The Coca-Cola Company (KO) Q2 2021 Earnings Call Transcript

The Coca-Cola Company  (NYSE: KO) Q2 2021 earnings call dated Jul.21,2021

Corporate Participants:

Tim Leveridge — Vice President of Investor Relations, Financial Planning, and Analysis

James Quincey — Chairman and Chief Executive Officer

John Murphy — Chief Financial Officer

Analysts:

Dara Mohsenian — Morgan Stanley — Analyst

Lauren Lieberman — Barclays Investment Bank — Analyst

Nik Modi — RBC Capital Markets — Analyst

Bryan Spillane — Bank of America Merrill Lynch — Analyst

Steve Powers — Deutsche Bank — Analyst

Bonnie Herzog — Goldman Sachs — Analyst

Kaumil Gajrawala — Credit Suisse — Analyst

Andrea Teixeira — JPMorgan Chase & Co. — Analyst

Robert Ottenstein — Evercore ISI — Analyst

Carlos Laboy — HSBC — Analyst

Kevin Grundy — Jefferies & Company Inc. — Analyst

Sean King — UBS — Analyst

Laurent Grandet — Guggenheim Partners — Analyst

Presentation:

Operator

At this time, I’d like to welcome everyone to the Coca-Cola Company’s Second-Quarter Earnings Results Conference Call. Today’s call is being recorded. [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 Mr. Tim Leveridge, Vice President of Investor Relations, Financial Planning, and Analysis. Mr. Leveridge, you may now begin.

Tim Leveridge — Vice President of Investor Relations, Financial Planning, and Analysis

Good morning and thank you for joining us today. I’m here with James Quincey, our Chairman and Chief Executive Officer, and John Murphy, our Chief Financial Officer. Before we begin, please note that we posted schedules under the Financial Information tab in the Investors section of our company website at www.coca-colacompany.com. These schedules reconcile certain non-GAAP financial measures which may be referred to by our senior executives during this morning’s discussion, to our results as reported under generally accepted accounting principles.

You can also find schedules in the same section of our website that provide an analysis of gross and operating margin. In addition, this conference call may contain forward-looking statements, including statements concerning long-term earnings objectives, and should be considered in conjunction with cautionary statements contained in our earnings release and in the Company’s most recent periodic SEC report. Following prepared remarks this morning, we will turn the call over for your questions. Please limit yourself to one question and if you have more than one, please ask your most pressing question first and then reenter the queue. Now, let me turn the call over to James.

James Quincey — Chairman and Chief Executive Officer

Thanks, Tim, and good morning everyone. In the second quarter, thanks to the tremendous efforts by our associates and our bottling partners. We executed on our key emerging stronger priorities as many parts of the world gradually reopens. We continue to deliver on our transformation, we are encouraged by our results and are raising at top line, bottom line, and cash flow guidance even as we are accelerating investments for the future. The same time, we also recognize the trajectory may be dynamic and understand that we must remain flexible to respond to changes in the environment. This morning, I’ll provide a business update and discuss how disciplined innovation and more effective and efficient marketing, driving broad-based share gains and delivering enhanced value for our systems [Phonetic]. Then I’ll hand the call over to John to discuss our financial update including our improved outlook for the year. Last year in the face of a global pandemic, we laid out a path to emerge stronger across five strategic priorities. We are delivering against those priorities. And this quarter demonstrates the power of our system, we started 2021 with promising results. Mobility and business levels improved in the first quarter and this trend continued in the second, consumer mobility increased in markets where vaccination rates are reaching meaningful level and our business has recovered as we lapping last year’s biggest lockdown impacts and see our strategies in motion. Consumers have started to return to many prior routines and as a result, our away-from-home volumes steadily improved as a percent of our business this quarter. Driving strong price/mix and margin acceleration across the enterprise.

However, the recovery remains asynchronous and several parts of the world have dealt with further ways and infections leading to delayed openings and in some cases heightened restrictions. India and Southeast Asia were the only areas that did not see sequential volume acceleration on a two-year basis this quarter.

Despite the asynchronous recovery, our revenues and earnings in the second quarter surpassed 2019 results. We also made progress on share this quarter, we’ve said many times the gaining share is a key objective in our emerging stronger agenda and I’m pleased to report that we have achieved that objective with broad-based share gains across categories, as well as in both at home and away from home channels in the quarter. And importantly, despite away from home channels not having fully recovered, value share today is higher in the 2019 levels confirming that effective brand building and innovation. Along with our advanced revenue growth management and market execution capabilities are working.

So let me dive a bit deeper into the key drivers across our geographies. In Asia Pacific, China saw continued momentum across categories driven by both volume and improved mix with trademark Coca-Cola, we outpaced the overall macroeconomic recovery and by strong performance in away-from-home channel and business to consumer e-commerce. Australia and New Zealand were bright spots performing at or close to 2019 levels, but they are currently seeing renewed lockdowns. While Japan is struggling to come out of lockdown, there have been tangible successes we can stimulate innovation, small pack initiatives, and improved customer execution of key initiatives.

As I mentioned earlier, in India and across much of Southeast Asia resurgence in the virus impacted further recovery. As India’s restrictions have eased a bit, we are encouraged by the level of resilience in both the business as well as our system associates as they have navigated this resurgence. In EMEA, Europe is still being impacted by some level of restriction, the vaccination rates, and consumer confidence are improving. Because of this and our strong bottler alignment and marketing investment, we are seeing a much-improved away-from-home mix, even at-home volumes continue to grow. Great Britain and Russia where mobility was at the highest showed notable volume outperformance relative to 2019 and sparkling soft drinks gained or maintained share in most of the top 10 markets in Europe.

Eurasia in the Middle East are performing well, despite, diverse recovery landscape in Turkey and Pakistan strong execution during the key Ramadan holiday and emphasis on snacking and meal occasions drove new consumers to the co-brands.

Africa delivered a strong first-half performance through the affordability packages delivering good results, despite tightened restrictions heading into the winter season and vaccination rates that are behind the rest of the world. In North America, the consumer environment improved through the quarter as many States lifted restrictions and consumer mobility increased, more frequent social gatherings, and rising travel and event activity drove significantly higher demand for our brands in away-from-home channels while at-home volumes remained robust leading to broad-based share gains in the quarter.

Within away from home eating and drinking was the strongest performing channel, we travel hospitality and at-work trailing. Latin America lockdowns eased as vaccination programs rolled out in countries such as Mexico and Argentina and stimulus programs in Brazil and Chile also helped drive recovery. Our results and year-to-date share gains in the region continue to be driven by commercial initiatives to improve execution as well as a focus on affordable packs like refillables. Costa, U.K. coffee shop revenues recovered almost entirely to 2019 levels through the reopening phase, despite ongoing capacity restrictions. Increased consumer traffic and digital momentum are also supporting recovery as restrictions ease in other countries where we have a retail price.

Our bottling investments group faced pandemic-related challenges, particularly in India and Southeast Asia, but managed to sequentially improve we’ll gain share in India, Vietnam, the Philippines, and South Africa. [Indecipherable] also made great progress against this growth and productivity agenda increasing year-to-date comparable operating margin approximately 300 basis points from the 2019 level. Our category teams are collaborating with a global lens and I willing us to move even faster towards our beverages for life ambition are continuously engaging consumers around that passion points and testing ideas in a coordinated and increasingly digital way, we are getting even better at what we’ve also on best, building loved brands around the world. For a few examples, the Coke trademark portfolio is experiencing robust growth led by brand Coke and driven in part by Coca-Cola Zero Sugar, which is contributed double-digit growth in value and volume year-to-date. The new Coca-Cola Zero Sugar recipe has already launched in nearly 50 markets across six of our operating units, including last week’s announcement in the U.S. with more to come this year.

Early results indicate a recipe and simplified packaging designs are resonating strongly with consumers. In sparkling flavors we are accelerating our Zero Sugar offerings and executing a global campaign, the focus on key occasions. Sprite has done well, globally, benefiting from the let’s be clear campaign, which has led to improved share gain. Likewise, I want the Fanta mystery Flavor campaign in Europe for accelerated growth and improved share.

Dairy remains an opportunity for the overall portfolio. With premium offerings in key brands like Hollandia drinkable yogurt and Santa Clara’s flavored milk showing healthy growth. We continue to leverage [Indecipherable] great success in the U.S. with a recent expansion in Canada. There are many bright spots in hydration, sports, tea, and coffee. We see momentum across brands in the U.S. including good results from a renewed focus on smart water a new brand bundle from Gold Peak Tea exciting flavor innovations in Dunkin Coffee and continued growth from expanded distribution of Topo Chico sparkling mineral water. We’ve had early success with Costa, ready-to-drink launches in Asia. With meaningful share gains in key markets in China and was already voted a hit product in Japan. The rapid consumer traction, an attractive proposition of healthy indulgence product, [Phonetic] which began as an intelligent local experiment in the U.S. Let us to believe, we can transition to be a bigger bed and travel internationally. The recent launch in China with a local name of Little Universe has been encouraging with meaningful value share gains in a short period of time. We continue to build the momentum with the launch of AHA’s first 360-degree marketing campaign with a significant digital emphasis titled Can I Get an AHA. Finally last summer we announced more exploration in the dynamic flavored alcoholic beverage category with the launch of Topo Chico Hard Seltzer. Topo Chico Hard Seltzer, now in 17 markets worldwide and we’ve authorized Molson Coors the right to produce and sell Topo Chico Hard Seltzer in the United States. Launching a global brand in markets where the categories at different stages of development comes with many learnings and our local knowledge allows us to adapt with speed to win or in some cases develop a new category.

From a strong performance in Europe were available to top two positions in Mexico. So the U.S. velocity is robust and the product has enjoyed a positive consumer reaction. We are encouraged by recent trends and are gaining valuable insights along the way. We continued to make progress with our consumer-facing digital proposition. Internally, we were building out our platform services organization to support the enterprise. As we have a sizable opportunity to become a holistic digital leader. Digital leader is of the utmost importance and we’re also building an integrated ecosystem of platforms to create value across the digital and physical worlds. We are partnering with our bottlers, the leverage the power of the system’s physical footprints online creating enhanced value for customers across the globe through a best-in-class e-B2B platform. The pockets of excellence in many regions, we are working with our bottling partners evolved and streamline our approach. Working together as a system allows us to improve distribution economics, so unmet needs of outlet owners and opens new revenue streams by providing other CPG brand access to our deep customer relationships and global distribution network. We are building a digital one-stop shop for customers seamlessly offering, most of the products they need to stock their shelves and operate their daily business. We’re also ensuring consumers get the frictionless experience they demand with a more availability assortment of the products they need and love. On top of the initiatives discussed today, we also continue to work with our bottlers to embed RGM principles and integrate execution capabilities into our processes to continue driving basket value and incidents as the world reopens.

To enhance the execution, we have an opportunity to win with more consumers and grow share by having the right products in the right channels at the right price, supported by the right activations. We also continue with our sustainability agenda to create shared value for our stakeholders and communities we serve.

In addition to integrating ESG considerations into our daily business decisions. During the second quarter, we released our business and ESG report highlighting progress across all our goals as well as our world without waste report, which focuses exclusively on our work to create a circular economy for our packaging materials. Highlights include continued rollout of a 100%-recycled PET with 30 markets representing approximately 30% of our total sales offering at least one brand in a 100%-our PET packaging. We’ve continued the expansion of refillables and dispense packaging and ultralight writing [Phonetic] technologies and we delivered a 60% Global collection rate for packaging in 2020. We are proud of these achievements and we know there is more work to be done.

Recently, we announced we become a Global Implementation Partner for The Ocean Cleanup’s River project supporting the deployment of cleanup systems across 15 rivers across the world. We will embed our marketing capabilities into this partnership to create consumer awareness of the issues and the actions were all taken.

Putting it all together, we realize there is a range of possible outcomes when it comes to the pandemic in the second half of the year given the asynchronous recovery while we are over delivered relative to our expectations in the first half and have raised guidance for 2021. We are biased towards a growth mentality and we’ll invest behind this momentum going into the rest of the year and networked organization is beginning to help us move faster to capture opportunities and create value for our stakeholders. As a system, we are increasingly equipped to win and we are excited about the future. Now I’ll turn the call over to John to discuss our second-quarter results and the drivers of our updated outlook.

John Murphy — Chief Financial Officer

Thank you, James. This morning I’ll highlight the drivers of our second-quarter performance, as well as our revised guidance, in the second quarter we built on the momentum from the beginning of the year and our business mix improved as consumer mobility increased across many markets. Our Q2 organic revenue was up 37% comprised of concentrate shipments up 26%, and price/mix improvement of 11%, as we lapped the biggest pandemic impacts of 2020. Unit case growth was 18%, our shipments outpaced unit cases in the quarter and year-to-date due to cycling the destocking we experienced last year, and certain timing impacts this year including five additional days in the first quarter. Improvement in the away-from-home channels and positive segment mix from higher growth in our finished goods businesses positively impacted our price/mix. Channel and package mix also affected comparable gross margin, which showed significant improvement relative to last year even with a certain inflationary cost like transportation coming through as we said throughout the pandemic, our goal is to emerge stronger and we are investing ahead of recovery as markets reopen. As a result, we have doubled our marketing dollars year-over-year, cycling the significant pullback from the same period last year. Even with the step-up in those investments, we delivered a 170 basis point improvement in comparable operating margins driven by the strong topline below operating income we saw a benefit from improvement in our equity income as our bottling partners also emerged stronger as well as reduced interest expense on a comparable basis.

As a result, second-quarter comparable EPS of $0.68 with an increase of 61% year-over-year. We also delivered a strong year-to-date free cash flow of approximately $5 billion, double last year’s results. Our cash flow performance has also driven the return of our leverage to within the target range of 2 times to 2.5 times. Since we reiterated guidance last quarter the operating environment and our business have clearly improved given the improvement year-to-date and the increased visibility we are raising our outlook for the full year. We now expect to deliver year-over-year organic revenue growth of 12% to 14% and comparable EPS growth of 13% to 15% in 2021. Our steady focus on cash generation continues to yield progress and our updated guidance for free cash flow of at least $9 billion implies a dividend payout ratio significantly improved from where we began the year and as edging closer to our target level of 75% over the long term. So as we think about the remainder of the year, a few things to keep in mind the recovery phase continues to be asynchronous creating a dynamic demand environment in addition to causing many parts of the supply chain to be experienced tightness as a result.

While experiencing some isolated pressure points, our team is navigating the challenge as well through supplier diversification and inventory management. Despite, recent upward pressures in many commodities driven by pandemic-related disruptions, we feel good about the rest of the year and as we anticipate hedges rolling off in 2022, we are working with our system to take appropriate action in the back half of this year to manage the ongoing volatility using revenue growth management capabilities and supply chain productivity levers. With regard to marketing investment, we have three priorities increased consumer-facing marketing spend toward a level similar to 2019, improves the quality of that spend, and allocate the spend in a more targeted manner.

Our currency outlook continues to contemplate a tailwind of 1% to 2% to the topline and approximately 2% to 3% to comparable EPS in 2021. Based on the current spot rate and our hedge position that said the currency markets remain volatile and dependent on recovery from the pandemic, as well as macroeconomic factors. We will also have some additional timing considerations with the leveling out of our concentrate shipments that are running a bit ahead year-to-date as well as six fewer days in the fourth quarter. To summarize our company and our system have tackled many challenges through the pandemic, but we are emerging stronger, thanks to the hard work of our people and the focus on our strategic priorities with our networked organization up and running. We’re on a path to operate more efficiently and effectively and to unlock the enormous potential we have in our brand and across our market. Tim mentioned earlier we remain clear-eyed as we look at the rest of the year with many markets continuing to face obstacles such as the spread of the COVID-19 Delta variance while others continue to see the benefits of reopening. Overall, we are pleased with our progress in the first half of the year and we’re grateful for the commitment from the stakeholders across our ecosystem that contributed to our results. With that operator, we are ready to take questions.

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from Dara Mohsenian with Morgan Stanley. Your line is open.

Dara Mohsenian — Morgan Stanley — Analyst

Hi guys, so on the revenue front, in markets like the U.S. where COVID concerns have now dissipated. Can you just discuss how quickly consumer behaviors coming back, how that compares versus what you originally expected, presumably it’s better than expected with the raise for your topline guidance, but how that impacts your strategy going forward and maybe also what you see is the lasting changes in consumer behavior in some of those markets?

James Quincey — Chairman and Chief Executive Officer

Yeah, sure. Well, first, I’m not sure I would characterize the U.S. past COVID, it’s certainly moved to a phase like several other markets where there high levels of vaccination where the COVID, the most serious parts of the COVID affecting mainly the unvaccinated as well as some of the vulnerable. So it’s not over and we can see that in the numbers, if you just take a look for a second at what’s happened in the U.S., a couple of interesting things is this moved into this reopening phase. Firstly, consumers, as we’ve talked before on these calls. We’ve always believed that we humans are social creatures and once the restrictions come down and the panorama of the virus allows people, we confidence to go out, but they will go back out all the away-from-home channels, they want to be social and they will go after the experiences. And as you could see very much beginning that happened in the second quarter. So if we look at our away-from-home channels you can obviously see large rebounds compared to the second quarter last year, which is obviously logical give us how much they felt last year, but they have not yet all reached the levels of 2019, you could take a couple of channels like QSR, which was one of the ones that went down least last year as they pushed delivery as they pushed a pickup and close the in-room dining those channels, even though many QSRs have still not yet fully reopened in restaurant dining they have bounced back on the back kind of at or above 2019 levels. So, for example, QSR did well and they’re doing very well now. Whereas if you take channels like bars and taverns they went down by about three-quarters last Q2 last year. Now, of course, they’ve reopened people have flocked back and they have gone up by 200%, but that still means they’re not back to 2019 levels and you can go through the various away-from-home channels you obviously travel and transportation, a very like above, so people who had a good second quarter last year generally held on or expand on those gains in this 2021 and some which a bounce back, still not there in part because COVID restrictions are still not fully gone and competence is still not fully back, but interestingly, and I think positively from The Coca-Cola Company’s point of view if you look at the at-home channels, those gains or those that extra consumer interaction we brands and products at-home over the last 15 months has created some new behaviors and engagement with brands, that may well be enduring. So, it’s quite possible that over time we will both regain the away-from-home business that we had before and hang on to some of the games in the Adtalem [Phonetic]. I mean you can look at e-commerce, which was the post a child [Phonetic] for growth in Q2 last year, which grew exponentially. That is basically stabilized grown a little bit this year. So they held onto a step up, but you can also see that in some of the large stores, which obviously did well last year, they continue to grow this year. So you’re getting growth on growth and even the small stores that were impacted last year of bouncing back. So net-net, if you look at the U.S., you see an enduring resilience in the step-up of the at-home business and a rebound in the away-from-home business that is in progress, but not yet complete and I think that’s was driving the business and that happened, I think is very visible, if you look around all the countries at like stages of development in the COVID trajectory. In other words, restrictions are coming down and as a high percentage with the population vaccinated and therefore big reopening whether in U.K. or other places going into Europe.

Operator

Thank you. Your next question comes from Lauren Lieberman with Barclays.

Lauren Lieberman — Barclays Investment Bank — Analyst

Great, thanks. Good morning and John you offered definitely some perspective on the bigger picture profitability and I know this quarter was kind of a new high watermark and operating margins, but I was curious, do think about the full year and frankly even into ’22 and how you’re thinking about the ability to better leverage your sales growth as a result of some of the restructuring work that you’ve been doing, but also in the vain of this come out stronger and what you’ve been able to achieve already and think you’ll still be able to achieve in terms of changing package mix and premiumization, so and it’s sort of a longer-term margin question with the awareness that perhaps this quarter is more timing than something directly related to my question. Thanks.

John Murphy — Chief Financial Officer

Yeah, thanks, Lauren. And you’re right, it will take the rest of the call to explain all that happened before, so I’ll spare you, but let’s take a step back and I think it’s, the first part to your questions and the first part of the answer is let’s think about the two-year picture, in 2020 we saw at the gross margin line, we saw expansion driven primarily by a significant scale-back of our operating costs and marketing investments even despite there being also some gross margin compression in the same period. In 2021, we are pleased with the progress year-to-date, I’m getting gross margins back to where we would like to be and I think we will continue to see us get back close to 2019 levels by the end of the year. But we’re also, as James highlighted in the script we’re also very focused on investing in our brands and our key markets for the future, we’ve seen a good step up already year-to-date and we continue to have that as a major priority for the second half of the year. So, [Indecipherable] if you take the two-year picture you’re going to see on the operating margin front you see 2021 is there will be some compression versus 2020 just given the nature of what I just said gross margins getting back, not quite there, significant focus on reinvesting back into the business for the mid-to-long term, but the good news, I think by the end of this year ’21 will be better than 2019, that’s first part one, part two is if you look at ’22 onwards. We’ve talked about our flywheel driving the business from the topline to a much stronger marketing and innovation agenda to support the streamlined portfolio brands that we know are focused on. We’ve talked about innovation has been a continued driver of growth in the future and that all wraps into execution in the marketplace with our bottling partners and through a variety of levers and not the least of which is RGM lever. So going into ’22, ’23, ’24, the goal is the same as it has been to continue to be hyperfocused on improving our overall margin equation and Q2 was a good shot in the arm for us to continue on that path.

Operator

Our next question comes from Nik Modi with RBC.

Nik Modi — RBC Capital Markets — Analyst

Thanks, good morning everyone. I was–James, I was hoping you can talk a little bit about Wabi and the fact that you’re rolling out through more countries, maybe if you could just give us some context on where exactly rolling it out and what have you seen from that initiative and from a data standpoint if I know you guys can get direct access to that whereas maybe some other data consumer [Indecipherable] get that data and if it’s something that you think could work in the U.S. market?

James Quincey — Chairman and Chief Executive Officer

Sure, Wabi is a set of features in a digital ecosystem that allow us to both do direct to consume and I’ll come back to it specifically how and do B2B both or either for just beverages offers multi-category orders. Now predominantly where we’re using Wabi in partnership with our bottlers is more in the B2B space, we have done some experiments doing B2C, but in the case of Wabi, the model that was used, which is very appropriate in Latin America, where you have a very high-density of mom-and-pop stores essentially the consumer uses the Wabi app to place an order they want to have a whole set of Cokes and Fantas and Sprite, so whatever that all goes into the app and the app then shops the order to the mom-and-pops that are nearest to the consumer and they can accept that older much like a ride-hailing service and given that they’re likely to be 50, 100, 200 meters from the consumer in these high-density cities that will just run round of the product and deliveries in a very short space of time 15-20 minutes or less and so it is very interesting and we’ve actually also used it–use our platform with some of the QSR restaurants in places like Argentina to do the same thing. So, it’s an interesting thing, we’re getting a lot of insights and data. We are also expanded on the B2C place to actually add all the categories of all the FMCG partners. So now you can place an order at the mom-and-pop for a whole series of categories not just beverages. So getting lots of interesting data and insights on that. The other thing that we’re doing with B2B with a number of the bottlers is using it to accelerate the digitization of one part of the relationship particularly with the fragmented trade where the mom-and-pops or restaurants and cafes around the world, which is of course now the rollout of smartphones and smart device everywhere is expanding. You don’t necessarily need the salesperson to turn up at the store in order to capture an order and so we’re blending the use of the sales force to do drive account development and drive all the in-store activations that we now create impulse purchases and give us advantaged execution, but leverage the platforms to drive order taking. And again we’re getting a lot of learnings with the bottler on how that improves, not just efficiency, but just as importantly the effectiveness of the selling and the execution process. Again there are depending on where you are in the world sometimes, that’s just a beverage approach, but we’re also got some experiments where it’s a multi-category approach through the platform and links to either wholesalers who deliver either all or the non-beverage categories, etc. Anyway standing back, the net of it is we continue to see ongoing digitization of the interaction both of the consumer with the retailer and the retailer with the suppliers and we think the Coke system globally with our bottling partners is in the tremendous position to expand the depth of our relationship with the retailers and we are being open-minded as to exactly what form that takes and working with them to drive a whole set of experiments to see what works, more to come.

Operator

Our next question comes from the line of Bryan Spillane with Bank of America.

Bryan Spillane — Bank of America Merrill Lynch — Analyst

Hey, good morning. So I think it was just a follow-up to Lauren’s question earlier around margins and just two items, John, if you can provide one is just in terms of marketing for this year, I think I heard the way I have read it was that you’ve actually increased the spend or plan to increase the spend now more versus I guess what was in your original plan and then the second if I don’t know if I missed it, but just can you give us kind of where we stand today in terms of how much of the savings from the reorganization have been captured and how much more authorized to go?

John Murphy — Chief Financial Officer

Thanks, Bryan. Yeah, on the first part, I think again looking at the year-to-date, I think we saw a big rebound in the second quarter with doubling our spend on consumer-facing activities and for the rest of the year with a night to both delivering the year, but also been well prepared for ’22. We have a very robust investment agenda that will see us getting back to 2019 levels and that’s just comparing dollars when you look on under the hood though, I think one of the big changes we’ve made in recent months is to improve the quality of that spend and so my working with and all of our objectives is to be able to actually generate more with the same and we’re pleased with what progress that we’re making in that space, particularly as you think about some of the newer areas digital media, etc. Regarding the savings, it’s a piece of the overall equation and I think for me rather than provide hard numbers, it gives us a degree of flexibility to invest behind some of the bigger bet to think of us our ongoing ability to pivot as market conditions dictate and so it’s really less around taking those savings to the bottom line and much more on having the flex to be well-positioned to go after opportunities as we see them.

Operator

Our next question comes from the line of Steve Powers with Deutsche Bank.

Steve Powers — Deutsche Bank — Analyst

Thanks and good morning, James, I don’t know, maybe John wants to enter to that following up on where you started with Dara [Indecipherable] globally, the updated guidance from today seems to call for a further acceleration in the underlying growth on a two-year basis in the back half versus ’19 especially at the top end of the range and I guess I’m curious where you see that most being sourced from a segment perspective, but also whether you have a bias as to that acceleration and sequential improvement being more volume led versus ’19 or price/mix slide as a system fights through inflation or where do you see it as a bit of both just how you’re thinking about the mix of revenue in the back half? Thanks.

James Quincey — Chairman and Chief Executive Officer

Yeah, sure. So our expectations for the year. Obviously, we said we wanted to get back to 2019 levels and we made good progress and we believe we are emerging stronger and we obviously rise in the guidance as we look into the back half of the year, as John said, we’re being clear-eyed about the puts and takes that exist out there, I think the first thing I would suggest you is really take a look at the 2021, whether it’s whichever core you want to look at and have it on a two-year stack basis whether that be the volume or all the price/mix, obviously you’ve got to look through the stocking and destocking of the gallons because obviously this time last year we would destocking gallons rapidly and then notwithstanding the extra days in the first quarter. We’ve been restocking gallons in this second quarter, but if you look at volume and price/mix on a two-year basis. What we are expecting to see is, yes, some continued improvement into the back half of the year on a two-year stacked volume basis as more countries get more vaccinations done and more restrictions come off clearly there is plenty of room for different things to happen, the famous a synchronization because markets go up and markets go down, but generally speaking, we expect to see some steady although very moderate sequential improvements on a two-year basis and similarly on a price/mix basis, we are looking actually–we start looking at price/mix on a two-year basis in Q2, you see it in the sort of ballpark, we’ve always talked about, we’ve always talked about in the long-term growth model that we’re kind of expecting two to three on price on any average year and when you start looking on annual on a two-year basis, taking the annual increase you start to see that in the second quarter and so our expectations of price/mix or not to see something radically different. Notwithstanding, the 11 you saw in the second quarter, clearly, it’s not going to continue at 11 because it’s cycling a much more negative number in Q2 last year, which is heavily driven by package channel mix, but once you look through all of that we in underlying terms essentially maintaining the same approach that we have had historically pre-COVID during this kind of reopening.

Operator

Our next question comes from the line of Bonnie Herzog with Goldman Sachs.

Bonnie Herzog — Goldman Sachs — Analyst

Thank you. Good morning. I actually had a question on your guidance, you raised your full-year outlook, given the strength you saw in the quarter, but you didn’t flow through the entire beat, especially in the bottom line given your new guidance now suggests EPS growth in the second half will be negative. So I was really hoping to understand the drivers behind this is it cost pressures that might have gotten worse in the last few months versus the plan stepped up investments that you called out ahead of the recovery? Thanks.

James Quincey — Chairman and Chief Executive Officer

Thanks, Bonnie, couple of comments, one is the first half of the year, we saw gallons ahead of cases, which we would expect to normalize in the second half of the year, so, I think you’ve got to factor that into account. Secondly, at the first quarter, we had a few extra days and they will come off in the fourth quarter. So that’s a big piece of the equation that’s we–that we’ve designed for the full year. And then secondly, as we really discuss in the investment space to where we would look to through end the full year with our marketing investments continued to step up and even margins back to better than ’19, but not as strong as ’20, so that’s all factored in.

Operator

Our next question comes from the line of Kaumil Gajrawala with Credit Suisse.

Kaumil Gajrawala — Credit Suisse — Analyst

Hey, can you just maybe oversimplifying it, but can you maybe help us your business has changed a bit in recent years, and maybe if you could just help us with where operating leverage looks like does 5% revenue mean a 7% profit growth, does 6% revenue mean 10%, can you just give us idea leverage lives down the P&L?

John Murphy — Chief Financial Officer

Yeah, I’d say that I refer back to our long-term algorithm where we’re managing to, as we’ve been discussing a very, very interesting period, we still think that the, when you take all the puts and takes with the businesses that we have at the moment that the long-term algorithm is still one that best reflects what we can deliver over the coming years, not clearly if the business makes changes, we would need to review that, but I think I just refer you back to the algorithm and we don’t see that changing in the foreseeable future.

Operator

Our next question comes from the line of Andrea Teixeira with JP Morgan.

Andrea Teixeira — JPMorgan Chase & Co. — Analyst

Hey, thank you so much. So I just wanted to go back to the–how the on-premise you’ve been tracking as you exit the quarter so I was hoping to see if you can, it sounds James, it sounds that you’re confident that we are seeing that lapping and publicly looking at the U.S. as an example, as you mentioned you were quite confident that worldwide we’re going to see that adding to the recovery and adding to the at-home consumption. So I was hoping to see how you exited the quarter in places where infections have come back on a global basis and how can you quantify how volumes sit relative to 2019 levels. I think you called out in developed coming back to the same levels, but and how you were mix in terms of finished goods, the single-serve is relative to the 2019?

James Quincey — Chairman and Chief Executive Officer

Sure, I’ll try and offer a few thoughts that might help clearly when countries have gone–when infections go off and greater restrictions have come back in during the course of the second quarter. You do see negative impacts on the business now, over the last 15 months, we have worked very hard to make our business more adaptable and more agile and able to pivot in the restrictions to help the consumers get the beverages, they love, but often in the very short-term impacts of the business. So if you look at places where infections of spike that recently in the second quarter, so Vietnam went into some restrictions they’ve done a good job of avoiding large restrictions and so they were doing fine in the first few months of the year and then all of a sudden, they’ve had some restrictions and they were negative in June. Similarly, India earlier in the quarter brought in a strong set of restrictions on the business went negative, but then when they reopen they bounced back, so clearly whilst we have adapted the business and made it more resilient to the levels of lockdown when these–when they do occur wherever they do occur around the world. It’s going to impact the business, we’re going to bounce back quicker and we’re going to suffer less, but it is going to impact the business and so as you think about the outlook clearly the direction of travel of COVID, it variance, the levels of infections and the levels restrictions are going to make a difference to the business, and then as it relates to immediate consumption and future consumption, if I look on a worldwide basis and I look on two-year stack rates, what you can see is that now we have steadily improved through the course of the pandemic, such that the immediate consumption volumes are now slightly ahead of 2019 levels as we execute the second quarter in June. So, and as I said in the opening or in the reflections on that first question from Dara on the U.S. that has not been followed by a mirror image decline in the home, clearly some of at-home on two-year stack basis goes down because people are now out in about and at-work and so you now see the two of them tracking you see the at-home tracking at the 2019 levels as well. So that’s why we feel that there is some sequential improvement coming in the downhill moderate, but some.

Operator

Our next question comes from the line of Rob Ottenstein with Evercore.

Robert Ottenstein — Evercore ISI — Analyst

Great, thank you very much. Can you please talk maybe a little bit more about headline pricing and promo intensity, I think I heard you say that in Q2 your pricing was sort of at historical levels of 2% to 3%. I also heard you say that in the second half of the year you would look to address higher input costs with revenue growth management initiatives. So maybe kind of talk about your thoughts on pricing in an environment where we’ve seen more inflation than we have in many years. And how able the consumer is in your key geographies to be able to take additional prices. Thank you.

James Quincey — Chairman and Chief Executive Officer

Yes, So Rob, clearly, obviously the comments I made about pricing were on the two-year stack prices and that we can’t see [Phonetic] when one takes out the effects of channel and geography, what you would see if you had all the data about what I’m saying is that over the course of the pandemic, we have taken a steady approach to pricing–to continue to price for our brand strength and RGM and then of course, we manage input cost increases of time and we use our hedging strategies to not have, to try and minimize the amount of sudden bumps because our overall belief is that if we focus on creating the growth of the beverage category for our retail customers ahead of their overall business, then that will be good for them and that we will do and gain share within that overall strategy and that is best executed through steady investment in brands, steady investment in execution and the use of RGM to meet the consumer with the pack size and the price part that they want and that includes then managing through the increases and input costs in a rational and staged way and we obviously leverage hedging to make that easier for us to do and so we do believe that categories of those people who have brands that have strong consumer residents will be able to pass through cost as we have done historically we’ve whilst in the U.S. inflation has been very moderate for an extended period of time as it has been in Europe. We have plenty of other countries in the world, which experienced some high or double-digit levels of inflation and so the strategy on how to manage through that and stay engaged with the consumer to keep the momentum in the business and keep the margin structure steady or improving ease the capability of the Coke system.

Operator

Our next question comes from the line of Carlos Laboy with HSBC.

Carlos Laboy — HSBC — Analyst

Yes, good morning everyone. James, about three to four years ago, you said you wanted more robust experimentation, a small experiment become big experiments, drive collaboration in revenues and we see this thriving in Latin America, but might you share with us perhaps in some developed markets where we don’t have, as clear line of say, and how this is coming along and maybe are there some wins that really stand out in this area?

James Quincey — Chairman and Chief Executive Officer

Sure, thanks a lot, I mean we continue to drive the collaborations and the innovations, if I just pick up a few of the ones that we sort of elliptically connected to today, Wabi, which started in Latin America, both those B2C and B2B we have used the platform to work with bottlers in other parts of the world, whether that be Europe will beyond on helping us work together to improve the digitization and the B2B capability. Beyond that, so, you’re seeing expansions of those experiments out of Latin America. You see expansions of experiments in the U.S., whether it be, how, which is continued to perform very well in the U.S. so far this year we’ve launched that in China or in Fairlife, which has done very well in the U.S., we’re taking that to China as well and so there is some kind of moving from the West to the East, you’ve got experiments that were taking place on Topo Chico Hard Seltzer, which kind of started in a way as globalized areas now in each of the continents and we’ve continued to expand it. There are some things going on in Asia in the kind of non-black tea segments where we experimented in some of the Asian countries and it’s expanding around, so there really are some great experiments out there you could even go to some of the packaging ones like the uses of RPT 100%-recycled PET, which is really a key factor in driving a circular economy around packaging material started really in Europe coming to the U.S. recently with a 13-ounce bottle that we put into the marketplace. So, we never satisfied as a kind of a philosophical starting point, but they’re certainly starting to see more experiments happen out there and more discipline in working, which aren’t working and stopping them and which have legs to be taken to the next place and an interestingly you’re starting to see those experiments moving all directions is not just developing or West or East or anyone direction is actually really starting to be either is coming from all around the world and really having to go through and work out which ones is the shop that expanding globally.

John Murphy — Chief Financial Officer

And if I may, James, I think in the supply chain also there is over the last 12 to 18 months, a tremendous amount of partnership collaboration that is delivering results and in the individual entities across the world that I think will continue.

Operator

Our next question comes from the line of Kevin Grundy with Jefferies.

Kevin Grundy — Jefferies & Company Inc. — Analyst

Great, thanks, good morning. Question for James just picking up on the last line of question, there on innovation. My question specifically for Hard Seltzers in some of the early success that you’ve had there. So, James, you mentioned some of the early learnings, I was hoping you could perhaps share those with us, particularly as it pertains to the Seltzer category and then more broadly James whether the success that you’ve had in the alcohol space emboldens the Company, a bit for further exploration in alcohol sort of outside non-alcohol, your comments, that would be helpful. Thank you.

James Quincey — Chairman and Chief Executive Officer

Yeah, sure. So, we’re still very much in the learning phase, it’s not a category, we are familiar with, particularly with the alcohols has got a number of important characteristics and regulatory characteristics, and business characteristics that we need to learn about. So we have not got to the stage of concluding anything more strategic or coming to the point of view that there is a bigger vision force out there in the flavored alcoholic beverage space we want to learn and understand more before we decide anything in one direction or the other. As it relates to some of the learning so far, I mean, clearly what we–what we’ve discovered obviously make the difference if the category exists or doesn’t exist in any particular country and we’re in 17 markets today. We’re on track to be in 28 markets around the world by the end of the year. We’re learning what it takes to compete whether category, exist we’re learning, want to takes to help grow the category, where it doesn’t exist, so we were pleased for example in Latin America, we have for example in Mexico with number two Hard Seltzer and getting some good traction and good velocity in Brazil where it’s more of an undeveloped category, it is more kind of development needed as well, trying to work out how that happens. Similarly, in Europe, it’s the number one or two performer, in terms of rate and velocity. In Europe, and so I think it’s very interesting what’s happening there and obviously, in the U.S., it’s got a lot of good traction while it’s still, of course, relatively small overall nationally it’s done particularly well where we have focused or where Molson is focused to launch, which is in Texas and it’s done very well in Texas looking good in kind of the southern states, California, in Florida too retail customers, we understand the very bullish also display activity and activity, so we are looking to see that continue to expand. Of course, we are conscious that the overall sales the category has come down in terms of its overall growth rates in the U.S., that’s not ultimately that Vegas was surprised to us because if it is a category that has been predominantly an at-home channel category, much less a bars and restaurants category and so as people have gone back out clearly there some of those occasions have moved from at-home to away-from-home, so, it’s not too surprising that some of the strong tailwinds the category got in the lockdowns have lessened, but we still think it’s it’s very interesting, it’s got some long-term potential in the U.S. it’s very on-trend for a lot of consumers and so we’re continuing to look at that and push on that and invest to see where we can go.

Operator

Our next question comes from the line of Sean King with UBS.

Sean King — UBS — Analyst

Great, thanks for the question, how do you stand to benefit from the Olympics starting later this week and really given the pandemic-driven disruption around the world. Can you shed any light on marketing activation plans or just a general outlook on this opportunity given the pent-up, like sort of excitement for this type of that?

James Quincey — Chairman and Chief Executive Officer

Yeah, I mean in terms of, kind of two ways of looking at it, one, those countries where the Olympics of broadcast too and then the actual activations in Japan itself. I mean clearly in Japan given the restrictions. We have dialed back with physical activations and our supporting appropriately keeping a supply of beverages to the Athlete’s, etc., but the physical activations is essentially not going to happen. And then, and so really as much as anything it’s about leveraging the air time that the Olympics are going to get in places like the U.S. to market our programs with very specific marketing activation are the [Indecipherable] isn’t going to happen and partly, it was like the uncertainty of it, whether they were going to happen or not, let us to move away from having any large extra fixed cost investment in activating the market, the Olympics for this year, so we will leverage the airtime to market our brands, we still not even today the deputy one of the people in Tokyo said this who knows what’s going to happen, whether it will actually start. So we very much taking the approach of take away the physical activation, take away any fixed cost that can only be used in the event of the Olympics, and use any rights sometimes we have for the general marketing of our brands.

Operator

Our next question comes from the line of Laurent Grande with Guggenheim.

Laurent Grandet — Guggenheim Partners — Analyst

Hey, good morning everyone. Thanks for squeezing me here. Got a question on Coca-Cola Zero. Please, you had, the approval market that we [Indecipherable]

Coca-Cola zero with new packaging and risk peak [Indecipherable] So, in countries where it has already been launched is the, what do you were upsides you are seeing and coming from [Indecipherable] or diets or competition. So, any color would have? Thanks.

James Quincey — Chairman and Chief Executive Officer

Yeah, I mean, obviously, the answer is, it depends, in a way because each country has a slightly different mix. I’ll start from, at the starting point of zero or it’s depending and if you’re a country that’s still got broader light and the size of plastic and so the starting point matters, too. Clearly, it’s a mix of everything, what we like most about driving Coke Zero Sugar is we get a lot of business that is not self-cannibalization. It was all of just coming from Coke and Coke Light, it would be perhaps necessary, but not very exciting what’s exciting about it is that we are helping expand the Coke franchise. In other words, if we stopped expanding back and looking at the globally. You can see both the growth of Coke original, the very fast Coke growth of Coke Zero only some of which is coming from the cannibalization of Coke Light or Diet Coke depending on where you are in the world. So it’s a net accretion to the Coke franchise.

Operator

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

James Quincey — Chairman and Chief Executive Officer

Thanks very much, everyone as we said at the beginning, look we delivering on the priorities we set out for ourselves to emerge stronger hopefully you could see that in both the results and our guidance and we just wanted to take the opportunity to thank you once again the extraordinary effort of our associates of our bottling partners and all our partners that have allowed us to deliver these results and to raise our guidance for the outlook, our systems is strong, our bottling partners are strong. We continue to invest behind momentum and a huge growth opportunity ahead of us. Thanks for your interest, your investment, and for joining us today.

Operator

[Operator Closing Remarks]