CNBC Exclusive: CNBC Transcript: Coca-Cola CEO and Incoming Chairman James Quincey Speaks with CNBC’s Sara Eisen Today
WHEN: Today, Tuesday, December 11, 2018
WHERE: CNBC’s “Squawk on the Street” – Live from Atlanta, GA
Interview With Joe Koster Of Boyles Asset Management [Part One]
This is this first part of an interview with Joe Koster of Boyles Asset Management, part of ValueWalk’s new, exclusive interview series. Throughout this series, we are publishing weekly interviews with up-and-coming value-oriented hedge fund managers. You can find links to the first two interviews below: Interview With Scott Miller Of Greenhaven Road Capital [Part Read More
The following is the unofficial transcript of a CNBC EXCLUSIVE interview with Coca-Cola CEO and Incoming Chairman James Quincey and CNBC’s Sara Eisen on CNBC’s “Squawk on the Street” (M-F 9AM – 11AM) today, Tuesday, December 11th. The following is a link to video of the interview on CNBC.com:
Watch The Full Interview With Coca-Cola CEO And Incoming Chairman James Quincey
All references must be sourced to CNBC.
SARA EISEN: Alright, Carl. Good morning again to you. Live from Atlanta, Coke headquarters, where I am joined by James Quincey, the CEO of Coca-Cola, the soon to be Chairman in April. Congratulations on that announcement.
JAMES QUINCEY: Thank you. Thank you.
SARA EISEN: We’ll get to that in a moment. But let’s pick up where they left off, this crazy market volatility. Stocks are up today but it has been a wild ride. What’s your take on the market jilt we’re feeling?
JAMES QUINCEY: Yeah, I think I, like everyone else, I’m a little confused: is it the return to the normal level of volatility or is it a sign of the uncertain moment we’re at, as to what is the direction of travel geopolitically and economically going into 2019? You can find any forecast you like out there. So I think what that it’s really a sign of is the degree of uncertainty that everyone has. But what we have to do as a company is focus on what we can control. We’ve got a great strategy, we’ve got a game plan. We’ve got to execute it. And we will see our way through what I think will be a very interesting 2019.
SARA EISEN: I know that’s the message you’re here to tell. But you also have a pretty good view into consumer spending. Have conditions deteriorated in the U.S. in the last few months since we spoke?
JAMES QUINCEY: I think you saw coming out of the summer, it became a little softer as it got into September and so we did see a little decline in September. Obviously, we took some price increases at the beginning of the summer. So, some of that wasn’t entirely unexpected, given the process of some of the inflationary cost of goods and freight that’s happened in the U.S. market. So I think some of that was to be expected. Of course, we’ll see how that passes through the system. Often you get a reaction in the short term. But I think the moment is uncertain, even here in the U.S.
SARA EISEN: As you look forward into consumer spending and the U.S. economy, what do you see in 2019?
JAMES QUINCEY: Again, 2019, I think, is uncertain. You know, you’ve got lots of forecasts out there, whether it’s the U.S. or globally, saying there’s going to be growth next year. Maybe not as much as 2018. A little bit slower. But still growth. Still growth in U.S. and still growth in the U.S. economy we think consumers will have the money and so we’re bullish on our plan.
SARA EISEN: Amid all the market volatility, your stock has done very well. It’s a defensive play, up 7% in the last three months, overall market down 8% in that environment. But you’re also outperforming some of the other staples. What do you chock the outperformance up to?
JAMES QUINCEY: Yeah, I think, you know, we’ve done -- we’ve had a good 2018. I think what people are starting to see is our growth story coming to life. We’ve now got five quarters in a row where we’ve had our top line in the range that we’re looking for in the long term with some good operating leverage turning into profits and turning into U.S. dollar earnings. So I think people are starting to see that we’re getting traction coming off the refranchising, the selling of our bottlers, coming off the reinvestment in sparkling. And as we lean forward into a broader portfolio, we’re starting to get the growth that people want us to start driving. And I think that’s coming through in the stock.
SARA EISEN: How do you keep the momentum growing? Wall Street is also a fan of the total beverage strategy, some of the deals you’ve done. What are you telling them to keep them excited about all of that?
JAMES QUINCEY: I think, you know, we’re talking about our discipline of building out the portfolio. Consumer brands are not created overnight. They tend to take a gestation period of time to come around. We’ve got to have to have a disciplined approach to building that portfolio around the world. If we stay consumer centric and work to create value for retailers and customers we sell to, we can continue to make this story happen into the future. And incorporate some of these acquisitions that we’ve made.
SARA EISEN: You get full control in April. You’ve been CEO over the last year but taking over as Chairman, what is that going to allow you to do that you haven’t been able to?
JAMES QUINCEY: I think it’s a process of transition. As CEO, you run the company. Obviously it’s a great honor to be nominated by the chair, by the board for April. But in the end, this is about taking the foundation that’s been created over 130 years and building the next growth chapter. We’ve got a great board. Obviously, I’ll be there as Chair. We’ve got a new lead independent director, our first female lead independent director, with the rest of the board and the management team. But our focus is on the next chapter of growth. Everything that’s come before is the foundation, to allow us to build going forward.
SARA EISEN: And on that end, deal making has been very busy. Busiest, I think, 2018, six deals. Didn’t see that from Coke in the last few years. Part of the Wall Street bullish thesis, and there are a number of notes out this morning reiterating that thesis, is that the pace continues to ramp. Is that what’s going to happen?
JAMES QUINCEY: I think pace of deal making is a very lumpy proposition. You know, no one corduroy year is projectable into the future. Because it’s about, you know, not just is the strategy right but do the financials add up and is the opportunity there to invest in the brands? We’re focused on building out the portfolio. We’ve had some good investments in 2018. We’re excited about their prospects in 2019 and beyond. What we’re focused on is putting the pieces in place so that we build out the portfolio --
SARA EISEN: But don’t expect that pace to continue. Is that what you’re saying?
JAMES QUINCEY: No, that pace is unlikely to continue at that rhythm in 2019. Of course partly we’ve got to absorb the ones we invested in, in 2018. But experience would tell you that they just don’t come up at that sort of rhythm the whole time. We need to focus on also bringing them to life as well.
SARA EISEN: Well one of the biggest and flashiest has been Costa Coffee, which is such a close soon. When and where are we going to see Costa in the U.S.?
JAMES QUINCEY: Actually, our focus -- firstly, we need to close the deal. That’s the first thing that needs to occur. And then we’ve got ideas on what the expansion should be for Costa, remembering that we’ve taken this on board because we actually see the multiple formats of Costa as the way it will play and fit into the Coke system. Yes there are some stores that build experience but the way that they have developed the business to be able to be within someone else’s business, combined with our huge strength is being a cold beverage partner, we can now be a hot beverage partner as well. That’s going to allow us to really offer the retailers and the Ad customers a much more effective solution for everything --
SARA EISEN: But it also means you’re in the restaurant business, which I know you’ve gotten a lot of questions about. It’s a departure for Coca-Cola. Has it changed the relationship with McDonald’s, your biggest food service customer -- your competitor now?
JAMES QUINCEY: It has some coffee stores. We’ve got a lot of customers out there. Some of them have asked questions about how that will work. But our focus as a coffee strategy is not trying to be the big retailer in the world. We’re trying to -- take the Costa vending machine, as an example. This is, in a way, the hot version of our Free Style Machine. Our Free Style Machine -- normally you have six or eight valves on a fountain gun, this can do over 100 beverages. Costa is the latest upgrade to cappuccino or barista style coffee. This is something that we think can pair fantastically with the business system that really – we have that exists today, and can help to drive a hot and cold solution for many retailers out there.
SARA EISEN: So coffee is growing, as you look toward more categories. So does CBD. And your answers have sort of – you’ve -- it sounds like you’re trying to play it cool and cautious when it comes to development of potentially CBD beverages. Why is that? There’s so much growth there, and it may not be legal fully in this country but it is -- the rules are changing.
JAMES QUINCEY: Yeah, look. We have an approach on all ingredients, including CBD, and the way I’ve expressed it is say, look, it needs to be legal. It needs to be safe.
SARA EISEN: It is in Canada.
JAMES QUINCEY: And it needs to be consumable. Well, it is not yet legal in Canada. But one day, in 2019, it will be in Canada. It needs to be safe. Consensus science is not out there. For us, as a large consumer company, consumers expect us to be on the safest end of ingredient science. So legal is one question. Consensus science that’s robustly behind safety is necessary for us but it also needs to be consumable. There are things you can take once in a while, a couple of times for a few days but then you should stop. We want our beverages to be consumable every day. So it needs to be safe --
SARA EISEN: It’s not there yet.
JAMES QUINCEY: And it’s not there yet.
SARA EISEN: How much tougher is the macro environment right now making all of this for you? Specifically foreign exchange?
JAMES QUINCEY: Foreign exchange is a problem. You know, we’re a 75% international company, based in the U.S., but 75% of our business is international. The currency environment had calmed off the back of ’17 and coming into ’18. Clearly in the third quarter for us, it went much more negative. It was about 8% negative on our earnings into the third quarter. I think, you know, what that’s going to look like in 2019, it’s very hard to say at this stage. I wish I had a crystal ball. So we’re going to focus on what we can control. But the currency will be an impact to us one way or the other. At the moment it’s standing in the negative column.
SARA EISEN: So would you join the chorus of those on Wall Street calling for the Fed to stop hiking interest rates so that the dollar slows down?
JAMES QUINCEY: I think that the Fed will follow their mandate, which is to set the rates that make most sense for the U.S. economy. Also having inflation take-off isn’t positive for consumer business either. It will eat into consumers’ purchasing power. So I don’t think it will be one of those things where one can look at a single variable. So I think the Fed will make the decision it makes. In the long run, the currency thing will play itself out. It’s just for a company like us, it affects us in the short term.
SARA EISEN: Brexit is a factor here, and a big source of anxiety in the market. What a mess. How do you think this all plays out?
JAMES QUINCEY: I don’t have a crystal ball on Brexit. I sort of suspect at the moment that it’s going to have to go to some sort of thing where they go back and ask the population what they really want. When you ask for a choice –
SARA EISEN: You think there’s going to be another referendum?
JAMES QUINCEY: I don’t know. I don’t know whether there will be a referendum. I personally think that having kind of a single transferrable vote between each of the different options, not just “do you want to stay?” or “not want to stay?” – you’ve got to choose between something that’s going to exist, you know. “Do you want in or do you want out? What sort of out do you want?” If you can have a transferrable vote between all those things, you would end up with – and eliminate the lowest vote, so you’d end up with something more than 50% of the population is for. Because the problem at the moment is everything -- everyone can find something they don’t like about everything that’s on the table. And what we need to achieve is something where more than 50% of the people coalesce around it and the rest of the population in the minority can live with it. I don’t know whether that will happen but I think it’s more likely than it was three weeks ago.
SARA EISEN: Is the trade war impacting you at all? I know you have a lot of local production in China but what about Coke as an American brand?
JAMES QUINCEY: Trade war isn’t really a direct impact on us, as you say. You know, virtually everywhere you go in the world, 95% of what’s sold in the country is made in the country. So we really truly are a local business in that sense. Trade wars tend to be an indirect impact. To the extent they dampen the economy, dampen consumer purchasing power. It feeds through as an impact on to us. And that’s how it affects us. And so in the end, we stand for better trade deals. None of them are perfect. All of them can be made better.
SARA EISEN: Do you think they’ll be able to make a deal, U.S. and China, 90 days?
JAMES QUINCEY: I don’t know. I hope so. But I don’t know.
SARA EISEN: When you see reports of iPhones being smashed in China, for instance, as a source of national pride, doesn’t that worry you about the big business that you’ve built on the ground there?
JAMES QUINCEY: Yeah. Clearly when these sorts of negotiations or disputes start to get very emotional, they can be picked up by elements and used for other purposes. But I think there are a lot of cool heads in governments around the world trying to focus on making trade better, trying to focus on growing the economy. In the end, they’re all in the business of delivering a better quality of life and better economics for their populations.
SARA EISEN: And finally, this hour, we’re watching Sundar Pichai, Google, testify on the hill, facing all sorts of scrutiny. You’re one of the biggest advertisers in the world. Do you pay attention to these hearings and the behavior and the scandals around companies like Google and Facebook when it comes to those advertising decisions?
JAMES QUINCEY: Yeah, absolutely we’re interested not just in what advertising vehicles are affected but what goes with them. We pay a lot of attention and we provide --
SARA EISEN: Are you making any moves on that?
JAMES QUINCEY: We are constantly evaluating where we should spend our media money, both on the effectiveness and what it reflects on us as a user of those vehicles.
SARA EISEN: Got it. James Quincey, thank you very much, weighing in on a number of topics in the news and on the company and the transformation you’re making. The CEO and incoming Chairman of Coca-Cola here in Atlanta. I’ll send it back to you guys.