At this time, I'd like to welcome everyone to The Coca Cola Company's 4th Quarter Earnings Results Conference Call. Today's call is being recorded. 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 Leverage, Vice President of Investor Relations, Financial Planning and Analysis. Mr. Leverage, you may now begin.
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, I'd like to inform you that we posted schedules under the Financial Reports and Information tab in the Investors section of our company website at www.cocacola company.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. I would also like to note that you can find additional materials in the Investors 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 SEC report.
Following prepared remarks this morning, we will turn the call over for your questions. Please limit yourself to one question. If you have more than one, Please ask your most pressing question first and then reenter the queue. Now I will turn the call over to James.
Thanks, Tim, and good morning, everyone. I'd like to begin today's call by reflecting on the past year, including our Q4 performance. Then let's turn the page and look at the New Year. I'll provide thoughts on the current environment and how we will continue to manage through near term volatility. Finally, I will share how we are thinking about the year ahead and why we remain confident about the future.
John will then discuss the quarter and our outlook in more detail. Now before we dive in, I'd like to address our U. S. Income tax dispute with the Internal Revenue Service, including both the case and the opinion that was issued by the U. S.
Tax Court in November. We believe that the misinterpreted and misapplied the applicable regulations in its conclusions. We intend to assert our claims on appeal and We've considered all relevant information including the unconstitutionality of the IRS's retroactive imposition of tax liability. Putting this all together, we believe we will ultimately prevail on appeal. John will provide insight into the range of risks we see should the case not go in our favor.
I also encourage you to refer to Exhibit 99.2 in the Form 8 ks we filed this morning for the updated disclosure. The tax matter is clearly And we are dedicating ample resources to its resolution, but it is likely to take some time. We remain steadfastly focused on delivering growth in our business and driving long term value for our stakeholders. In 2020, we faced significant challenges posed by the global pandemic. Our company proved resilient, moving with agility to adapt our business and accelerate our strategic transformation.
Our work isn't done and I recognize and appreciate the ongoing support, dedication and progress from our people and our system. Turning to the Q4, we saw improving trends through November, The resurgence in the virus drove renewed lockdowns in many parts of the world. The rise in restrictions impacted in many markets resulting in a modest deceleration in volume in December, which has continued to away from home coupled with the level of lockdown, but our business has become more durable compared to the Spring of 2020 based on the learnings and actions we have taken. Our teams around the world have applied these learnings from the peak of the crisis to better navigate short term setbacks. Globally in the Q4, progress remained mixed And even within regions, there was ongoing recovery as well as challenges.
For example, in Asia Pacific, Countries are at different stages. In China, we are indeed emerging stronger, thanks to our strategic actions with Q4 share gains to complement our 2020 share gains in both on and off premise. Japan drove incremental transactions through their price pack decoupling, but Soft traffic in vending continued pressure mix. In India, challenges remain, but at home trends were strong and we saw signs in away from home channels through the holidays. EMEA showed resilience despite experiencing varying levels of lockdown Driving a dispersion in results between developed and developing markets.
Western Europe was the most by multiple states restricting bars and banning indoor dining. Sparkling water trends remained robust With the expansion of and Topo Chico mineral water as well as Simply and Fairlife also performing well. In Latin America, trends were strong early in the quarter, but slowed in December due to restrictions and less stimulus support. Single serve is recovering as a percent of mix in our business and multi serve refillables grew at a double digit pace. Brazil's results remain strong and Mexico improved sequentially.
In Global Ventures, Despite the headwind of renewed U. K. Lockdowns impacting our Costa retail stores, Express Machines performed well. The continued expansion in China, Japan and further into Europe and our testing express and proud to serve platforms along with the launch of costacoffee.com in the U. S.
Our bottling investment group further improved operating margin performance I made progress on cooler productivity and SKU rationalization. Almost all markets gained or maintained share with Vietnam achieving its highest From a category perspective, we saw relative outperformance for Sparkling in the 4th quarter. Trademark Coke Delivered 1% volume growth, delivered by our 0 Sugar offerings, which were up 3% for the quarter and 4% for the year. While our overall market share performance continued to be impacted by channel mix as our higher share away from home business remains pressured, We did gain underlying value share in both at home and away from home channels. We are poised to emerge stronger in both channels due to our actions to support Customers and to ensure seamless execution from a supply chain perspective.
Thinking about 2021, There is no doubt the near term trajectory of our recovery will still be impacted by the presence of the virus in most markets. It is still early days in the vaccination process and we'd expect to see further improvements in our business as vaccinations become more widely available over the coming months. It's clear that the pace and availability of vaccines will look different around the world and therefore we'll likely see some level of Asynchronous recovery depending both on vaccine distribution and other macroeconomic factors. Amidst this backdrop, we will ensure that the system remains Flexible to adjust to near term uncertainties, while at the same time continue to push forward on initiatives we have championed to emerge stronger. So let me touch briefly on our progress against several initiatives today and we'll provide further detail on these as well as other important business drivers and our virtual CAGNY presentation next week.
Our network organization is coming together and creating empowerment through Clear Decision Rights and Accountability. We have our overall operating unit and global category team structures and are already changing the way we work. We've established our new platform services organization, 9 hubs are currently being stood up. Our ultimate goal is to scale our resources and capabilities to drive value and growth, including investing in new consumer analytics and digital tools. As we go through the transformation, We are ensuring that we have a diverse and equitable representation across our global workforce.
Our long term profitable growth will be powered by our optimized brand portfolio. We streamlined our portfolio from 400 to 200 master brands, allowing global category teams to identify the greatest opportunities and allocate investments accordingly. These targeted investments will leverage our leader brands more and convert Challenger and Explorer brands into leaders more quickly and consistently. Additionally, Our portfolio streamlining allows us to focus attention and resources on what we do best, brand building We are building targeted experiential campaigns that are data driven and occasion based and always on. We are eager to share upcoming work generated by This new marketing model, including our first ever global Sprite campaign, it's called Let's Be Clear.
It invites drinkers to reset and refresh. And Fanta's new colorful initiative seeks to make stacking moments more playful around the world. At the same time, we are optimizing our marketing Focusing on our strongest brands and most compelling opportunities. We have a global creative and media agency review underway, which will improve processes, Eliminate duplication and drive efficiency to fuel reinvestment in our brands. Our innovation pipeline for 2021 has been shaped And coordinated for scale and impact, consists of global bets like the new taste and design for Coke Zero Sugar and regional bets across categories Like the expansion of our authentic tea house franchise across Asia.
We're still pursuing intelligent local experimentation like adding functional benefits to some of our local hydration brands. And there's also innovation that leverages our strength in revenue growth management through packaging initiatives. This includes our first 100% recycled PET bottles in the U. S. For Smartwater Understanding, along with a new 13.2 ounce 100% recycled PET bottle for trademark Coca Cola.
We will also continue to expand Topo Chico Heart Seltzer, which is already launched in several cities in Latin America and Europe. The global pandemic has Undoubtedly expedited the shift to a digital world and we are structuring the organization around this opportunity. We've been digitizing the enterprise for several years and have stepped up our evolution into an organization that can skillfully execute marketing, commercial, Sales and distribution, both offline and online. We're also leveraging existing pockets of excellence in e commerce around the globe. The My Coke B2B platform continues to add outlets and is expanding to new markets.
Our O2O partnerships with multiple food aggregators Ensure beverage availability and visibility. Our multi platform venture Wabi, it connects our system and other consumer products companies to store owners And end consumers through an ecosystem of digital apps. Thanks to our network model, Wafi is now available in 23 cities across 5 continents. The ecosystem is powerful and has already attracted bollar interest and collaboration in several regions. While our alignment also remains an imperative, seamless system connectivity helps us maintain local relevance While benefiting from global scale, we continue to engage with our bottling partners holistically to fuel the network for long term growth.
We're working to lift and shift capabilities. We can focus on being successful today while also pursuing our ambitions for the future. And before I turn over to John, I want to express how proud I am of our support for communities and our sustainability achievements during a year that brought much disruption to We remain grounded by our purpose and our ESG work is embedded in our business and the value we create. We contributed to COVID-nineteen relief around the world. We continue to focus on racial equity, including the introduction of our global social justice framework.
We've made progress against priorities such as world without waste, which includes setting a new target to reduce the use of virgin PET in our packaging. We're also making progress against our 2,030 science based carbon target, which is a critical milestone to achieving our ambition to be net 0 carbon by 2,050. We accomplished our goal to empower 5,000,000 women by 2020, creating shared value for these women, their families and communities, While growing our business through their involvement in both retail and distribution businesses. And we won't stop there. We'll have more updates in our business and sustainability and well without waste report in the coming months.
To summarize, we are confident That we will successfully navigate through a dynamic market environment in 2021 to deliver against our objectives. We'll emerge stronger with more consumers, higher share, stronger system economics and greater stakeholder impact. As vaccine distributions continue, we'll have more visibility into how the global recovery will take shape. And given our confidence in the levers we have to manage the business, We are providing an outlook for 2021. Importantly, we're staying true to our commitment to consumer centricity and our Beverages for Life strategy.
We've made great progress in equipping the company to win for years to come as we will fulfill our purpose to refresh the world and make a difference. Now John will provide more details on our results and our guidance.
Thank you, James, and good morning, everyone. Today, I'll go over our 4th quarter performance and touch on the components of our outlook for 2021. First, let me start with a comment on the tax case that James referred to earlier in the call. As he mentioned, we disagree with the U. S.
Tax Court And we'll vigorously defend our position. In the Form 8 ks filed this morning, We provide detail on the process we've undergone in arriving at our current position and determining next steps. A tax reserve of $438,000,000 in consideration of the alternative transfer pricing methodologies that could be applied by the courts in resolving the litigated matters. We have not made any changes to our underlying effective tax rate going forward. That said, there is no assurance that the courts will ultimately rule in the company's favor.
It is possible that all Some portion of the adjustment proposed by the IRS and affirmed by the tax court could be upheld. To this end, we have estimated approximately $12,000,000,000 for the aggregate incremental tax liability for years up to and including 2020, including interest accrued through December 31, 2020. This amount assumes the IRS prevails and applies their methodology and considers any adjustments from previously accrued transition tax payable under the Tax Cuts and Jobs Act of 2017. We have also indicated that applying their methodology would increase our underlying effective tax rate by approximately 3.5%. There are many puts and takes that inform the range of incremental liability and potential change in tax rate.
I encourage you to refer to the While there is uncertainty associated with the timing and ultimate resolution. We will continue to prioritize investing in the business to drive long term growth as well as supporting dividend growth for our shareowners. While we strongly believe we will prevail, we are confident we have ample flexibility between our cash generation and balance sheet to manage the range of outcomes outlined in this morning's Disclosure. We will be as transparent as possible throughout this process. Turning to our performance in the Q4 fiscal year 2020.
Our Q4 organic revenue decline of 3% showed sequential improvement from the 6% decline in the 3rd quarter A 9% decline for the full year. October November volumes were down low single digits And approaching flat year over year trends, but as James mentioned, we saw a slowdown in December due to a resurgence in the virus and increased lockdown restrictions in many markets. The contraction in the comparable gross margin was primarily driven by continued pressure on our channel and package mix between away from home and at home as well as currency headwinds. Additionally, segment mix swung to a headwind in the quarter due to outperformance of our bottling investments group. Comparable operating margin expanded through ongoing disciplined cost management more than offsetting pressure from the top line.
It's worth noting the decline in SG and A spend this quarter was impacted by timing due to the phasing effect 4th quarter comparable EPS of $0.47 represents an increase of 6% and full year comparable earnings of $1.95 reflects an 8% decline relative to our 2019 results. On a comparable currency neutral basis, earnings were up 14% for the quarter and down 2% for the year. Throughout the crisis, we have remained intensely focused on our cash flow goals. While our cash from operations was down 6% for the year, We have continued to make good progress on our working capital and have exercised tight management of our capital spend. This is exemplified by our 2020 free cash flow performance coming off strong momentum in 2019.
We finished up 3% for the year and reached free cash flow conversion of over 100% despite the headwinds As we begin to see prospects for recovery later in 2021 driven by vaccination And consumers returning to many of their previous routines of socializing, work and travel, our focus We'll be on converting top line growth to maximize returns. Our improving level of visibility into a recovery as the year goes on as well as the many lessons we've learned in the last year have enabled us to provide an outlook for 2021. We currently expect organic revenue percentage growth of high single digits and comparable earnings per share percentage growth of high single to low double digits versus 2020. While we're confident we will see recovery this year and expect to deliver 2021 earnings that are at or above 2019 levels. We've provided a wider range than usual to account for lingering uncertainty in the near term as well as the potential for the acceleration to be asynchronous in nature.
There are many considerations as you think about the drivers of our guidance. A calendar shift will impact the quarterly cadence As we have 5 additional days in the Q1 and 6 fewer days in the Q4 this year, The trajectory of the recovery will be a significant factor and we expect to be dealing with COVID-nineteen for the better part of the year with the first half likely to be more challenging than the second half. Currently, year to date volume is down mid single digits as we lap the toughest Quarterly comparison of 2020 before the pandemic hit much of the world. To the degree that the top line is driven by away from home recovery, We'd expect the channel and package pressures experienced last year to abate, which would drive pricemix Improvement and gross margin expansion. From a cost perspective, we see several factors at play.
In 2020, there were many operating expenses that were significantly reduced or eliminated that are likely to come back this year. We will We expect the return on that spend to become more favorable As mobility stabilizes and away from home channels, we gain momentum. The changes we are driving with our strategic transformation will lead to more efficient and productive spending over time. These changes include our organizational restructuring, streamlined portfolio, disciplined innovation and optimized marketing approach. We will continue to flex Our spend relative to what is dictated by the market conditions around us.
While we are seeing commodity prices begin to rise, Given our hedge positions, we currently expect the impact to cost of goods sold to be benign. As we noted in our release, based on current spot rates and our hedge positions, we expect currency to be a tailwind Approximately 2% to 3% to the top line and approximately 3% to 4% to comparable EPS in 2021. We will continue to focus on free cash flow and expect to deliver at least $10,000,000,000 in cash from operations, contemplates any payment relating to the tax case. We look forward to providing more insight into the drivers of our outlook During our virtual CAGNY presentation next week. In the face of this global pandemic, I am extremely grateful for our team around the world and the way they were able to pivot and execute through such a challenging environment.
I'm also excited about the work we've undertaken to set us up for a very promising future. I am confident that our overall strategic direction will enable us to deliver 2021 earnings that are at or above With that operator, we are ready to take Q and A.
Your first question comes from the line of Steve Powers from Deutsche Bank. Please go ahead. Your line is now open.
Hey, guys. Good morning. Thanks. So the profit and the free cash flow flow through that you've Delivered in 2020 and guided to in the year to come is impressive given the top line headwinds and the complexities you're facing. I know a lot of that is driven by underlying productivity that's set to continue.
But I'd also assume it's been aided by some level of diminished level of strategic investment, marketing capabilities, that kind of thing. That is probably set to continue for a good part of 'twenty one before demand is more clearly on an upswing. So I guess the question is, is there a way to frame how much Strategic investment is embedded in the 'twenty one outlook, perhaps relative to 2019 or some other benchmark. And where do you think the right level All the investment will be post pandemic on a run rate basis to make sure you're positioned to hit the high end of the long term algorithm that you've been targeting. If there's a way to talk a little bit about the phasing, does that investment come in coincident with recovery?
Is it Should we expect to be ahead of recovery? Just how you're thinking about those dynamics would be great. Thank you.
Sure. Good morning, Steve.
Good
morning. Let me start with the future and work backwards. When things have become the normal Post pandemic, the world is fully open. Clearly, we'll be back investing at the sort of pressure levels Marketing and all the other components of the business that we believe is necessary to drive the top line in a margin accretive Fashion that is consistent with the long term growth model. And as you think about comparing that to 2019, clearly we will have baked into that The benefits of not just the new organization, but the fundamental rework of the marketing.
Some of it is a reprogramming of where the marketing goes and that's most obviously reflected in the advertising number that we show in our Number that we show in our disclosures, but there are other marketing spend, which typically gets called enabling, where we have a major program To really look at how we can make that much more efficient right across the board of all the things we do from relooking at the agencies, relooking at the way we Research, the digitization of many things. So there will, when comparing the new normal to 2019, be an embedded A degree of efficiency across the board. But in the end, we are of the view that the marketing pressure will need to be Similar to the pressure levels that it was in 2018 2019 when we were achieving Revenue growth rates, I'm starting to see the flow through into profit that we were looking for. In the run up from now to that We have of course taken a measured and balanced view of what we think 2021 will look like. And our guidance ultimately It's a corridor where we believe we can manage whether things get better in line with our view or quicker than our view, We'll be in the corridor and we'll start reapplying the pressure of the marketing and the innovation that we believe will drive the revenue growth.
Or if things are a little slower on the opening, we'll pull levers and be more cautious about the rate at which we reapply the market pressures or As you mentioned, free cash flow, obviously, one of the levers to sustaining or in fact growing free cash flow last year Was to back off on some of the CapEx. Simply understood, some of our CapEx is in new fountain equipment or new vending equipment. And if those channels are not open, there's no point in putting new equipment in there until they're on the verge of being open. So There's a self regulation between the marketing and some of the CapEx on if the lockdown is greater, We will logically back off and then as the lockdown reduces and the market is more open, those things will come back on. So we'd spend more marketing, more CapEx, we'll have more revenue That's why we believe we can operate within the corridor of the guidance we've provided and emerge stronger from this and really drive growth into the future.
Your next question comes from the line of Lauren Lieberman from Barclays. Please go ahead. Your line is now open.
Great. Thanks. Good morning. I want to talk a little bit about North America profitability over the longer term. I mean, obviously, this year there was a nice Step up, but tough to look at 2020 as, I guess, change in isolation.
But I was struck by the news and you mentioned it today, the 13 ounce bottle. So I was just curious about effort to get broader and more aggressive on Price pack management, revenue growth management in the U. S. Talked about what that could mean for longer term profitability in North America even without addressing the nature of your supply chain here. And by the way, if there's anything you are starting to explore in terms of supply chain structure in the U.
Sure. I mean, the revenue growth management journey Has been a multiyear journey globally and indeed more recently in North America. We started to see some Good benefits come through from that. The 13 just over 13 ounce bottle is obviously good from a revenue growth point of view. It is also worth mentioning that the 100% recycled PET bottle on coke, which is the first one in U.
S. That's Very linked to our World Without Waste strategy. So clearly, we are going to continue to explore And drive particularly some of the smaller packages, whether it's the smaller bottle or some of the sleeker cans as part of Providing the sizes that consumers are interested in, that also connects with our revenue growth management story. And as I said on previous calls, I believe that the it's a multiyear runway For our efforts on RGM in North America that are starting to pay dividends all the time that is not just Helping on the margin front, but frankly it's helping on the revenue front. So I think there's a lot more that can be done To drive that in North America and that's kind of in the underlying category of margin.
Of course, there are structural changes to the margin on whether we You know, have refranchised or not to the bottlers and whether we continue what our exact role is in kind of the system's internal supply chain Therefore, if we do finished products or we get all the bottlers, manufacture those products, of course, what we will do over time is look To do the most efficient and effective ecosystem of supply options for ourselves and our bottling partners, we have recently Move some lines to 3rd party co packing of water and as and when other opportunities are there, We'll consider them, but ultimately we have to have the most efficient and effective supply chain between ourselves and the bottlers to satisfy the consumers.
Your next question comes from the line of Dara Mohsenian from Morgan Stanley. Please go ahead. Your line is now open.
Hi, good morning. So, John, I just wanted to follow-up on the comments around ample Flexibility to handle the tax judgment and I was just looking for a bit more detail on 2 separate scenarios. 1, just more short term Versus the unfavorable $3,000,000,000 opinion, potentially in order to appeal that, Might you have to post cash that could impact your dividend plans? How do you think about that as well as capital allocation? And then second, if we think about the subsequent decade, if there were to be an unfavorable outcome, I understand that's not what I believe, but what if type of scenario, are the cash outflows far enough out that it doesn't have a significant impact in terms of the way
Thanks, Dara. As I mentioned in the script, I think we've got ample flexibility Through both the way in which we've been managing the balance sheet and when we think about the cash generation Prospects for the next few years to manage any scenario. We continue to believe that We have a very strong case and unlikely to have to consider that worst case scenario. The work we've done really beginning last year to organize Our debt portfolio in a way that gives us most flexibility. And when we take that into consideration, Along with the cash we'll generate in the next 2 to 3 years, I think we feel pretty confident we can Take care of just about any scenario.
Your next question comes from the line of Poonil Gajrawala from Credit Please go ahead. Your line is now open.
Thank you. I'd like to ask for a few more details on advertising spend. I think John you mentioned a few phrases, creative media review, marketing efficiency and such. And then also I think you mentioned marketing pressure being similar to kind of 2018, 2019 levels. So if we look at 2019, the ad spend Roughly around $4,300,000,000 obviously is much lower than that for 2020.
Should we expect that figure to get back to where it was this year or Is it the sort of thing that you've just become more efficient and perhaps it's a figure that's 5% lower or 10% lower than what it was running at before?
Yes, thanks. I don't think we're fixed on a number that's necessarily linked to 2019 Given a couple of factors, number 1, the work that we have highlighted we are doing around efficiency. We I believe that there's a tremendous opportunity for us to drive A greater efficiency across the marketing spend portfolio and particularly in the enabling area. Secondly, we've also become I think a lot more flexible. We've learned a lot in the last year That allows us to, so to speak, turn the tap on and off with much greater fluency And perhaps we've done in the past.
And then thirdly, as you look at the marketing landscape, the mix of spending That will be required market to market is going to evolve and we need to be flexible in order So to handle that. So the net net is we will continue to focus on what our markets need Both in total investment terms as well as in the mix of spend that's appropriate for each of these markets. We will continue to drive the kind of efficiency that we now know is available to us. And I think the we land in whatever landings, what that means in terms of total dollars, but I think we've got a good handle on both Being efficient, being effective and investing appropriately as markets recover across the world.
Your next question comes from the line of Bonnie Herzog from Goldman Sachs. Please go ahead. Your line is now open.
Thank you. Good morning, everyone. I wanted to touch on innovation. Obviously, It sounds like you're making a lot of progress on your portfolio, streamlining initiatives. And you've been doing, I think, a good job at managing all of this.
But I guess, I'm trying to understand how you're balancing this innovation and messaging your new more streamlined And then are you at all concerned that this increases some risk of
I guess the headline answer is, no, we don't think we're going to stifle innovation, Quite the opposite. We're looking actually for innovation to continue where it was in 2018 2019 in terms of playing an important role In driving consumer engagement, interest to customers and therefore revenue growth and on to profitability. And so this is very much about finding a way to be able to identify the biggest bets within the innovation Pipeline, understanding that there's still going to be a very important role for experimentation. There's just no way of knowing From the outset, no matter what one might think from a personal point of view as to which ones are going to be the absolute best Going forward, so we're back to innovation. Clearly, we did less in 2020.
We'll be increasing meaningfully the degree of Innovation in 2021, very focused on are these attracting more consumers to our portfolios, Is it allowing them to enjoy our beverages perhaps more frequently or greater financial and greater prices? Ultimately, we're looking for more impact. We have looked at our innovation pipeline and while we have done a lot, we had Some inefficiency in it, so we're driving for greater impact, which we're able to achieve in 2020 and that we will get again in 2021. So I think there's Absolutely the right level of focus on innovation. We'll continue to learn more as we go through 2021, None of this rationalization portfolio is about slightly higher.
Quite the contrary, it's about if you like clearing away The least successful, so there's more room for the most successful and for the next generation of innovation.
Your next question comes from the line of Sean King with UBS. Please go ahead. Your line is now open.
Hi, good morning. Again, with respect to your restructuring and streamlining plans announced last or mid last year, are you seeing any areas for greater opportunity for savings across the organization? I guess just given that the disruption has dragged on longer than most of the thought at the time.
I think what we have at the moment is a very clear plan. We are we have been intimating on resetting the organization as go forward. Again, the need and the Objectives of the organizational change we made were pre existing. As COVID, we knew we needed to find a way To make the organization more agile, more focused, and to scale up some of the activity more platform level, especially given the ever increasing importance of data and the logic that that can't be done lots of different ways everywhere. So it was a pre existing idea that we took the necessity, if you like, or the opportunity In the course of 2020 to accelerate its implementation, of course, there'll be ongoing opportunities, we'll learn, the world will evolve, we will evolve And change will happen into the future, but I would not start the planning that this is recurring Levels of productivity of these sorts of levels are much beyond the couple of current years it will impact at the moment.
Your next question comes from the line of Bill Chappell from Churrus Securities. Please go ahead. Your line is now open.
Thanks. Good morning. Just a question on the comments of A balanced outlook for 2021. I mean, I fully appreciate that you're giving guidance and it's a wider range and there's a lot of uncertainty. But I mean, How do you figure out what sales do look like in the 3rd Q4 this year?
I mean, are you going off of Vaccination rates by country and then assuming things open up 30 days later, I appreciate any effort, but I So I'm interested in how you do a kind of a bottoms up approach to looking at country by country around the world to come up with kind of Even a rough ballpark.
Great question, Bill. Look, we Relatively early on in the crisis actually going back to the Q2 of last year, there was a team that did A lot of very intense and interesting work on looking at prior crises, whether military, economic pandemic going all the way back through our history for 100 years and looking at what happened and the curves. And we came up With a set of assumptions and a set of analyses that then shaped our view as the WATLR, the various scenarios we faced And in simple terms, the biggest indicator or driver was a view on how long The pandemic would last and therefore how long each country would take to get back to its 2019 levels of GDP. So you can take all the countries in the world and You can segment them into it will take them 1 year, it will take them 2 years, it will take them 3 years, and there are countries that will take 4 years to get back there. And that is what we've done and we were able to see obviously by the end of 2020 that the Progress of the world and the progress of countries quite closely followed the scenarios in our model And in that overall macro idea, so it has given us some sense as we continue into year 2 Of those projections, as to what the sort of corridor we'll be looking at going forward through 'twenty
Your next question comes from the line of Laurent Grandet from Guggenheim. Please go ahead. Your line is now open.
Hey, good morning, James and John. I'd like to focus this morning on the 2021 guidance. It seems soft In terms of EPS growth, especially in a year where you expect, I mean, high single digit organic top line growth And 3% to 4% ForEx tailwind on top of it. So it probably doesn't embed fast recovery of the on premise channel It is more profitable, so but could you help reconcile or should we think it's a conservative EPS guide?
I think the simple starting point to reconcile this is a few points. 1, that the impact In 2020 came a lot of it came on some of our finished goods businesses They do not have the same margin levels as the concentrate business. So for a simple example, the closure of Acosta store Has a disproportionate impact on revenue versus profits versus not selling some In some of these away from home, particularly finished product businesses, whether it be some of the Costa businesses or the B. I. G.
Bottlers, And those are mechanically headwinds in terms of margin. The second very important effect In 2021 is of course the reversal of our stewarding of resources in 2020. We clearly took the decision that if there was not good reasons to invest in marketing or in market facing CapEx or market facing operating expenses, then we would not do so. And those the more the recovery occurs in 2021, The more we are going to reinstate those expenses as well as of course a number of elements of the incentive scheme Which will be budgeted for 100% in 2021. So that's why we have not gone for line by line guidance In 2021, there's so many moving pieces that are not your typical year of moving from a normal year and comparing it to another normal year.
You've got these Weird effects of what's actually in 2020 and the way we stewarded the resources and we're still able to drive So that's why we've given some wider corridors and have given the top and the bottom line, which we think are the most measured and balanced approach that we
Your next question comes from the line of Kevin Grundy with Jefferies. Please go ahead. Your line is now open.
Great. Thanks. Good morning, everyone. James, I wanted to spend a little bit of time on the Topo Chico Heart Seltzer launch in the U. S, but sort of within the context of learnings from the launch of the product in Latin America and Europe, you spent a little bit of time earlier in the call.
As I recall, the company made some tweaks to Coke Energy on the formulation with some learnings in Europe. So a handful of questions. How was the product delivering against market share objectives so far in those regions? Where is it sourcing occasions? Has that been in line with expectations?
And then maybe we spent some time on investment. Where does the Topo Chico hard Delta launch in the U. S. Sort of rank in terms of the other priorities. You mentioned a global campaign around Sprite, the importance of tea in Asia.
Maybe you can just sort of characterize for us even at a high level how big of a priority the product success is this year in the U. S. So thanks for all that.
Yes, sure. So we've launched Topo Chico Hard Seltzer in a number of Latin American markets, Mexico, Sri Kapoor, Chile, Brazil, strong initial feedback from consumers and customers, Still very early to even have market share rates, but the rate of sale and the repeat look very good, but obviously To share some of those learnings, I'm sure there'll be learnings and we'll tweak things as we go forward. Now as it relates to your question about U. S, it's Important here to remember how different the U. S.
Is versus the rest of the international market. Because of U. S. Alcohol market regulations, The top achiever has us that will not be going through the company's stroke, the bottling system in the U. S.
It will be handled all by a collaboration with the Molson So it is not competing in any way, shape or form as a priority with all the other things that are going on that are all obviously being done by ourselves And the bottlers in the U. S. And I think multiples are very excited about the opportunity In U. S, there's certainly been good initial reception from distributors in that marketplace, more to come in future quarters.
Your next question comes from the line of Rob Ottenstein from Evercore. Please go ahead. Your line is now open.
Great. Thank you very much. You referred in the earnings call press release that Q4 Had better market share trends, roughly even as opposed to down a little bit for the full year. How much of that was due to at least the initial reopening of on premise And so a channel mix effect and how much of that was due to commercial momentum, Either in particular countries or particular brands that you would expect to carry on into 2021? And then just as a follow-up on the prior question, can you just give us an update on Coca Cola Energy?
Thank you.
So 4th quarter market share trends were definitely better than they Generally speaking, materially higher share in the away from home than the at home, then obviously the reopening tends to improve the overall But we were also gaining share in Q4 versus Q3 or Q2 in both at home and away from home. So there is in the end commercial momentum built into what was going on in those channels and we would certainly expect to gain share away and at home in 2021 and therefore gain Overall, particularly as the reopenings happen. And then Coke Look, energy, we will be obviously particularly in the U. S. That was trying to launch that coming into the beginning of 2020 was Difficult given the immediate lockdown.
And so we're going to come back on Coke Energy in 2021 Despite the challenges, we've had interesting repeat rates. We've recruited new users Just to the category, at rates that are very interesting versus other recent launches in the category, by bringing New drinkers into energy and had interesting levels of retail dollar retail sales in year 1 compared to other innovations. So we think there's something working there back to the original hypothesis that there was space in the energy category to come With a proposition that would attract new drinkers to the category. So we've got reasons to think that it's that we should double down again In 2021.
Your next question comes from the line of Andrea Teixeira from JPMorgan. Please go ahead. Your line is now open. Thank you and good morning.
So my question is a follow-up on the expense savings from the reorganization. And also I have a follow-up on RGM. So how much are you embedding in saving strong rewards into EPS guidance this year? And on the clarification, James, on the comments on RGM and the relationship with the bottlers, are you embedding higher suggested price rich
Andre, let me take that one. On the expense savings, we had highlighted in Our release last year an expected benefit of between $350,000,000 and 5.50 $1,000,000 and we're on track to deliver that. Some of it falls into this year, some of it Fall into the 1st part of next year, kind of aligned to the progress that we make on The implementation of the new model. So that's on the expenses. And on That's the whole topic of RGM.
The past year has actually I think Highlighted even more than ever the importance of having this as a key part of our top line algorithm. I don't expect us to have material changes in the how we go about it. We're very clear on the drivers At the local market level when it comes to both pricing and its relationship with inflation and having the right Packaging architecture to enable us to manage as in an optimal way the conditions of any given market. And if anything, I think our teams around the world are even more focused on that area as a way to navigate A path forward that allows us to deliver on the revenue objectives that we've outlined.
Your next question comes from the line of Chris Carey from Wells Fargo Securities. Please go ahead. Your line is now open.
Hi, good morning. Just a higher level or longer term question. So in the past, The company has had longer term goals for operating margins. Clearly, some M and A and tax accounting changes Made those margins less relevant, but given us even greater focus on efficiency and the recent margin flow through and probably that gives you some increased confidence around your ability to lean on margins in case of uncertain outcomes Just judging by your outlook for 2021, and I guess appreciating your response to prior questions around Mix and spending levels that could potentially return, but I wonder if you have any just high level thoughts from the learnings that you had this year about your ability to drive margins on Where you think the company's margin structure might be able to go over the longer term and maybe specifically How North America factors into that outlook? Thanks.
Thanks, Chris. Yeah, look, I think the answer really is rooted in our belief in the sustainability of our long term growth algorithm. And as you know, embedded into that algorithm is an assumption that over time we can and we will continue to expand margins. I think any given year needs to be taken In the context of that longer term perspective, 2020, as you say, was a particularly unusual year and it afforded us the opportunity to Under the umbrella of NeverWaste, it drives us to drive greater efficiency and to have a bump in our operating margin Performance for 2020. But I would think of the longer term in the context of the long term growth model.
And we manage a portfolio of very distinctive markets around the world and they contribute at Different times along that journey and North America is no different. We see plenty of opportunity, as James highlighted earlier in the North American business to improve profitability levels over time. And that will, I think, be a key factor in our belief that the long term growth model as it's currently expressed It's doable and sustainable. And so I'd sort of couch The whole margin topic in that
frame. And maybe you can
Thanks very much everyone. Just a few closing thoughts. The objectives and the priorities we set for ourselves at the peak of the crisis have really galvanized the company and are driving our ability We continue to execute through the volatile near term dynamics. And while the virus is still a factor in the near term, we're well on our way to emerging stronger And to returning to the path of delivering at the high end of our long term growth model. The focus and the flexibility of the network model will drive the entire Coke system Years to come.
As always, we thank you for your interest, your investment in our company and for joining us today. Thank you.
And ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.