COCA COLA CO 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations When used in this report, the terms “The Coca-Cola Company,” “Company,” “we,” “us” and “our” mean The Coca-Cola Company and all entities included in our consolidated financial statements. CRITICAL ACCOUNTING POLICIES AND ESTIMATES Recoverability of Equity Method Investments and Indefinite-Lived Intangible Assets Our Company faces many uncertainties and risks related to various economic, political and regulatory environments in the countries and territories in which we operate, particularly in developing and emerging markets. Refer to the headings “Item 1A. Risk Factors” in Part I and “Our Business — Challenges and Risks” in Part II of our Annual Report on Form 10-K for the year ended December 31, 2024, as well as the heading “Operations Review” below for additional information related to our present business environment. As a result, management must make numerous assumptions, which involve a significant amount of judgment, when performing impairment tests of equity method investments and indefinite-lived intangible assets in various regions around the world. The performance of impairment tests involves critical accounting estimates. These estimates require significant management judgment and include inherent uncertainties. Factors that management must estimate include, among others, the economic lives of the assets, sales volume, pricing, royalty rates, cost of raw materials, delivery costs, long-term growth rates, discount rates, marketing spending, foreign currency exchange rates, tax rates, capital spending and proceeds from the sale of assets. The variability of these factors depends on a number of conditions, and thus our accounting estimates may change from period to period. These factors are even more difficult to estimate given the highly volatile global financial markets. As these factors are often interdependent and may not change in isolation, we do not believe it is practicable or meaningful to present the impact of changing a single factor. In November 2021, the Company acquired the remaining 85% ownership interest in, and now owns 100% of, BodyArmor, which offers a line of sports performance and hydration beverages. During 2021, in conjunction with acquiring the remaining ownership interest, we recognized a noncash gain of $834 million resulting from the remeasurement of our previously held equity interest in BodyArmor to fair value. The Company allocated $4.2 billion of the $5.6 billion purchase price to the BodyArmor trademark. During the three months ended March 29, 2024, the operating results related to the trademark were lower than expected. Therefore, the Company revised its projections of the future operating results related to the trademark, which triggered the need to update its impairment analysis. As a result, the Company concluded that the fair value of the trademark was less than its carrying value and recorded an impairment charge of $760 million. The decrease in fair value was primarily driven by the revised projections of future operating results as well as higher discount rates resulting from changes in macroeconomic conditions since the acquisition date. As of March 28, 2025, the fair value of this trademark approximates its carrying value. If the near-term operating results of this trademark do not achieve our revised financial projections, or if the macroeconomic conditions change causing the discount rate to increase without an offsetting increase in the operating results, it is likely that we would be required to recognize an additional impairment charge. Management will continue to monitor the fair value of this trademark in future periods. OPERATIONS REVIEW Sales of our ready-to-drink beverages are somewhat seasonal, with the second and third calendar quarters typically accounting for the highest sales volumes. The volume of sales in the beverage business may be affected by weather conditions. While our operations are primarily local, we remain subject to global trade dynamics, which may impact certain components of our cost structure as well as the cost structures of our bottlers and our customers and may affect consumer sentiment across our markets. The Global Ventures operating segment was established primarily to oversee the Company’s ownership of Costa, innocent and doğadan, as well as the fees earned pursuant to distribution coordination agreements between the Company and Monster. In November 2024, we announced plans to sunset our Global Ventures operating segment to streamline and simplify our operating structure. Effective January 1, 2025, the results of our Costa (excluding the ready-to-drink business), innocent and doğadan businesses are reported within the Company’s Europe, Middle East and Africa operating segment. Costa’s ready-to-drink business and the fees related to Monster are reported in the respective geographic operating segments. Our historical operating segment information disclosed below has been recast to reflect our current organizational structure. 28 Structural Changes, Acquired Brands and Newly Licensed Brands In order to continually improve upon the Company’s operating performance, from time to time we engage in buying and selling ownership interests in bottling partners and other manufacturing operations. In addition, we periodically acquire brands and their related operations or enter into license agreements for certain brands to supplement our beverage offerings. These items impact our operating results and certain key metrics used by management in assessing the Company’s performance. Unit case volume growth is a key metric used by management to evaluate the Company’s performance because it measures demand for our products at the consumer level. The Company’s unit case volume represents the number of unit cases (or unit case equivalents) of Company beverage products directly or indirectly sold by the Company and its bottling partners to customers or consumers and, therefore, reflects unit case volume for both consolidated and unconsolidated bottlers. Refer to the heading “Beverage Volume” below. Concentrate sales volume represents the amount of concentrates, syrups, source waters and powders/minerals (in all instances expressed in unit case equivalents) sold by, or used in finished products sold by, the Company to its bottling partners or other customers. For Costa non-ready-to-drink beverage products, concentrate sales volume represents the amount of beverages, primarily measured in number of transactions (in all instances expressed in unit case equivalents), sold by the Company to customers or consumers. Refer to the heading “Beverage Volume” below. When we analyze our net operating revenues, we generally consider the following factors: (1) volume growth (concentrate sales volume or unit case volume, as applicable); (2) changes in price, product and geographic mix; (3) foreign currency exchange rate fluctuations; and (4) acquisitions and divestitures (including structural changes as defined below), as applicable. Refer to the heading “Net Operating Revenues” below. The Company sells concentrates and syrups to both consolidated and unconsolidated bottling partners. The ownership structure of our bottling partners impacts the timing of recognizing concentrate revenue and concentrate sales volume. When we sell concentrates or syrups to our consolidated bottling partners, we do not recognize the concentrate revenue or concentrate sales volume until the bottling partner has sold finished products manufactured from the concentrates or syrups to a third party. When we sell concentrates or syrups to our unconsolidated bottling partners, we recognize the concentrate revenue and concentrate sales volume when the concentrates or syrups are sold to the bottling partner. The subsequent sale of the finished products manufactured from the concentrates or syrups to a third party does not impact the timing of recognizing the concentrate revenue or concentrate sales volume. When we account for an unconsolidated bottling partner as an equity method investment, we eliminate the intercompany profit related to concentrate sales to the extent of our ownership interest, until the equity method investee has sold finished products manufactured from the concentrates or syrups to a third party. We typically report unit case volume when finished products manufactured from the concentrates or syrups are sold to a third party, regardless of our ownership interest in the bottling partner, if any. We generally refer to acquisitions and divestitures of bottling operations as “structural changes,” which are a component of acquisitions and divestitures. Typically, structural changes do not impact the Company’s unit case volume on a consolidated basis or at the geographic operating segment level. We recognize unit case volume for all sales of Company beverage products, regardless of our ownership interest in the bottling partner, if any. However, the unit case volume reported by our Bottling Investments operating segment is generally impacted by structural changes because it only includes the unit case volume of our consolidated bottling operations. Refer to Note 2 of Notes to Consolidated Financial Statements for additional information on the Company’s acquisitions and divestitures. “Acquired brands” refers to brands acquired during the past 12 months. Typically, the Company has not reported unit case volume or recognized concentrate sales volume related to acquired brands in periods prior to the closing of a transaction. Therefore, the unit case volume and concentrate sales volume related to an acquired brand are incremental to prior year volume. We generally do not consider the acquisition of a brand to be a structural change. “Licensed brands” refers to brands not owned by the Company but for which we hold certain rights, generally including, but not limited to, distribution rights, and from which we derive an economic benefit when the related products are sold. Typically, the Company has not reported unit case volume or recognized concentrate sales volume related to a licensed brand in periods prior to the beginning of the term of a license agreement. Therefore, in the year that a license agreement is entered into, the unit case volume and concentrate sales volume related to a licensed brand are incremental to prior year volume. We generally do not consider the licensing of a brand to be a structural change. In January, February and December 2024, the Company refranchised our bottling operations in certain territories in India, and in February 2024, the Company refranchised our bottling operations in Bangladesh and the Philippines. The impact of each of these refranchisings has been included as a structural change in our analysis of net operating revenues on a consolidated basis as well as for the Bottling Investments and Asia Pacific operating segments for the three months ended March 28, 2025. 29 Beverage Volume We measure the volume of Company beverage products sold in two ways: (1) unit cases of finished products and (2) concentrate sales. As used in this report, “unit case” means a unit of measurement equal to 192 U.S. fluid ounces of finished beverage (24 eight-ounce servings), with the exception of unit case equivalents for Costa non-ready-to-drink beverage products, which are primarily measured in number of transactions; and “unit case volume” means the number of unit cases (or unit case equivalents) of Company beverage products directly or indirectly sold by the Company and its bottling partners to customers or consumers. Unit case volume primarily consists of beverage products bearing Company trademarks. Also included in unit case volume are certain brands licensed to, or distributed by, our Company, and brands owned by Coca-Cola system bottlers for which our Company provides marketing support and from the sale of which we derive an economic benefit. In addition, unit case volume includes sales by certain joint ventures in which the Company has an ownership interest. We believe unit case volume is one of the indicators of the underlying strength of the Coca-Cola system because it measures demand for our products at the consumer level. The unit case volume numbers used in this report are derived based on estimates received by the Company from its bottling partners and distributors. Concentrate sales volume represents the amount of concentrates, syrups, source waters and powders/minerals (in all instances expressed in unit case equivalents) sold by, or used in finished beverages sold by, the Company to its bottling partners or other customers. For Costa non-ready-to-drink beverage products, concentrate sales volume represents the amount of beverages, primarily measured in number of transactions (in all instances expressed in unit case equivalents), sold by the Company to customers or consumers. Unit case volume and concentrate sales volume growth rates are not necessarily equal during any given period. Factors such as seasonality, bottlers’ inventory practices, supply point changes, timing of price increases, new product introductions and changes in product mix can create differences between unit case volume and concentrate sales volume growth rates. In addition to these items, the impact of unit case volume from certain joint ventures in which the Company has an ownership interest, but to which the Company does not sell concentrates, syrups, source waters or powders/minerals, may give rise to differences between unit case volume and concentrate sales volume growth rates. Information about our volume growth worldwide and for each of our operating segments is as follows: Percent Change 2025 versus 2024 Three Months Ended March 28, 2025 Unit Cases 1,2,3 Concentrate Sales 4 Worldwide 2 % 1 % Europe, Middle East & Africa 3 1 Latin America — (3) North America (3) (4) Asia Pacific 6 2 6 Bottling Investments (17) 5 N/A 1 Bottling Investments operating segment data reflects unit case volume growth for consolidated bottlers only. 2 Geographic operating segment data reflects unit case volume growth for all bottlers, both consolidated and unconsolidated, and distributors in the applicable geographic areas. Unit case volume growth for Costa retail stores is reflected in the Europe, Middle East and Africa operating segment data. 3 Unit case volume percent change is based on average daily sales. Unit case volume growth based on average daily sales is computed by comparing the average daily sales in each of the corresponding periods. Average daily sales are the unit cases sold during the period divided by the number of days in the period. 4 Concentrate sales volume represents the amount of concentrates, syrups, source waters and powders/minerals (in all instances expressed in unit case equivalents) sold by, or used in finished beverages sold by, the Company to its bottling partners or other customers and is not based on average daily sales. For Costa non-ready-to-drink beverage products, concentrate sales volume represents the amount of beverages, primarily measured in number of transactions (in all instances expressed in unit case equivalents), sold by the Company to customers or consumers and is not based on average daily sales. Each of our quarters, other than the fourth quarter, ends on the Friday closest to the last day of the corresponding quarterly calendar period. As a result, the first quarter of 2025 had two fewer days when compared to the first quarter of 2024, and the fourth quarter of 2025 will have one additional day when compared to the fourth quarter of 2024. 5 After considering the impact of structural changes, unit case volume for Bottling Investments for the three months ended March 28, 2025 grew 1%. 6 After considering the impact of structural changes, concentrate sales volume for Asia Pacific for the three months ended March 28, 2025 grew 8%. 30 Unit Case Volume Although a significant portion of our Company’s net operating revenues is not based directly on unit case volume, we believe unit case volume performance is one of the indicators of the underlying strength of the Coca-Cola system because it measures demand for our products at the consumer level. Unit case volume in Europe, Middle East and Africa increased 3%, which included 3% growth in both Trademark Coca-Cola and sparkling flavors, 2% growth in water, sports, coffee and tea, as well as growth in energy drinks, partially offset by a 5% decline in juice, value-added dairy and plant-based beverages. The operating segment’s volume performance included an increase in unit case volume of 11% in the Eurasia and Middle East operating unit, 1% in the Africa operating unit and growth in energy drinks, partially offset by a decline of 1% in the Europe operating unit. Unit case volume in Latin America was even, which included 1% growth in both Trademark Coca-Cola and water, sports, coffee and tea, as well as growth in energy drinks, offset by a 4% decline in sparkling flavors. Unit case volume in juice, value-added dairy and plant-based beverages was even. The operating segment’s volume performance included 4% growth in Brazil and 17% growth in Argentina, offset by a decline of 3% in Mexico. Unit case volume in North America decreased 3%, which included a 3% decline in Trademark Coca-Cola, a 6% decline in water, sports, coffee and tea, and a 1% decline in sparkling flavors, partially offset by growth in energy drinks. Unit case volume in juice, value-added dairy and plant-based beverages was even. Unit case volume in Asia Pacific increased 6%, which included 6% growth in sparkling flavors, 7% growth in water, sports, coffee and tea, 3% growth in Trademark Coca-Cola, 4% growth in juice, value-added dairy and plant-based beverages and growth in energy drinks. The operating segment’s volume performance included 16% growth in the India and Southwest Asia operating unit, 6% growth in the Greater China and Mongolia operating unit, 1% growth in the Japan and South Korea operating unit and growth in energy drinks, partially offset by a decline of 2% in the ASEAN and South Pacific operating unit. Unit case volume for Bottling Investments decreased 17%, driven by the impact of refranchising our bottling operations in the Philippines, Bangladesh and certain territories in India. Concentrate Sales Volume During the three months ended March 28, 2025, worldwide concentrate sales volume increased 1% and unit case volume increased 2% compared to the three months ended March 29, 2024. Concentrate sales volume growth is calculated based on the amount sold during the reporting periods, which is impacted by the number of days. Conversely, unit case volume growth is calculated based on average daily sales, which is not impacted by the number of days in the reporting periods. The first quarter of 2025 had two fewer days when compared to the first quarter of 2024, which contributed to the differences between concentrate sales volume and unit case volume growth rates on a consolidated basis and for the individual operating segments. Additionally, the differences between concentrate sales volume and unit case volume growth rates for the operating segments were impacted by the timing of concentrate shipments. We expect the differences between concentrate sales volume and unit case volume growth rates to lessen over the remainder of the year. 31 Net Operating Revenues During the three months ended March 28, 2025, net operating revenues were $11,129 million, compared to $11,300 million during the three months ended March 29, 2024, a decrease of $171 million, or 2%. The following table illustrates, on a percentage basis, the estimated impact of the factors resulting in the increase (decrease) in net operating revenues on a consolidated basis and for each of our operating segments: Percent Change 2025 versus 2024 Volume 1 Price, Product & Geographic Mix Foreign Currency Fluctuations Acquisitions & Divestitures 2 Total Consolidated 1 % 5 % (5) % (3) % (2) % Europe, Middle East & Africa 1 6 (6) — 1 Latin America (3) 16 (16) — (3) North America (4) 8 — — 3 Asia Pacific 8 (1) (6) (5) (4) Bottling Investments (1) 3 (3) (18) (20) Note: Certain rows may not add due to rounding. 1 Represents the percent change in net operating revenues attributable to the increase (decrease) in concentrate sales volume for our geographic operating segments after considering the impact of acquisitions and divestitures, if any. For our Bottling Investments operating segment, this represents the percent change in net operating revenues attributable to the increase (decrease) in unit case volume computed by comparing the total sales (rather than the average daily sales) in each of the corresponding periods after considering the impact of structural changes, if any. Our Bottling Investments operating segment data reflects unit case volume growth for consolidated bottlers only after considering the impact of structural changes, if any. Refer to the heading “Beverage Volume” above. 2 Includes structural changes, if any. Refer to the heading “Structural Changes, Acquired Brands and Newly Licensed Brands” above. Refer to the heading “Beverage Volume” above for additional information related to changes in our unit case and concentrate sales volumes. “Price, product and geographic mix” refers to the change in net operating revenues caused by factors such as pricing actions taken by the Company and, where applicable, our bottling partners; the mix of categories, products and packages sold; and the mix of channels and geographic territories where the sales occurred. Management believes that providing investors with price, product and geographic mix enhances their understanding about the combined impact that these items had on the Company’s net operating revenues. The impact of price, product and geographic mix is calculated by subtracting the change in net operating revenues resulting from volume increases or decreases, fluctuations in foreign currency exchange rates, and acquisitions and divestitures from the total change in net operating revenues. Management uses this measure in making financial, operating and planning decisions and in evaluating the Company’s performance. Price, product and geographic mix had a 5% favorable impact on our consolidated net operating revenues. Price, product and geographic mix was impacted by a variety of factors and events including, but not limited to, the following: • Europe, Middle East and Africa — favorable pricing initiatives, including inflationary pricing, partially offset by unfavorable mix; • Latin America — favorable pricing initiatives, including inflationary pricing in Argentina, and favorable mix; • North America — favorable pricing initiatives and favorable mix; • Asia Pacific — unfavorable mix, partially offset by favorable pricing initiatives; and • Bottling Investments — favorable pricing initiatives, partially offset by unfavorable mix. Fluctuations in foreign currency exchange rates unfavorably impacted our consolidated net operating revenues by 5%. This unfavorable impact was primarily due to a stronger U.S. dollar compared to certain foreign currencies, including the Mexican peso, Brazilian real, Argentine peso, Ethiopian birr, euro, Zimbabwe gold, and Nigerian naira, which had an unfavorable impact on our Latin America; Europe, Middle East and Africa; and Bottling Investments operating segments. Refer to the heading “Liquidity, Capital Resources and Financial Position — Foreign Exchange” below. 32 “Acquisitions and divestitures” generally refers to acquisitions and divestitures of brands or businesses, some of which the Company considers to be structural changes. The impact of acquisitions and divestitures is the difference between the change in net operating revenues and the change in what our net operating revenues would have been if we removed the net operating revenues associated with an acquisition or a divestiture from either the current year or the prior year, as applicable. Management believes that quantifying the impact that acquisitions and divestitures had on the Company’s net operating revenues provides investors with useful information to enhance their understanding of the Company’s net operating revenue performance by improving their ability to compare our period-to-period results. Management considers the impact of acquisitions and divestitures when evaluating the Company’s performance. Refer to the heading “Structural Changes, Acquired Brands and Newly Licensed Brands” above for additional information related to acquisitions and divestitures. Net operating revenue growth rates are impacted by sales volume; price, product and geographic mix; foreign currency exchange rate fluctuations; and acquisitions and divestitures. The size and timing of acquisitions and divestitures are not consistent from period to period. Based on current spot rates and our hedging coverage in place, we expect foreign currency exchange rate fluctuations will have an unfavorable impact on our full year 2025 net operating revenues. Gross Profit Margin Gross profit margin is a ratio calculated by dividing gross profit by net operating revenues. Management believes gross profit margin provides investors with useful information related to the profitability of our business prior to considering all of the selling, general and administrative expenses and other operating charges incurred. Management uses this measure in making financial, operating and planning decisions and in evaluating the Company’s performance. Our gross profit margin increased to 62.6% for the three months ended March 28, 2025, compared to 62.5% for the three months ended March 29, 2024. The increase was primarily due to the impact of favorable pricing initiatives and the refranchising of our bottling operations in the Philippines, Bangladesh and certain territories in India, partially offset by the unfavorable impact of foreign currency exchange rate fluctuations and higher commodity costs. Selling, General and Administrative Expenses During the three months ended March 28, 2025, selling, general and administrative expenses was $3,234 million, compared to $3,351 million during the three months ended March 29, 2024, a decrease of $117 million, or 4%. The decrease was primarily due to the refranchising of our bottling operations in the Philippines, Bangladesh and certain territories in India as well as an unfavorable foreign currency exchange rate impact of 3%. Advertising expenses for the three months ended March 28, 2025 and March 29, 2024 were $1,089 million and $1,161 million, respectively. As of March 28, 2025, we had $391 million of total unrecognized compensation cost related to nonvested stock-based compensation awards granted under our plans, which we expect to recognize over a weighted-average period of 2.0 years as stock-based compensation expense. This expected cost does not include the impact of any future stock-based compensation awards. Other Operating Charges Other operating charges incurred by our operating segments and Corporate were as follows (in millions): Three Months Ended March 28, 2025 March 29, 2024 Europe, Middle East & Africa $ — $ — Latin America — — North America — 760 Asia Pacific — — Bottling Investments — — Corporate 73 813 Total $ 73 $ 1,573 During the three months ended March 28, 2025, the Company recorded other operating charges of $73 million. These charges consisted of $47 million related to the remeasurement of our contingent consideration liability to fair value in conjunction with our acquisition of fairlife in 2020, which brought the total liability to $6,173 million and was paid in March 2025. Additionally, other operating charges included $11 million related to the Company’s productivity and reinvestment program, $9 million related to an indemnification agreement entered into as a part of the refranchising of certain of our bottling operations, $3 million for the amortization of noncompete agreements related to the BodyArmor acquisition and $3 million related to tax litigation expense. 33 During the three months ended March 29, 2024, the Company recorded other operating charges of $1,573 million. These charges consisted of $765 million related to the remeasurement of our contingent consideration liability to fair value in conjunction with our acquisition of fairlife, $760 million related to the impairment of our BodyArmor trademark and $36 million related to the Company’s productivity and reinvestment program. In addition, other operating charges included $7 million for transaction costs related to the refranchising of our bottling operations in certain territories in India, $4 million for the amortization of noncompete agreements related to the BodyArmor acquisition and $1 million related to tax litigation expense. Refer to Note 2 of Notes to Consolidated Financial Statements for additional information on the refranchising of our bottling operations in certain territories in India. Refer to Note 9 of Notes to Consolidated Financial Statements for additional information on the tax litigation. Refer to Note 13 of Notes to Consolidated Financial Statements for additional information on the Company’s restructuring initiatives. Refer to Note 16 of Notes to Consolidated Financial Statements for additional information on the fairlife acquisition and the BodyArmor impairment. Refer to Note 17 of Notes to Consolidated Financial Statements for the impact these charges had on our operating segments and Corporate. Operating Income and Operating Margin Information about our operating income contribution by operating segment and Corporate on a percentage basis is as follows: Three Months Ended March 28, 2025 March 29, 2024 Europe, Middle East & Africa 29.1 % 50.5 % Latin America 24.7 44.1 North America 36.7 23.2 Asia Pacific 17.1 30.7 Bottling Investments 3.2 7.3 Corporate (10.8) (55.8) Total 100.0 % 100.0 % Operating margin is a ratio calculated by dividing operating income by net operating revenues. Management believes operating margin provides investors with useful information related to the profitability of our business after considering all of the selling, general and administrative expenses and other operating charges incurred. Management uses this measure in making financial, operating and planning decisions and in evaluating the Company’s performance. Information about our operating margin on a consolidated basis and for each of our operating segments and Corporate is as follows: Three Months Ended March 28, 2025 March 29, 2024 Consolidated 32.9 % 18.9 % Europe, Middle East & Africa 42.9 44.4 Latin America 61.2 61.7 North America 30.8 11.8 Asia Pacific 47.1 51.9 Bottling Investments 8.1 8.6 Corporate * * * Calculation is not meaningful. During the three months ended March 28, 2025, operating income was $3,659 million, compared to $2,141 million during the three months ended March 29, 2024, an increase of $1,518 million, or 71%. The increase was driven by an increase in concentrate sales volume of 1%, favorable pricing initiatives and lower other operating charges, partially offset by the impact of refranchising our bottling operations in the Philippines, Bangladesh and certain territories in India; higher commodity costs; and an unfavorable foreign currency exchange rate impact of 18%. Fluctuations in foreign currency exchange rates unfavorably impacted consolidated operating income by 18% due to a stronger U.S. dollar compared to certain foreign currencies, including the Mexican peso, Brazilian real, Argentine peso, euro, and Zimbabwe gold, which had an unfavorable impact on our Latin America and Europe, Middle East and Africa operating segments. Refer to the heading “Liquidity, Capital Resources and Financial Position — Foreign Exchange” below. 34 The Europe, Middle East and Africa operating segment reported operating income of $1,065 million and $1,080 million for the three months ended March 28, 2025 and March 29, 2024, respectively. The decrease in operating income was primarily driven by higher commodity costs, increased marketing spending, higher operating expenses and an unfavorable foreign currency exchange rate impact of 9%, partially offset by an increase in concentrate sales volume of 1% and favorable pricing initiatives. Latin America reported operating income of $904 million and $945 million for the three months ended March 28, 2025 and March 29, 2024, respectively. The decrease in operating income was primarily driven by a decrease in concentrate sales volume of 3%, higher commodity costs and an unfavorable foreign currency exchange rate impact of 22%, partially offset by favorable pricing initiatives and lower operating expenses. Operating income for North America for the three months ended March 28, 2025 and March 29, 2024 was $1,341 million and $497 million, respectively. The increase in operating income was primarily driven by favorable pricing initiatives and lower other operating charges due to the impairment of our BodyArmor trademark in the prior year, partially offset by a decrease in concentrate sales volume of 4%, higher commodity costs, increased marketing spending, higher operating expenses and an unfavorable foreign currency exchange rate impact of 1%. Refer to Note 16 of Notes to Consolidated Financial Statements for additional information on the impairment of our BodyArmor trademark. Asia Pacific’s operating income for the three months ended March 28, 2025 and March 29, 2024 was $624 million and $657 million, respectively. The decrease in operating income was primarily driven by the impact of structural changes, higher operating expenses and an unfavorable foreign currency exchange rate impact of 11%, partially offset by concentrate sales volume growth of 8%, lower commodity costs and lower marketing spending due to timing. Bottling Investments’ operating income for the three months ended March 28, 2025 and March 29, 2024 was $119 million and $156 million, respectively. The decrease in operating income was primarily driven by the impact of refranchising our bottling operations in the Philippines, Bangladesh and certain territories in India, higher commodity costs, higher operating expenses and an unfavorable foreign currency exchange rate impact of 4%, partially offset by favorable pricing initiatives. Corporate’s operating loss for the three months ended March 28, 2025 and March 29, 2024 was $394 million and $1,194 million, respectively. Operating loss in 2025 decreased primarily as a result of lower operating expenses and lower other operating charges, primarily due to the remeasurement of our contingent consideration liability to fair value in conjunction with the fairlife acquisition. Refer to Note 16 of Notes to Consolidated Financial Statements for additional information on the fairlife acquisition. Based on current spot rates and our hedging coverage in place, we expect foreign currency exchange rate fluctuations will have an unfavorable impact on our full year 2025 operating income. Interest Income During the three months ended March 28, 2025, interest income was $180 million, compared to $246 million during the three months ended March 29, 2024, a decrease of $66 million, or 27%. The decrease was primarily driven by lower average investment balances on our Corporate and certain international investments. Interest Expense During the three months ended March 28, 2025, interest expense was $387 million, compared to $382 million during the three months ended March 29, 2024, an increase of $5 million, or 1%. The increase was primarily due to the impact of higher debt balances, partially offset by lower rates on derivative instruments compared to the prior year. Equity Income (Loss) — Net During the three months ended March 28, 2025, equity income was $351 million, compared to equity income of $354 million during the three months ended March 29, 2024, a decrease of $3 million, or 1%. Other Income (Loss) — Net During the three months ended March 28, 2025, other income (loss) — net was income of $254 million. The Company recognized a net gain of $331 million related to the sale of a portion of our ownership interest in CCEP, an impairment charge of $25 million related to an equity method investee in Latin America and a net loss of $19 million related to realized and unrealized gains and losses on equity securities and trading debt securities as well as realized gains and losses on available-for-sale debt securities. Additionally, the Company recognized net foreign currency exchange losses of $16 million, $24 million of costs related to our trade accounts receivable factoring program and dividend income of $55 million. Other income (loss) — net also included expense of $33 million related to the non-service cost components of net periodic benefit cost, which included 35 charges of $25 million and $11 million for special termination benefits and a curtailment loss, respectively, related to non-U.S. pension activity. During the three months ended March 29, 2024, other income (loss) — net was income of $1,513 million. The Company recognized net gains of $599 million and $293 million related to the refranchising of our bottling operations in the Philippines and certain territories in India, respectively. The Company also recognized a net gain of $516 million related to the sale of our ownership interest in an equity method investee in Thailand. Additionally, the Company recognized a net gain of $178 million related to realized and unrealized gains and losses on equity securities and trading debt securities as well as realized gains and losses on available-for-sale debt securities, recognized net foreign currency exchange losses of $68 million and recorded $22 million of costs related to our trade accounts receivable factoring program. Other income (loss) — net also included income of $15 million related to the non-service cost components of net periodic benefit cost and dividend income of $25 million. Refer to Note 2 of Notes to Consolidated Financial Statements for additional information on the sale of our ownership interest in CCEP, the sale of our ownership interest in an equity method investee in Thailand and the refranchising of our bottling operations. Refer to Note 4 of Notes to Consolidated Financial Statements for additional information on equity and debt securities. Refer to Note 14 of Notes to Consolidated Financial Statements for additional information on net periodic benefit cost or income. Refer to Note 16 of Notes to Consolidated Financial Statements for additional information on the impairment charge. Income Taxes The Company recorded income taxes of $722 million (17.8% effective tax rate) and $687 million (17.7% effective tax rate) during the three months ended March 28, 2025 and March 29, 2024, respectively. The Company’s effective tax rates for the three months ended March 28, 2025 and March 29, 2024 vary from the statutory U.S. federal tax rate of 21.0%, primarily due to the tax impact of significant operating and nonoperating items, as described in Note 12 of Notes to Consolidated Financial Statements, along with the tax benefits of having significant earnings generated outside of the United States and significant earnings generated in investments accounted for under the equity method, both of which are generally taxed at rates lower than the statutory U.S. federal tax rate. The Company’s effective tax rate for the three months ended March 28, 2025 included $143 million of net tax benefits related to various discrete tax items, including net interest income of $53 million related to the IRS Tax Litigation Deposit recorded in the line item income taxes in our consolidated statement of income, in accordance with our accounting policy, and a tax benefit of $85 million related to a change in the Company’s indefinite reinvestment assertion for certain foreign entities. On November 18, 2020, the Tax Court issued the Opinion regarding the Company’s 2015 litigation with the IRS involving transfer pricing tax adjustments in which it predominantly sided with the IRS. On November 8, 2023, the Tax Court issued a supplemental opinion, siding with the IRS in concluding both that the blocked-income regulations apply to the Company’s operations and that the Tax Court opinion in 3M Co. & Subs. v. Commissioner (February 9, 2023) controlled as to the validity of those regulations. The Company strongly disagrees with the Opinions and intends to vigorously defend its positions. Refer to Note 9 of Notes to Consolidated Financial Statements for additional information on the tax litigation. At the end of each quarter, we make our best estimate of the effective tax rate expected to be applicable for the full fiscal year. This estimate reflects, among other items, our best estimate of operating results and foreign currency exchange rates. Based on current tax laws, including the impact of several countries enacting global minimum tax regulations, the Company’s effective tax rate in 2025 is expected to be approximately 20.8% before considering the potential impact of any significant operating and nonoperating items that may affect our effective tax rate. This rate does not include the impact of the ongoing tax litigation with the IRS, if the Company were not to prevail. Many jurisdictions have enacted legislation and adopted policies resulting from the Organization for Economic Co-operation and Development’s (“OECD”) Anti-Base Erosion and Profit Shifting project. The OECD is currently coordinating a two-pillared project on behalf of the G20 and other participating countries which would grant additional taxing rights over profits earned by multinational enterprises to the countries in which their products are sold and services rendered. Pillar One would allow countries to reallocate a portion of profits earned by multinational businesses with an annual global revenue exceeding €20 billion and a profit margin of over 10% to applicable market jurisdictions. While the OECD issued draft language for the international implementation of Pillar One in October 2023, both the substantive rules and implementation process remain under discussion at the OECD, so the timetable for any implementation remains uncertain. In December 2021, the OECD issued Pillar Two model rules which would establish a global per-country minimum tax of 15%, and the European Union has approved a directive requiring member states to incorporate similar provisions into their respective domestic laws. The directive requires, with certain limited exceptions, the rules to initially become effective for fiscal years starting on or after December 31, 2023. Numerous countries have enacted legislation that implemented certain aspects of Pillar Two effective January 1, 2024, while many others have indicated their intent to adopt, or have adopted, legislation effective in 36 2025. The OECD and implementing countries are expected to continue to make further revisions to their legislation and release additional guidance. The Company will continue to monitor developments to determine any potential impact in the countries in which we operate. LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL POSITION We believe our ability to generate cash flows from operating activities is one of the fundamental strengths of our business. Refer to the heading “Cash Flows from Operating Activities” below. The Company does not typically raise capital through the issuance of stock. Instead, we use debt financing to lower our overall cost of capital and increase our return on shareowners’ equity. Refer to the heading “Cash Flows from Financing Activities” below. We have a history of borrowing funds both domestically and internationally at reasonable interest rates, and we expect to be able to continue to borrow funds at reasonable rates over the long term. Our debt financing also includes the use of a commercial paper program. We currently have the ability to borrow funds in this market at levels that are consistent with our debt financing strategy, and we expect to continue to be able to do so in the future. The Company regularly reviews its optimal mix of short-term and long-term debt. The Company’s cash, cash equivalents, short-term investments and marketable securities totaled $13.8 billion as of March 28, 2025. In addition to these funds, our commercial paper program, and our ability to issue long-term debt, we had $4.6 billion in unused backup lines of credit for general corporate purposes as of March 28, 2025. These backup lines of credit expire at various times through 2030. Our current payment terms with the majority of our suppliers are 120 days. Certain financial institutions offer a voluntary supply chain finance program which enables our suppliers, at their sole discretion, to sell their receivables from the Company to these financial institutions on a non-recourse basis at a rate that leverages our credit rating and thus may be more beneficial to them. We do not believe there is a risk that our payment terms will be shortened in the near future. Refer to Note 7 of Notes to Consolidated Financial Statements for additional information. The Company has a trade accounts receivable factoring program in certain countries. Under this program, we can elect to sell trade accounts receivables to unaffiliated financial institutions at a discount. In these factoring arrangements, for ease of administration, the Company collects customer payments related to the factored receivables and remits those payments to the financial institutions. The Company sold $5,034 million and $4,508 million of trade accounts receivables under this program during the three months ended March 28, 2025 and March 29, 2024, respectively. The costs of factoring such receivables were $24 million and $22 million for the three months ended March 28, 2025 and March 29, 2024, respectively. The cash received from the financial institutions is reflected within the operating activities section of our consolidated statement of cash flows. Our current capital allocation priorities are as follows: investing wisely to support our business operations, continuing to grow our dividend payment, enhancing our beverage portfolio and capabilities through consumer-centric acquisitions, and using excess cash to repurchase shares over time. We currently expect 2025 capital expenditures to be approximately $2.2 billion. During 2025, we expect to repurchase shares to offset dilution resulting from employee stock-based compensation. We are currently in litigation with the IRS for tax years 2007 through 2009. On November 18, 2020, the Tax Court issued the Opinion in which it predominantly sided with the IRS. On November 8, 2023, the Tax Court issued a supplemental opinion, siding with the IRS in concluding both that certain U.S. tax regulations (known as the blocked-income regulations) that address the effect of certain Brazilian legal restrictions on royalty payments by the Company’s licensee in Brazil apply to the Company’s operations and that the Tax Court opinion in 3M Co. & Subs. v. Commissioner (February 9, 2023) controlled as to the validity of those regulations. On August 2, 2024, the Tax Court entered a decision reflecting additional federal income tax of $2.7 billion for the 2007 through 2009 tax years. With applicable interest, the total liability for the 2007 through 2009 tax years resulting from the Tax Court’s decision is $6.0 billion, for which the IRS issued the Company invoices on September 3, 2024. The Company paid the IRS Tax Litigation Deposit on September 10, 2024, which stopped interest from accruing on the additional tax due for the 2007 through 2009 tax years. That amount, plus interest earned, would be refunded in full or in part if the Company’s tax positions are ultimately sustained on appeal. For the three months ended March 28, 2025, the Company recorded net interest income of $53 million related to this tax payment in the line item income taxes in our consolidated statement of income, in accordance with our accounting policy. The payment of the IRS invoices and the related accrued interest were recorded in the line item other noncurrent assets in our consolidated balance sheets as of March 28, 2025 and December 31, 2024. On October 22, 2024, the Company appealed the Tax Court’s decision to the U.S. Court of Appeals for the Eleventh Circuit. The Company filed its principal appellate brief with the U.S. Court of Appeals for the Eleventh Circuit on March 12, 2025. The Company strongly disagrees with the IRS’ positions and the portions of the Opinions affirming such positions and intends to vigorously defend our positions utilizing every available avenue of appeal. While the Company believes that it is more likely than not that we will ultimately prevail in this litigation upon appeal, it is possible that all, or some portion of, the adjustments proposed by the IRS and sustained by the Tax Court could ultimately be upheld. In that event, the Company would not receive a refund of the applicable portion or all of the $6.0 billion it paid in response to the IRS invoices issued in September 2024 and the related accrued interest receivable of $171 million as of March 28, 2025. Additionally, the Company would likely be subject to significant additional liabilities for subsequent years, which could have a material adverse 37 impact on the Company’s financial position, results of operations and cash flows. The Company estimates that the potential aggregate remaining incremental tax and interest liability for the tax years 2010 through 2024 could be approximately $12 billion as of December 31, 2024. Additional income tax and interest on any unpaid potential liabilities for the 2010 through 2024 tax years would continue to accrue until the time any such potential liability, or portion thereof, were to be paid. The Company estimates the impact of the continued application of the methodology asserted by the IRS and affirmed in the Opinions for the three months ended March 28, 2025 would increase the potential aggregate incremental tax and interest liability by approximately $400 million. Refer to Note 9 of Notes to Consolidated Financial Statements for additional information on the tax litigation. While we believe it is more likely than not that we will prevail in the tax litigation discussed above, we are confident that, between our ability to generate cash flows from operating activities and our ability to borrow funds at reasonable interest rates, we can manage the range of possible outcomes in the final resolution of the matter. Based on all of the aforementioned factors, the Company believes its current liquidity position is strong and will continue to be sufficient to fund our operating activities and cash commitments for investing and financing activities for the foreseeable future. Cash Flows from Operating Activities Net cash used in operating activities during the three months ended March 28, 2025 was $5,202 million, and net cash provided by operating activities during the three months ended March 29, 2024 was $528 million, a decrease of $5,730 million. The decrease was primarily driven by $6,069 million of the $6,173 million final milestone payment for fairlife that was made during the three months ended March 28, 2025, the prior year benefits of both the trade accounts receivable factoring program and the dividend payment from an equity method investee in Thailand, as well as the unfavorable impact due to foreign currency exchange rate fluctuations. These items were partially offset by strong cash operating results and the timing of changes in working capital. Cash Flows from Investing Activities Net cash used in investing activities during the three months ended March 28, 2025 was $1,067 million, and net cash provided by investing activities during the three months ended March 29, 2024 was $330 million. Purchases of Investments and Proceeds from Disposals of Investments During the three months ended March 28, 2025, purchases of investments were $2,507 million and proceeds from disposals of investments were $1,005 million, resulting in a net cash outflow of $1,502 million. During the three months ended March 29, 2024, purchases of investments were $2,552 million and proceeds from disposals of investments were $444 million, resulting in a net cash outflow of $2,108 million. This activity primarily represents the purchases of, and proceeds from the disposals of, investments in marketable securities and short-term investments that were made as part of the Company’s overall cash management strategy. Also included in this activity are purchases of, and proceeds from the disposals of, investments held by our captive insurance companies. Refer to Note 4 of Notes to Consolidated Financial Statements for additional information on our investments. Proceeds from Disposals of Businesses, Equity Method Investments and Nonmarketable Securities During the three months ended March 28, 2025 and March 29, 2024, proceeds from disposals of businesses, equity method investments and nonmarketable securities were $748 million and $2,893 million, respectively. The activity during the three months ended March 28, 2025 primarily related to the sale of a portion of our ownership interest in CCEP. The activity during the three months ended March 29, 2024 primarily related to sales of our ownership interests in certain equity method investees and the refranchising of certain of our bottling operations. Refer to Note 2 of Notes to Consolidated Financial Statements. Purchases of Property, Plant and Equipment Purchases of property, plant and equipment during the three months ended March 28, 2025 and March 29, 2024 were $309 million and $370 million, respectively. Cash Flows from Financing Activities Net cash provided by financing activities during the three months ended March 28, 2025 and March 29, 2024 was $3,432 million and $406 million, respectively. Loans, Notes Payable and Long-Term Debt During the three months ended March 28, 2025, the Company had issuances of debt of $5,436 million, which consisted of $3,917 million of net issuances of commercial paper and short-term debt with maturities of 90 days or less, $1,033 million of issuances of commercial paper and short-term debt with maturities greater than 90 days and long-term debt issuances of 38 $486 million, net of related discounts and issuance costs. Refer to Note 8 of Notes to Consolidated Financial Statements for additional information. The Company made payments of debt of $1,599 million during the three months ended March 28, 2025, which consisted of $1,047 million of payments related to commercial paper and short-term debt with maturities greater than 90 days and payments of long-term debt of $552 million. During the three months ended March 29, 2024, the Company had issuances of debt of $2,285 million, which consisted of $2,221 million of issuances of commercial paper and short-term debt with maturities greater than 90 days and long-term debt issuances of $64 million, net of related discounts and issuance costs. The Company made payments of debt of $1,366 million during the three months ended March 29, 2024, which consisted of $369 million of net payments of commercial paper and short-term debt with maturities of 90 days or less, payments of $408 million related to commercial paper and short-term debt with maturities greater than 90 days and payments of long-term debt of $589 million. Issuances of Stock The issuances of stock during the three months ended March 28, 2025 and March 29, 2024 were related to the exercise of stock options by employees. Purchases of Stock for Treasury During the three months ended March 28, 2025, the total cash outflow for treasury stock purchases was $370 million. The Company repurchased 4.3 million shares of common stock under the share repurchase plan authorized by our Board of Directors. These shares were repurchased at an average cost of $65.04 per share, for a total cost of $279 million. In addition to shares repurchased under the share repurchase plan, the Company’s treasury stock activity included shares surrendered to the Company to pay the exercise price and/or to satisfy tax withholding obligations in connection with so-called stock swap exercises of employee stock options and/or the vesting of restricted stock issued to employees. The net impact of the Company’s issuances of stock and share repurchases during the three months ended March 28, 2025 resulted in a net cash outflow of $211 million. During the three months ended March 29, 2024, the total cash outflow for treasury stock purchases was $702 million. The Company repurchased 10.4 million shares of common stock under the share repurchase plan authorized by our Board of Directors. These shares were repurchased at an average cost of $60.04 per share, for a total cost of $622 million. In addition to shares repurchased under the share repurchase plan, the Company’s treasury stock activity included shares surrendered to the Company to pay the exercise price and/or to satisfy tax withholding obligations in connection with so-called stock swap exercises of employee stock options and/or the vesting of restricted stock issued to employees. The net impact of the Company’s issuances of stock and share repurchases during the three months ended March 29, 2024 resulted in a net cash outflow of $412 million. Dividends During the three months ended March 28, 2025 and March 29, 2024, the Company paid dividends of $89 million and $99 million, respectively. As a result of the timing of our quarterly reporting periods as well as our dividend payment dates, the Company paid substantially all of the 2024 and 2025 first quarterly dividends in the second quarter of each year. Our Board of Directors approved the Company’s regular quarterly dividend of $0.51 per share at its May 2025 meeting. This dividend is payable on July 1, 2025 to shareowners of record as of the close of business on June 13, 2025. Other Financing Activities During the three months ended March 28, 2025 and March 29, 2024, the total cash outflow for other financing activities was $105 million and $2 million, respectively. The cash outflow during the three months ended March 28, 2025 included $104 million of the $6,173 million final milestone payment for fairlife. Foreign Exchange Our international operations are subject to certain opportunities and risks, including currency fluctuations and governmental actions. We closely monitor our operations in each country and seek to adopt appropriate strategies that are responsive to changing economic and political environments as well as to fluctuations in currencies. Due to the geographic diversity of our operations, weakness in some currencies may be offset by strength in other currencies over time. Our hedging activities are designed to mitigate, over time, a portion of the potentially unfavorable impact of exchange rate fluctuations on our net income. Taking into account the effects of our hedging activities, the impact of 39 fluctuations in foreign currency exchange rates decreased our operating income for the three months ended March 28, 2025 by 18%. Based on current spot rates and our hedging coverage in place, we expect foreign currency exchange rate fluctuations will have an unfavorable impact on operating income and cash flows from operating activities through the end of the year. Item 3. Quantitative and Qualitative Disclosures About Market Risk We have no material changes to the disclosures on this matter made in our Annual Report on Form 10-K for the year ended December 31, 2024.