James Quincey: Yes. Consumer, let me go with two things. One, clearly the consumer landscape in North America, one has to not think of it in aggregate, because actually in aggregate, the U.S. consumer spending power has held up pretty strongly compared to some other developed markets. What has been important is to understand, there is a section of the population that has come under pressure from disposable income, the real spending power squeeze from the inflationary effects and there we are very much focused on affordability. And you could perhaps argue that some of them went out less, there was more at-home purchases. Some of the certain channels and there we really focus with affordability, both from pack size –individual pack size and with multi packs.
On the other hand, there a segment of consumers that still have plenty of money, plenty of purchasing power and we’ve seen strong growth for some of the higher price point premium segments like fairlike core power. Simply, some of those ones, so there’s clearly a multiple things going on in the landscape in terms of categories and price points and we’ve been working to address both ends of those. And as it relates to channels, I think we’ve seen the kind of re-normalization, there has been a historic slight shift in volume consumption from at-home to away over time. Clearly through COVID, there was a big down in the away from home and then a rebound in 2021 the away from home channels. In 2022 they stay out, but they continue to outpace at-homes.
In 2023, they were slightly ahead of at-home. If you look at the various away from home channels, they were slightly ahead of at-home. I would say that landing more in what it was previous to COVID kind of the more normal situation. So that’s kind of what I would say strong need to focus on the different consumer segments and the sort of re-normalization of the — some of the channel dynamics.
Operator: Our next question comes from Steve Powers from Deutsche Bank. Please go ahead, your line is open.
Stephen Powers: Great. Thank you. Good morning. Two questions if I could, I know I’m supposed to have one, but one to quick. Just on the — so if you could clarify, maybe it’s for John, you called out the 2% to 3% currency headwind for next year on the revenue, but a 4% to 5% headwind on EPS. Just if you could, how much of that incremental bottom line headwinds is going to show up in operating profit versus below the line, given monetary asset revaluation, et cetera. And then, I guess the broader question is just thinking about all the refranchising activity and the system progress that you’ve made in 2023, we talked about the financial impacts of that in 2024, but I guess I’d love your perspective, James, on the importance of the steps you made in 2023 in terms of just betterment of the system overall and priorities going forward from a system evolution perspective. Thank you.
John Murphy: Okay. Shall I start at this time? And then you go second, John.
John Murphy: Sure.
James Quincey: Look, we have been focused on our refranchising effort. And as I like John’s raised, our ambition is to be the world’s smallest bottler. It still remains absolutely true, but we’re going to do it at the pace. We sort of make sure we do the refranchising in the right way with the right partners. I think we can categorically say we’re very pleased with the refranchising process that we have undertaken over the last number of years. Almost without exception, every time we’ve poured one of the bottling companies into the hands of the right partner with the joint vision and investment plan to take the business forward. We have stepped up performance, whether it be a straight refranchising or a combination, creating new bottlers or evolve bottlers, we have up to a level of performance.
And I think that is a sign of the commitment of the company to invest in what it does best, which is the branding, the marketing, the innovation, working with our bottlers to get the revenue growth management and their unwavering commitment to drive execution and build capabilities and capacities in the marketplace. And that does help, Power, the overall performance I talked about in the answer to the previous questions. So, as — I think we’re in the penultimate chapter of the refranchising. There’s only really a couple of pieces left at the right time with the right partners, we would like to finish the play. But really, we have our eye on the prize on creating a much stronger system together with our bottling partners to continue the top of the algorithm momentum very far into the future.
John Murphy: Great. And on currency, Steve. Let me just make a couple of comments in case there are other questions out there on currency overall. First of all, I think it’s important to highlight the 2024 guidance that we’ve given. It would be close to flat if we were to exclude those few hyperinflationary markets. And it just reinforces the point that we’re making on that sort of distortion that those few markets have. And then secondly, with regards to your specific question, I do not have that breakdown. Today, there is just too many — there’s just too many puts and takes, particularly in that below the operating income line as we go through the year. You got to do a monthly remeasurement on the balance sheet items. And that’s just a calculation, that’s — I don’t have the ability to predict with great detail.
So I just keep in mind that the overall impact I think is the one to focus on. In normal years the multiplier is 1.5 times to 2 times, we would continue to assume that will be the case going forward. But these hyperinflationary markets have a tenancy to create that distortion that we’ve highlighted and we’ll continue to provide guidance as we go through the year to make sure that everybody stays abreast of the latest developments.
Operator: Our next question comes from Rob Ottenstein from Evercore ISI. Please go ahead, your line is open.
Rob Ottenstein: Great. Thank you very much. So, James, I think you made a very strong case that really over the last five years, if you accept the noise you’ve delivered at roughly kind of 5.5%, topline growth, which puts you clearly in the top rankings of your other staples companies. And that’s great. In terms of both 2024 and looking forward, assuming a continuation of that, what can you do to both derisk that in terms of the bottom line and enhance it in terms of the bottom line given various macro variables. And then given that you’ve now de-levered to 1.7%, you’ve shown interest in buying back stock. Should we think of share buybacks as perhaps a greater part of the overall algorithm and value creation for shareholders going forward. Thank you.
James Quincey: Okay. So, I mean I think the derisking, I think what I would say is, look, we face an extraordinary number of headwinds in the last five years and still delivered at the top end of the algorithm. Things will happen in the coming years. But there’ll be tailwinds and I think really the argument about the all-weather is, I cannot tell you what the future holds. But if you look at what we’ve managed to work through and deliver at the top end on the revenue. And the momentum and the capabilities that we’ve built in the system. And actually if you look at the share and look at our long-term performance, we are also gaining share within the industry, I think you can see a head of steam builds upon momentum and at the scale that we operate, it’s a very compelling way to drive it forward.
And as that feeds down into the bottom line, obviously, the mid-single digits, the U.S. dollar EPS goal for 2024 includes the disposal of 2 points of EPS from the bottling system. So kind of on an ongoing basis, that’s already six to seven. I think we can continue to drive some leverage from the topline to the bottom line in dollars, and that becomes a compelling compound over time. And as it relates to cash, I think that you will see — we’ve put in a kind of a new non-GAAP metric, somewhere in the ecosystem of the website, which just calls out what John was talking about, about the number of discrete items that are coming up over the next couple of years. As it relates to transition tax actually curiously tax on the M&A transactions, if you sell a bottler, the money you get disappears into one account, for the taxes you pay goes into the free cash flow curiously enough.
So there’s a whole set of discrete items that make the free cash flow look odd for the next few years. But if you strip that out, you see that the earnings are flowing into free cash flow. The cash conversion on that adjusted basis remains very high and is likely to do so. So on a — in a normal world, clearly, as John said, we will continue to increase our dividend and we would have substantive additional cash to continue to invest in the business and consider potential share repurchases. The wrinkle in the cream, if you like, is our considerations of the IRS tax case and the impending appeal. And so, as we go forward for the next few years, we like our strong balance sheet, we are mindful of the likelihood of launching the appeal in the second half.
We have incoming non-operating cash flows, which as John talked about, we used to buy some shares in the fourth quarter. We’re going to balance all these things, particularly in the next couple of years, we’ll keep everyone updated. But I think the long-term perspective is that, the cash generation will continue to be very strong. John, yes, go on.
John Murphy: Just one additional point. In addition to that, unwavering commitment we have to the dividend that we talked about in the script. One of the lessons I think over the last couple of years is to be prepared to be more dynamic relative to your kind of normal view of the individual components. So, as you know, our debt — our debt goal is to be 2 times to 2.5 times, and we’re up 1.7 times. We think that’s right for what we need going into 2024, 2025. We’ve taken up our CapEx for 2024 because it’s the right thing to do to continue to build the growth foundations that we need. And in those parts of the business that need capacity. Just two examples. And so, I think we will continue to demonstrate that as we go forward, the share repurchases in the back half of the year, again was not something that we had necessarily considered at the start of the year.
But we first, there was an opportunity with the buffer proceeds coming in to do so. And we continue to take that approach as we enter this coming year.
Operator: Our next question comes from Chris Carey from Wells Fargo. Please go ahead, your line is open.
Chris Carey: Hi, good morning. I wanted to see if you could maybe frame the global away from home channel. I know you touched on it a little bit in response to Brian’s question. But we’ve heard about, obviously there’s a lot of pricing power in that channel, there’s been a lot of pricing, you’re talking about a normalization from elevated levels back to a more normal channel distribution between at-home and away from home. But can you maybe just give us a bit more granular perspective on what you’re seeing by region and whether some of the strengths that I think was occurring in Q4 has continued into this year. Thanks.
James Quincey: Yes. Sure, Chris. I’ll give it a go. Look, I think that the headline is the commentary about North America to some extent applies — to some extent applies everywhere else in the sense that clearly in COVID there was the close downs, the reopening, big swings between away from home and at-home. But in 2022, it kind of re normalized. And I think overall in 2023, you see that again, you saw that in the U.S. where the away from home channels in aggregate was slightly ahead of the at-home channels. You see that also in Europe or the EMEA segment, you see the at-home slightly high, but it’s only marginal. And when you break it down, I mean there’s going to be the kind of continuing structural growth of away from home.
