Yahoo Finance

Welcome back to Yahoo Finance. Coca-Cola shares popping after topping expectations for its first quarter earnings. Let's get right into it with the CEO of Coca-Cola, James Quincey. James, always nice to get some time with you. Welcome back to Yahoo Finance. Uh now, I just got off your earnings call. You're talking about how volume was impacted by by consumer sentiment weakening. Volumes in North America down 3%. You know, as you zoom out and you study the health of the US consumer, are they experiencing recessionary conditions given everything going around the world as it pertains to the trade war?

Um, look, I think we we had good global volume growth, 2% globally. And yes, there was a there was a decline in the US. I think the the as it relates to the decline in US in Q1, it was much more a set of uh kind of factors specific to Q1. There was some very cold weather in January. Uh Easter is much later this year than previous years, which is a big selling period uh for us. And there was some consumer pullback, uh more more specifically in some of the Hispanic uh areas of the country. Um, I I wouldn't call it recessionary at all. I think it was really much more idiosyncratic in terms of a few factors. Um, because actually even though sentiment has been impacted as we come into April, you know, consumers are still out there spending. So I think it's more a continuation of certain consumer segments under pressure because of inflation coming out of last year, uh that we need to deliver affordability options. And then some kind of specific reasons in Q1. And we we know what we need to fix, uh we know what we need to focus on going forward and and get back on our growth plan. I think, as you say, that given the current dynamics, Q2 and Q3 could be a little choppy, uh but we know what we need to do as it relates to the US within the global portfolio.

James, within that consumer weakness in North America, is it more pertaining to the shopper that goes to a supermarket to buy a couple bottles of soda or is it more confined to the convenience store channel, which in my view has always been viewed as a leading economic indicator?

Look, if you look at the US business, the weakness in volume in Q1 was concentrating in what we call future consumption packaging, which is much more predominantly uh in in in supermarkets or in kind of independent trade uh outlets rather than either convenience or uh the kind of away from home QSRS and all the away from home channel. So that's where the weakness was focused, which I think is partly an indication of some of the affordability pressure uh for the lower income consumers and some of the geopolitical reaction. Um so that's why I think with our strategy that we're putting in place, we can certainly begin to address that weakness uh while still maintaining a good growth in the rest of the portfolio in the rest of the channels.

James, you're the second CEO of a large packaged goods company, call out weakness in the consumer and the Hispanic consumer to me. The other one was two weeks ago when I talked to Constellation brands CEO, Bill Newlands. Of course, they make Modelo and Corona beer. He thinks it's because of the administration's uh immigration policies and other economic concerns. Would you agree with that assessment? Why is that Hispanic consumer under a lot of pressure?

Um, I'm not sure I would characterize it that way. Look, I think that the Hispanic, some of the Hispanic consumers in the in particularly in some of the southern states in the US, and actually frankly in some of the northern states uh in Mexico, there's a high degree of economic integration of the supply chain uh between those parts uh uh uh of, you know, the Mexico, particularly northern Mexico, uh and the US. And I think some of the the the uncertainty that's about exactly where's this going caused them to pull back a little in terms of spending. Um, I don't see that as a permanent feature. I think this will be worked through. Uh I think it's to some extent the newness of the news. Um, so we believe if we focus on reinforcing that we got, yes, we got global brands, but those brands are made local in every country around the world, and the operations are local, the factories, the employees are local, um and backed up with affordability and execution, that we'll be able to uh see a kind of a normalized uh business with with with all our consumers, including some of the Hispanic ones in those areas.

James, I've had uh CEOs tell me privately, they of global companies, they have started to see anti-American sentiment impact their businesses in various ways, notably on the top line. Have you seen that with Coca-Cola? And then if so, how do you plan to respond?

Look, I think the the there have been waves in the past of, you know, anti-US sentiment uh for a whole series of reasons going back historically, and I'm sure there'll be some in the future. Um, so this is not the first time there's been a bit of pressure on sentiment towards the US, and we have seen in certain countries that happen this year as it happened uh the last couple of years for different reasons. Um, we have a very clear game plan. As I said, we may have a global brand portfolio, but the operations are profoundly local. So by focusing in on the localness, the the brands, the the products in those country are made in those country by local workers, largely using locally sourced ingredients, um, backed up with affordability and good marketing, whilst you can't stop every problem and you don't bounce back immediately, you do bring business back to where it was. And so we have a very clear game plan on how to get that, and we'll roll it out as and where uh we see we see the pressures.

The trade war, of course, James, is impacting businesses in many different ways. How much this year will your cost be up because it's going to cost more to buy dispensing machines from overseas suppliers, or concentrate, or aluminum cans? I mean, do you have a number you could share?

I don't have a number I can share because it's really putting a focus on a very narrow uh cost lever within the business. Yes, we'll, the company, have to pay a little more for some dispensing, as you said, maybe some maybe some orange juice, maybe the bottles for some resin and and aluminum, but you've got to take it in the round. I mean, you've got to add to that, well, what's happening with the underlying commodity price? What's happening to the exchange rate? Where do we sit with our hedged positions? And that's just talking about those those singular uh inputs. You've got to look across the whole broad spectrum of all the cost levers. And then every year, there'll be some pluses or minuses, and I wouldn't call out any one uh because it's not rising above a massive uh spike. And and within the managing the pluses or minuses of the cost levers, we have not as yet ourselves or our local bottling partners uh in the in the US seen a need to change our current pricing plans.

So you're not raising prices this quarter?

Uh we're not doing it out of cycle. Obviously, prices went up because a whole set of normal things, last year's inflation, uh that's already happened. Uh but we're sticking to our current pricing plan uh because, you know, some things are more expensive and some things are less expensive, and it all goes into the bundle.

Would you at least uh take a page of what looks to be what Amazon is doing reportedly today, listing tariff price related increases on its site. So if you're not going to take price increases, would you show consumers in full transparency, this is what it would cost here, and because of tariffs, you're paying now more for Coca-Cola.

I'm I'm we don't break out elements of our cost structure anywhere across our cost structure. I'm not sure why I would do it differently uh for one element. I mean, then the next day, you'll ask me, well, why don't you show this piece and why don't you show that piece? No, that's not how that's we're going to manage all the cost structure, and we're going to we're going to offer it to the marketplace at a certain price. And we believe through our marketing and our innovation and our commercial policies and our execution and our packaging, uh we will earn the right uh to to to to show the consumer that's good value for the products we offer.

You made a great point on the earnings call this morning, James, uh amongst uh many to be quite frank with you, that we're not going to see empty shelves with Coca-Cola. I'm going to go into Walmart. I'm going to go into Target, and we're not going to see supply chain disruptions for your product. And that's certainly good. But we're now hearing reports that you could see less imports from China to the US. There might be empty shelves around the products you sell at these retailers. I mean, how do you respond to that? And do you see this self do you see that being a headwind to your business?

Um, I don't know the final answer to that question, Brian. Um, clearly, you know, if you look at the data on uh shipping container bookings getting out into late May and early June, um, there's a big drop. Now, to what extent people have already brought it in and they've got plenty of stock, to what extent not, it's very difficult for me to tell across all these different sectors. I certainly can imagine there might be disruptions in other categories around uh beverages. Uh and I don't know whether that will mean people do less less trips to the supermarket, or they actually frankly have more money to spend on the things that are there. It's very unclear. Um, I think we're going to find out, but there's nothing I can do about that. I need to focus on my game plan uh and keep executing the core growth strategy of the company. And so we'll keep turning up. Uh we'll keep making sure the the shelves have our beverages on them, uh and we'll keep making them attractive uh for consumers.

Uh lastly, James, over the course of seven years, while you've been in that seat as the CEO of Coca-Cola, you've driven a lot of innovation. Now, we've seen deal activity pick up in the beverage space in the past year or so. What are you doing on the innovation front this year? And can you continue at the pace you have been driving the business over the past seven years given everything going on in the world?

Uh we certainly need to. We want to keep focusing on driving more innovation. Um, and we will need to be ruthless about the innovation that doesn't work and double down on what does work. But it's still, you know, emblematically, this first quarter in the US, the number one brand in US retail in terms of adding dollars of sales growth uh was Fairlife. And there's still a long way to go. So we'll be innovating in new stuff. We just launched Simply Pop, and we'll be doubling down on innovation to extend the runway uh on newish brands like Fairlife. And of course, doing innovation uh on the core mothership brand, Coca-Cola, which we did with with orange cream as well this quarter, um and to really keep making Coca-Cola relevant for the next generation of consumers. So innovation will be a core piece of what we do, uh and we we believe it will continue to drive our growth strategy.

Keep churning out that Fairlife, James. I use it all the time after my workouts. James Quincey, uh Chairman and CEO of Coke, always nice to get some time with you. Talk to you soon.

Thanks, Brian.