10-KPeriod: FY2018

COCA COLA CO Annual Report, Year Ended Dec 31, 2018

Filed February 21, 2019For Securities:KO

Summary

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.

Financial Highlights

56 data points
Beta

Revenue

$34.30B

61.9% Gross Margin

Net Income

$6.43B

18.8% Net Margin

EPS (Diluted)

$1.50

Total Assets

$83.22B

Cash & Equivalents

$9.08B

Free Cash Flow

$6.08B

Financial Statements
Beta
Revenue$34.30B
Cost of Revenue$13.07B
Gross Profit$21.23B
SG&A Expenses$11.00B
Operating Income$9.15B
Interest Expense$950.00M
Net Income$6.43B
EPS (Basic)$1.51
EPS (Diluted)$1.50
Shares Outstanding (Basic)4.26B
Shares Outstanding (Diluted)4.30B

Key Highlights

  • 1Net 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.
  • 2Operating 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.
  • 3The 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.
  • 4In January 2019, the company completed the acquisition of Costa Limited for $4.9 billion, aiming to expand its presence in the hot beverages market.
  • 5The 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.
  • 6The company faces ongoing risks related to evolving consumer preferences, health concerns (obesity), increased competition, water scarcity, and the impact of climate change.
  • 7The company successfully increased its regular quarterly dividend by 2.6% in early 2019, marking its 57th consecutive annual increase.

Frequently Asked Questions

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.

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.

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.

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.