01—Abstract
Summary
Summary of the 10-K filed February 23, 2018. Cited figures are marked; the original filing is the authoritative source.
Coca-Cola Company's (KO) 2017 10-K filing highlights a year of strategic refranchising and significant structural changes.
The company continued to navigate evolving consumer preferences, with a focus on offering a diverse portfolio of beverages. Financially, 2017 saw a considerable decrease in net operating revenues and net income compared to 2016, largely due to the impact of divestitures, particularly the refranchising of bottling operations in North America and China.
Despite the revenue decline, the company demonstrated resilience with a stronger gross profit margin and a commitment to returning value to shareholders through dividends and share repurchases. The filing also detailed a significant tax charge related to the Tax Cuts and Jobs Act of 2017, impacting reported net income.
02—Key points
Key Highlights
- The company reported a significant decrease in net operating revenues ($35.41 billion in 2017 vs. $41.86 billion in 2016) and net income ($1.25 billion in 2017 vs. $6.53 billion in 2016), largely attributed to the divestiture of bottling operations.
- Gross profit margin improved to 62.6% in 2017 from 60.7% in 2016, indicating improved profitability on sales.
- The company's unit case volume remained stable year-over-year at 29.2 billion cases in 2017, with sparkling soft drinks accounting for 69% of the total.
- Significant 'Other Operating Charges' of $2.16 billion were recorded in 2017, primarily related to asset impairments and costs associated with refranchising bottling operations.
- The company paid $6.32 billion in dividends in 2017, marking its 56th consecutive annual increase.
- A significant provisional tax charge of $3.61 billion was recorded in 2017 due to the Tax Cuts and Jobs Act of 2017, heavily impacting the effective tax rate and net income.
- The company continues to manage its debt prudently, with long-term debt totaling $31.18 billion as of December 31, 2017.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2017, Coca Cola Co kept $0.03.
- Revenue$36.21B100.0%
- Cost of revenue−$13.72B37.9%
- Gross profit$22.49B62.1%
- Operating costs−$14.74B40.7%
- Operating income$7.75B21.4%
- Interest, other & tax−$6.51B18.0%
- Net income$1.25B3.4%
Where FY2017 revenue went
$36.21B- Cost of revenue: $13.72B, 38% of revenue
- SG&A: $12.83B, 35% of revenue
- Interest, other & tax: $6.51B, 18% of revenue
- Net income: $1.25B, 3.4% of revenue
- Other operating costs: $1.90B, 5.3% of revenue
Kept 3.4% as net incomeNet income $1.25B · 3.4%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2017filed February 23, 2018Financial Statements
FY2017 against FY2016
| Line item | FY2017FY2016 | Change |
|---|---|---|
| Revenue | $36.21B$41.86B | −13.5% |
| Cost of Revenue | $13.72B$16.46B | −16.7% |
| Gross Profit | $22.49B$25.40B | −11.4% |
| SG&A Expenses | $12.83B$15.37B | −16.5% |
| Operating Income | $7.75B$8.66B | −10.4% |
| Interest Expense | $853.00M$733.00M | +16.4% |
| Net Income | $1.25B$6.53B | −80.9% |
| EPS (Basic) | $0.29$1.51 | −80.8% |
| EPS (Diluted) | $0.29$1.49 | −80.5% |
| Shares Outstanding (Basic) | 4.27B4.32B | −1.0% |
| Shares Outstanding (Diluted) | 4.32B4.37B | −1.0% |
05—Questions
Frequently Asked Questions
What drove the significant decrease in net operating revenue and net income in 2017?
The substantial decrease in net operating revenue and net income in 2017 was primarily driven by the strategic refranchising of bottling operations in North America and China, which involved divestitures of significant revenue-generating assets. These structural changes, while impacting reported figures, are part of the company's long-term strategy to focus on brand building and system efficiency.
How did the company's profitability per sale change in 2017?
The company's gross profit margin improved to 62.6% in 2017 from 60.7% in 2016. This indicates that despite the lower overall revenue, the company was more profitable on each dollar of sales, likely due to the refranchising of lower-margin bottling operations and ongoing cost management initiatives.
What is the impact of the Tax Cuts and Jobs Act on Coca-Cola's financial results?
The Tax Cuts and Jobs Act, enacted in late 2017, resulted in a provisional tax charge of $3.61 billion for Coca-Cola. This charge was primarily related to a one-time transition tax on the deemed repatriation of foreign earnings and significantly impacted the company's effective tax rate and reported net income for the year.
How is Coca-Cola managing its global operations and currency risks?
Coca-Cola operates in over 200 countries and uses 74 functional currencies. The company actively manages its exposure to foreign currency fluctuations through derivative financial instruments, such as forward contracts and options, to mitigate the impact of currency movements on its net income and earnings per share.
06—Continue