximately 1 point of impact on volume growth during the first quarter of 2024. It's unclear how long this impact will last. The cadence of structural impact will be larger in the second and third quarters due to the timing of transaction closing during the first quarter and the seasonality of the businesses we refranchised. Finally, there will be 2 additional days in the fourth quarter. To sum it up, and as James said, the year has started off well. We remain focused on the execution of our all-weather strategy. And thanks to the partnership of our system and the ongoing dedication of our people, we're confident we can create value for our stakeholders and deliver on our guidance for the year. And as we said at CAGNY, we're primed for performance in 2024 and over the long term. With that, operator, we are ready to take questions.
[Operator Instructions]
Our first question comes from Bryan Spillane from Bank of America.
John, I wanted to ask a question about gross margins. In the quarter, there was about a 100 basis point tailwind from structural benefits and then also -- or structural change and then, I think, 60 basis points benefit underlying. If we kind of take that first quarter performance and kind of think about it over the balance of the year, can you just give us some context of how we should be thinking how much of that we should extrapolate going forward?
Maybe what some of the headwinds, tailwinds would be? But just given the gross margins were so much better, our gross profit dollars were so much better than we were all modeling. I just want to kind of get a sense of how much of that we should bank in our estimates going forward.
Thanks, Bryan. So as we think about the full year, we're going to continue to have a tailwind from the refranchising work that we have discussed. And so I think that's going to flow through throughout the year. We expect to continue to have some expansion as reflected in our ongoing and the growth model, driven by both positive impacts and some productivity fee. The input horizon is more normalized. We do have some elevation on juice and sugar, which we'll continue to have. But the net of it all is that we'll have some tailwinds in the underlying area. Currency will continue to be a headwind, and you can kind of extrapolate that out for the year. So the net of it all is it will be primarily driven by the refranchising efforts positively, some underlying expansion, offset by the currency headwind. And as we reflected in our guidance, the top line growth continues to be a primary driver and the quality therein will -- I think will ensure that on a sustained basis, that expansion. Albeit not as potentially aggressive every quarter, but that expansion will be in our favor going forward.
Our next question comes from Dara Mohsenian from Morgan Stanley.
So I was just hoping you could give a bit of a deeper dive into North America, a, just wanted to get an update on what you're seeing from the consumer? Any channel shifts in terms of away-from-home versus at-home and the sequential improvement you discussed within Q1, is that something that's expected to continue going forward? And then just b, price/mix was very strong at 7% in North America, can you unpack that between mix and pricing and just how you think about the balance between pricing mix and volume going forward in the balance of the year in North America?
Sure. Overall, in terms of the consumer and how that fed into the channels, the U.S. still remains in good shape. There is some purchasing power compression in the lower-income echelons. And I think it's quite clear that there's some behavioral shift there looking for value. I think that has led to a marginal channel weighting or shift, if you like, with slightly more at-home volume versus away-from-home.
I would emphasize this is at the periphery rather than a big shift. But the margin, slightly more value seeking, slightly more at-home, slightly less away-from-home. And so we've been stepping up our RGM efforts, our packaging efforts and executing against that, so that we have continued to gain share in the quarter. As it relates to pricing, of the 7 points in the first quarter, approximately 2 of those are mix or timing related, the rest is pricing, and we expect that to moderate as the year goes on. And we expect to see 2024 be in a much more normal year in terms of pricing, it's largely going to be as it was pre-COVID. So we're expecting to see 2024 end up with a much more balanced growth equation over the rest of the year.
Our next question comes from Lauren Lieberman from Barclays.
I wanted to talk a little bit about how the company manages when the dollar is strong. So outside of the markets with extreme inflation, we know from a strategic standpoint, of course, the ongoing RGM efforts and pack and channel and so on. But just sort of from a more tactical standpoint, when you're in a strengthening dollar environment, I was curious if you could share a bit more about how you manage that at a local level. Because the delivery of dollar-based EPS has become a key focus and hallmark, frankly, in the last couple of years, and I thought a bit more color on how you go about that in a more tactical sense could be helpful.
Sure. So markets outside the U.S. will roughly break down into 2 types. There'll be those perhaps typified by Europe, Japan, Australia, some of the obvious ones, where the competition and the economic dynamics of the marketplace are predominantly local currency. And so in these markets, our approach is to compete locally in the local currency given the cost structures in those areas. And we generally marry that with a long-term currency hedging or selling forward program, such that we can have a clear anticipation during the course of the year as to what that's likely to turn into. So that's one set of markets. And we essentially have put ourselves in a position through the hedging program that we can compete locally and do what's necessary to continue to win in those marketplaces, which is generally what happens.
The second bucket of countries, and that's much more apparent in recent quarters than even historically, where you have higher -- whether you want to say the chicken and the egg, a higher level of devaluation and a higher level of inflation. These tend to be more emerging market economies where there is less availability of economically attractive hedging programs. And so we tend to have hedged them. But also given the elevated nature of the dynamic between the inflation and devaluation, we do -- we obviously are competing locally. So for example, in the Argentinas of the world, we're competing predominantly locally to win in that marketplace and set ourselves out for the long term. And the inflation -- it's very cyclical as these markets cycle through higher inflation and high devaluation.
Sometimes, the dollar value of those businesses shoots up. And sometimes it shoots down. At the moment, they're in as of shooting down in dollar terms. So they're declining in dollar terms, even though they're growing a lot in currency neutral. But we look at it on a long-term basis to win using the RGM and all the other investments we make in the business. And of course, they're not all in sync with each other. So it's a portfolio management question.
And then overlay that is, of course, a corporate approach in terms of prioritization, where and how to invest, whether it's a lean in and lean in with what sorts of investments, such that we are able to deliver on our corporate level commitment to make sure that the end of it, the sum of all the competing locally, is more than the sum of the parts, such that we can deliver a consistent level of U.S. dollar EPS growth.
Our next question comes from Steve Powers from Deutsche Bank.
James and John, you both mentioned incremental progress on the 2-brand strategy and sports drinks with BODYARMOR and POWERADE. I was hoping you could expand a bit more on what you're seeing there that gives you that encouragement and what you see as the key initiatives for that strategy as we go forward.
Sure. Clearly, we haven't progressed as fast as we would like with regard to BODYARMOR, notwithstanding the step-up in the discount rate, and that's reflected, as John talked earlier, in the charge. Notwithstanding that, we do see long-term value in the dual strategy, particularly in the U.S. between POWERADE and BODYARMOR. We're off to a good start with some of the plans the Zero Calorie version is ahead of expectations. The Flash I.V. has got some double-digit share. And the Sport Water version is one of the fastest-growing premium water brands. So some product innovation is getting some traction, a new partnership with NHL on the marketing front. And on the execution front, a stepping up of the merchandising and sales force focused directed just at the sports drinks category, which is helping improve the share trend in the category. Although not at the rate we had hoped initially, but we think we are in good shape going forward. Obviously, we'll have an opportunity with the Olympics to really continue to step that up. So plans in place across the product innovation, the marketing and the execution, and we think this will come to fruition over the course of the year.
Our next question comes from Bonnie Herzog from Goldman Sachs.
I was hoping for a little more color on your performance in Asia in the quarter, and then whether it met your expectations or possibly fell short. Also, you mentioned that declines in China more than offset growth in some of your key markets in the region. So maybe just hoping for a little bit more color on your business in China, and how quickly you expect the market will recover, again, given the broader macro challenges in the region.
Sure. We'll let us go around Asia quickly. I mean China, we are cycling in the first quarter a very strong Chinese New Year first quarter from 2023. So I think we had a solid a solid quarter in China. We focus very well on having a good Chinese New with sparkling, which was good. We deprioritized some of the lower-value water in order to do so. And as we commented earlier, the Chinese confidence isn't as strongly rebounded as some of the other markets versus 2019. And so we see an overall environment where there'll be growth, perhaps not at the top historic levels, but there'll be growth. And so we're there we're very much focused on what we can control and the things we need to do. There's still huge opportunities in the Chinese marketplace, notwithstanding the macros. And there's a lot we can execute against in the marketing, in the innovation, in the execution in the marketplace, in the stores and with RGM. So there's a lot for us to achieve that's within our control in China. In the rest of Asia, we had a good quarter in Japan and South Korea. Good share gains, really starting to pick up the pace. Also, likewise, we had a strong performance in the Philippines, which is an important market for us, and so that was good in the quarter. The one that was atypical or at least compared to recent quarters was India had a slower start in January and February. As we've talked in previous calls, we're very bullish on the long-term prospects for the Indian business.
And we're also very clear it's not going to be a straight line of metronomically consistent growth. And so it wasn't in the first quarter. It was a little softer January, February, but March and April have now bounced back. And so we expect to see India continue to have a strong year this year.
Our next question comes from Andrea Teixeira from JPMorgan.
So can you comment on EMEA? You called out Nigeria, Germany and South Africa growing unit case and driving the growth in volumes. But if my math is correct, ex-inflationary countries, your price/mix in the rest of EMEA was about 7%. So can you comment on the state of the consumer there similar to what you said about the U.S.? And if you feel the 7% price/mix is more stable countries, sustainable going forward?
Sure. EMEA, also this quarter had a whole series of moving pieces. As you started on price/mix, clearly, there's a number of countries in there with very high inflation. Not just Nigeria, but also Turkey and somewhat mathematically unlikely, some of the smaller African countries given the level of inflation can also make a difference to the pricing lever in the EMEA segment. So the EMEA segment has a substantive piece of pricing that is the inflationary marketplaces, including many markets you wouldn't normally suspect. And so that's a roundabout way of saying, actually, the -- in Europe, our pricing is much more normalized. And a bit like the U.S., we both see improved macros. Actually, I think that, today, a number of the markets came out and said they've come out of recession from the previous quarters. Like the U.S., we see the lower income consumers remaining under pressure. And at the margin, slightly more shift towards value-orientated channels, at-home orientated channels and lesser from the away-from-home. And clearly, that's related to our focus, not just on the marketing and the innovation with the RGM and affordability and driving premiumization. So Europe, not too dissimilar a story compared to the U.S. But the EMEA segment mix is in both the Middle East conflict and quite a number of the high-inflation countries.
Our next question comes from Chris Carey from Wells Fargo Securities.
So I want to ask about brand Coca-Cola, Trademark Coca-Cola relative to the sparkling flavor businesses. I think unit case for sparkling flavors outperformed trademark Coca-Cola in 2021 and in 2022, but this normalized into the back half of 2023. That's continued into Q1 of this year. So can you just perhaps expand on whether there's anything distinct that's occurring here between brand or Trademark Coca-Cola and sparkling flavors, regional considerations, brand considerations? I just think it's noteworthy, given the relative outperformance, that has just turned the other way a little bit. So any context would be helpful.
Yes. Look, clearly, both Trademark Coke, original taste, Coke Zero, have been having a good run over the last number of years and really focused on performance. But also perhaps unlike in times more recently passed, Sprite and Fanta have also been doing well. This has been a intentional focus for the company and the bottling system, which historically, we have looked at and managed sparkling altogether.
And very deliberately a number of years ago, we separated to really focus in on Coke, Coke Trademark on its own with all the innovations, whether they be things like the K-Wave innovations, or continuing to focus on Coke Zero with updated -- the updated formulas or focusing on original case Coke with the Marvel activations that's just coming out. A real focus on Coke, and that has been part of what has driven success over the last number of years. And ultimately, for the company to do well, Coke has to do well. It's the kind of a mathematical certainty, and that has certainly been what's driving this. And then the separation of Sprite, Fanta and some of the regional brands particularly perhaps some of the Indian soft drink brands like Thums Up, have really got their own deserved focus. Actually, if you put all the flavored sparkling brands together, they would be one of their own big FMCG companies in their own right.
And so really, what you're seeing is this focus on the formulas of Fanta and Sprite, really doing much better and being teamed up each time we've brought it to marketplace with a full marketing package. For example, Fanta in the U.S. had a good run as we updated the formula and relaunched the marketing. And so I think the -- it's been doing really well. I think the only a place where we've not succeeded, particularly with some of the flavors are in the Chinese marketplace, for example, given -- and that's really a Sprite question there. That we need to continue to focus on to do better with Sprite in China. But otherwise, Fanta, Sprite and particularly the Indian flavor brands have done very well, and of course, Coke is a pretty broad-based success story.
Our next question comes from Filippo Falorni from Citi.
I wanted to ask on the Latin America business. Clearly, there's a lot of impact from hyperinflation in the market, but the volume trends continue to remain very solid in the region from a unit case standpoint. So maybe can you talk about the consumer environment there. And do you think that you can continue to see volume good in Latin America going forward in some of your key initiatives in the region?
Yes. So the simple answer is yes. We believe the businesses can continue to grow in Latin America, both in volume and revenue terms. It's been a long-term success part of the business with a very strong system between ourselves and the bottlers focused on the marketing, the innovation, the execution on the RGM.
We'll continue to build on the recent year's momentum. Performance this quarter was strong in -- particularly in Mexico, Brazil and Colombia. Obviously, Argentina was impacted by the macroeconomic conditions. But we have a very tight system. We're very focused on what needs to be done and continuing to invest in capacity in order to continue to unlock the volume growth.
Our next question comes from Peter Grom from UBS.
I had a question as it pertains to the fairlife liability. Clearly, this is a sign that the underlying business is doing extremely well, but we've also seen kind of the value of this liability increased quite a bit over the last year or so. As we look ahead, is there anything you can share any guardrails you can provide in terms of how we should think about the liability changing as we move through the balance of the year and into '25?
So the liability is very much linked to the ultimate performance. And as we close out this quarter, we're reflecting our latest and best estimates as to what that will be. The momentum of the business has been very strong. And actually, I think it's going to continue. And if anything, there may be some more upside. But for now, we're reflecting our best estimates for what that liability ultimately would be. Just to keep in mind that the liability will be -- it's an early 2025 ending to it. And we'll update as we go through this year in the event that the projections evolve.
Our next question comes from Bill Chappell from Truist Securities.
Just a little bit more question on the innovation side. Certainly, it's been an innovative company over the past 4 or 5 years and more new products out there. But it's tough to kind of track some of these products that have been launched that are still on the shelf a year or 2 years later. So I guess the question is, are there things in place in terms of percentage of sales should come from new products in a certain region in a year or a number of new products that need to be launched per year? I understand you wanting to be more innovative, but just trying to -- what kind of guardrails or what kind of accountability there is around that kind of innovation.
Sure. I think the first thing is to bear in mind a certain segmentation of the innovation. And what I mean by that is you've got a strong focus on a part of the innovation that's around renovation of the core. So you get into kind of a question, okay, well, is the new Coke Zero formula or the updated Fanta formula backed with the new marketing campaign, is that -- you're going to count that as innovation or not. So the first thing is to understand that there's different types of innovation at play here all driving the business. One being. In a sense, the renovation of core brands. Secondly, our launch is intended to be ins and outs. So some of the Coke Creations, where really the focus is on reengaging with consumers in a novel way to drive relevance of the core brand. So you're not expecting it into the last. And then, of course, there are things we're putting into the marketplace that are new innovations, whether it would be something like a Minute Maid Zero Sugar or something like the Absolut SPRITE or the Jack Daniels and Coke. So these things -- and then, of course, you've got nonproduct-based innovation, like it's a new bottle size or a new can size. So we track across all these things. As it relates to product innovation, we have a very clear set of metrics on whether it's still growing on the fifth quarter after its launch. So is it cycling itself and continuing to accelerate. So there's a lot of cliometrics. But we do not set ourselves an artificial strategy objective of it has to be X percent from innovation. As it happens, about 25% of the growth comes from innovation, but it is not set that way.
In the end, we are not setting ourselves up to sell what we make. We've got to sell what the consumers want to buy. So it's about doing justice to every brand and every idea and every package and every channel, and then service that resulting demand. If that is led by a great new innovation or by 138th year of classic Coke, then that's the answer.
Our next question comes from Carlos Laboy from HSBC.
James, market development is a culture, right, it's a philosophy. And it seems to me that so much of what you're doing and what you talked about today is intended to get shelf replenishers to become better market developers for faster growth. Can you speak to how this evolution is going in the system? Are there any regions or countries that stand out for momentum in this system transformation of moving towards richer market development and to less shelf replenishment order taking?
Yes, sure. Look, I think each part of the world is in its journey to continue to add value to the retail. Because in the end, this is about, together with the bottlers, making sure that we are adding value to the retailers business. Our objective at the retail level is to grow the beverage category faster than the average of their business, and for us to grow our portfolio of brands faster than the beverage category.
And to do that, we've got to add more value, and that takes different forms in different places. And so as that happens, for example, the pre-sellers, they move from just order taking to account development. As AI comes in, it generates a suggested order for the retail outlet that is demonstrably more efficient in helping the retailer drive sales and then allows the salesperson to do more account development and to expand on different ideas. So at each stage, it's about taking the system capabilities to the next level so that we can continue to add value for the retailer. Everything that was done in the past starts to become the price of entry in the future, and so we need to keep adding value. And so I think there's a strong growth in capabilities all around the world specifically focused on the channel structure that the bottlers have in any given market.
And if I may just add, James, I think one of the big changes in the last 3 to 5 years is that the ambition that we share, respectively, with all of our bottling partners is much more at the high end of what it should be than scattered. So I think that's -- and then it's working backwards from there as to what does it take to deliver that ambition. And yes, some are further along than others, but it's the ambition is that starting point that I think is helping to drive the progress that we're seeing each quarter.
Our next question comes from Robert Moskow from TD Cowen.
Just a couple of clarifying questions. James, I think on the last earnings call, you were very clear that you view the business...
You have to speak up. We can't hear you.
My apologies. Can you hear me now?
Yes.
I think last quarter, you spoke very specifically about the business being a 2% unit volume grower. Given the timing impact, is that still how you would view this year? And then secondly, can you be more specific about those timing differences in Mexico and I think the Middle East between units and concentrate? What causes those discrepancies? And do they naturally reverse in the coming quarter?
Sure. Yes, timing differences naturally reverse between concentrate units and unit cases. Partly, it happens when there is a different number of days in the quarter, then we have the -- we use the 445 system for all sorts of reasons. And what that causes sometimes is different numbers of shipping days in quarters. And so you undersell when you got less days, like the first quarter. And of course, in the fourth quarter this year when there's 2 extra days, there'll be way more concentrate units than there were cases, relatively speaking. So over the course of time, these anomalies or differences reverse themselves or average themselves out. And then as regards to the 2% volume, yes, look, I have a very strong view that the -- our overall ambition to see our revenue grow at the top end of the algorithm, I'm leaving aside the intense inflation countries for the sake of the argument at the moment, we want to grow at that 5% to 6% range. And we want that to have a balanced contribution from volume and price/mix. So implicitly, looking for 2% to 3% on volume. And I think we talked last quarter that in the current circumstances, that's likely to be slightly less volume and slightly more prices, as price inflation normalizes. And so I think that 2% is still pretty good number. It's certainly been the average growth rate in volume. If you take a compound number over the last number of years, you're going to get something like a 2%. So that seems to be the momentum we're driving. And that -- if you strip away the inflation and the weirdness in the first quarter, what you see is, you got that 1% volume, which given the Middle East headwind of 1% and actually recycling the strongest quarter last year, you can say it's a good volume number. It has good underlying price/mix in the normal countries. So the kind of the normal performance is right at the top end of the algorithm there, and then that feeds its way through to 7% EPS growth. So I think right in there, the main business, notwithstanding the kind of peripheral noise, is humming away right in line with where we said we wanted to be.
Our next question comes from Rob Ottenstein from Evercore ISI.
I'd just like to drill down both on the U.S. and the volume question. Can you talk about your expectations for volume growth in North America this year? What it will take to get volume growth, is a function of more the economy, more the comps, more of the sectors? And tied to the sectors or categories, I think you mentioned that tea, coffee and water were very weak. Any color around that?
Sure. I mean, clearly, in the case of the U.S., we've commented in previous calls, that our expectation would be modest, flat to modest growth in volume on a long-term basis in North America with good pricing. Clearly, that remains our overall ambition. Whether we get from the flat to something more positive in the rest of the year will obviously be a combination of what we execute against and the trajectory of the purchasing power of the economy in the balance of the year. But we're very focused on continuing to build the business, drive the revenue and continue to win in the marketplace. And we'll see where that nets out, too. And then in the case of where we were doing well and where not clearly, we had a strong quarter in terms of sparkling, in terms of some of the other categories in North America. Dairy, obviously, the fairlife additional charge, as John talked about, as the earnout is in its last year, very strong quarter on dairy, very strong on sparkling, actually good on juice.
The water and the tea, and obviously, to some extent, obviously, the sports categories, were a little softer. Some of it on the water was selling less of the kind of the case pack water. And tea, I think it was very much a question, we just need to focus a little more on some of what needs to be done there. But it was more on the kind of the Fuze Tea end of the spectrum rather than the Gold Peak end of the spectrum, which tends to do better.
Our next question comes from Callum Elliott from Bernstein.
Great. So I have a slightly longer-term question on gross margins. In 2015, your gross margin was 61%, I think. And you had published a slide at CAGNY in 2016, showing that you expected gross margins to get to 68%, post the refranchising that had been announced at the time. Today, we're still around 60% over the past 12 months. Recognizing you guys weren't in your current seats in 2016 when that slide was published, but my question is what's happened?
I'm sure you'll point to M&A cost per BODYARMOR CCBA, et cetera, but I don't think they come close to explaining the 800 basis points of delta and I don't think that FX explains the gap either. But so what else is it? And has refranchising maybe just has not been as margin accretive as you expected? Or is there some kind of other structural drag that haven't been anticipated back in 2016?
Yes. Actually, I think it does explain what's happened. I don't have the breakdown in front of me. But at the gross margin level, when you take into account the impact of currency, of some of the bottlers acquisitions that came back into our portfolio, that we're now in the process of refranchising and some of the other acquisitions, I think they have had a mechanical impact. And we can come back with a little bit more color on that. And then I think when you look at the operating income and how it flows down into operating income line, the primary driver are these items. So yes, I don't have it in front of me. We can follow up in a bit more detail. But yes, that's the story.
Our last question will come from Brett Cooper from Consumer Edge Research.
Just wanted to ask on your digital experience in B2B. And if you do any quantification as to when you win B2B or you get B2B into more particular retailers? What happens to your space, your share of the category performance and its relative to a base? I think it's not so much a question of the 8% increase in the quarter, but looking back over time.
I don't know if something was up with the line today that was very kind of broken up. But I think, Brett, you were asking about the digital experiences in B2B and what happens in shares in the category. There are multiple -- B2B is not a singular thing and the digital version of B2B is not a singular thing. There is a vast amount of B2B business that has been done for many years with direct order transfers, largely to large store modern retailers where order replenishment has a long-standing track record. And this is really focused on the efficiency of making sure the shelf is not out of stock from products. And it's more a process of support to what already goes on. And so actually, you see it's enabling the physical presence in the kind of the analog world, if you like. Of course, there's other types of B2B, for example, in the mom-and-pop stores, where we have moved heavily from a you have to wait for the pre-seller to appear type of relationship with the mom-and-pop stores to where that is complemented by some sort of ordering and relationship platform. They come in multiple guises, depending on where you are in the world, and the relative need and cost efficiency of doing so. But those platforms allow retailers effectively to be able to order, make additional orders 24/7, maybe even book servicing for their cold drink equipment, follow loyalty programs, et cetera, et cetera. So there's a lot of different types of B2B relationships. Generally speaking, they are supportive of us continuing to grow the relationship and to continue to do well. And -- but they are enabling rather than consumer facing, so the kind of the share is a little trickier to determine. Okay. I think that was the last one. To summarize, first quarter of the year, strong start, and we're confident we can continue to create value for the stakeholders and shareowners and deliver on our 2024 guidance. We'll continue to manage through the many different types of environments out there, but focus on leveraging our capabilities to drive what we can control to make sure we get growth. So thank you for your interest, your investment in the company and joining us this morning.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.