01—Abstract
Summary
Summary of the 10-K filed February 21, 2019. Cited figures are marked; the original filing is the authoritative source.
The Coca-Cola Company's 2018 10-K filing reveals a robust global beverage operation, demonstrating resilience despite a notable decrease in net operating revenues compared to the prior year.
The company continues to leverage its extensive brand portfolio and vast distribution network to reach consumers worldwide. Key strategic initiatives focus on consumer-centric growth, driving revenue through a "revenue growth algorithm," strengthening the "Coca-Cola system," embracing digitization, and empowering its workforce. The report also highlights the company's proactive approach to evolving consumer preferences, health concerns (particularly obesity), and increasing competition within the beverage industry.
Financially, the company navigated a complex year marked by significant "structural changes," including refranchising of bottling operations, which impacted revenue figures but are part of a strategy to optimize the business model. Despite a decline in net operating revenues, the company managed its expenses effectively, leading to an increase in operating income and operating margin. The company's financial strength is further underscored by its substantial cash flow generation and a commitment to returning value to shareholders through dividends and share repurchases, alongside strategic investments like the acquisition of Costa.
02—Key points
Key Highlights
- Net operating revenues decreased by 10% to $31.9 billion in 2018, primarily due to "structural changes" such as refranchising bottling operations and unfavorable currency fluctuations.
- Operating income increased by 14% to $8.7 billion, with an improved operating margin of 27.3% in 2018, reflecting effective expense management and productivity initiatives.
- The company completed significant refranchising activities in North America (Canada, US Southwest, and other US territories), Latin America, and China, part of a long-term strategy to transform the Coca-Cola system.
- In January 2019, the company completed the acquisition of Costa Limited for $4.9 billion, aiming to expand its presence in the hot beverages market.
- The company continues to offer a wide range of reduced-, low-, and no-calorie beverage options and focuses on responsible marketing, including no advertising targeted at children under 12.
- The company faces ongoing risks related to evolving consumer preferences, health concerns (obesity), increased competition, water scarcity, and the impact of climate change.
- The company successfully increased its regular quarterly dividend by 2.6% in early 2019, marking its 57th consecutive annual increase.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2018, Coca Cola Co kept $0.19.
- Revenue$34.30B100.0%
- Cost of revenue−$13.07B38.1%
- Gross profit$21.23B61.9%
- Operating costs−$12.08B35.2%
- Operating income$9.15B26.7%
- Interest, other & tax−$2.72B7.9%
- Net income$6.43B18.8%
Where FY2018 revenue went
$34.30B- Cost of revenue: $13.07B, 38% of revenue
- SG&A: $11.00B, 32% of revenue
- Net income: $6.43B, 19% of revenue
- Other operating costs: $1.08B, 3.1% of revenue
- Interest, other & tax: $2.72B, 7.9% of revenue
Kept 19% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2018filed February 21, 2019Financial Statements
FY2018 against FY2017
| Line item | FY2018FY2017 | Change |
|---|---|---|
| Revenue | $34.30B$36.21B | −5.3% |
| Cost of Revenue | $13.07B$13.72B | −4.8% |
| Gross Profit | $21.23B$22.49B | −5.6% |
| SG&A Expenses | $11.00B$12.83B | −14.3% |
| Operating Income | $9.15B$7.75B | +18.0% |
| Interest Expense | $950.00M$853.00M | +11.4% |
| Net Income | $6.43B$1.25B | +415.5% |
| EPS (Basic) | $1.51$0.29 | +420.7% |
| EPS (Diluted) | $1.50$0.29 | +417.2% |
| Shares Outstanding (Basic) | 4.26B4.27B | −0.3% |
| Shares Outstanding (Diluted) | 4.30B4.32B | −0.6% |
05—Questions
Frequently Asked Questions
What was the primary driver for the decrease in net operating revenues in 2018?
The primary driver for the 10% decrease in net operating revenues to $31.9 billion in 2018 was attributed to "structural changes," which included significant refranchising of bottling operations in various regions and unfavorable foreign currency fluctuations. These refranchising efforts, while impacting reported revenues, are part of a strategic move to optimize the company's business model and focus on brand building.
How did the company manage its expenses in 2018, and what was the impact on profitability?
The Coca-Cola Company demonstrated effective expense management in 2018. Selling, general, and administrative expenses decreased by 19%, largely due to savings from productivity and reinvestment initiatives and the impact of refranchising activities. This cost control, coupled with improved gross profit margins, led to a 14% increase in operating income to $8.7 billion and an expansion of the operating margin to 27.3%, indicating improved underlying profitability.
What is the strategic significance of the Costa acquisition?
The acquisition of Costa Limited in January 2019 for $4.9 billion is strategically significant as it aims to enhance Coca-Cola's presence in the global hot beverages market. Costa operates a significant retail footprint and a coffee vending business, providing Coca-Cola with a platform to diversify its portfolio beyond its traditional carbonated soft drink and non-alcoholic beverage offerings.
What are the main risks the company highlighted in its business outlook?
The company identified several key risks, including evolving consumer preferences (e.g., health and wellness trends), increased competition, the potential impact of obesity and related health concerns on demand for sugar-sweetened beverages, water scarcity and quality issues, and the effects of climate change on agricultural productivity and operations. These factors could materially affect the company's financial condition and results of operations.
06—Continue