10-QPeriod: Q3 FY2016

COCA COLA CO Quarterly Report for Q3 Ended Sep 30, 2016

Filed October 27, 2016For Securities:KO

Summary

The Coca-Cola Company reported a decrease in net operating revenues for both the three and nine months ended September 30, 2016, compared to the prior year periods, primarily driven by adverse foreign currency fluctuations and divestitures. Despite the revenue decline, the company demonstrated improved profitability metrics such as gross profit margin, which rose due to positive price mix, lower commodity costs, and favorable geographic mix. Significant restructuring and integration costs were incurred, particularly related to the North America refranchising initiative and the integration of German bottling operations, which impacted operating income. The company also continued its share repurchase program and dividend payments, signaling confidence in its ongoing financial strength and commitment to shareholder returns.

Key Highlights

  • 1Net operating revenues decreased by 6.9% for the three months ended September 30, 2016, and by 5.4% for the nine months ended September 30, 2016, compared to the prior year periods.
  • 2Consolidated net income attributable to shareowners decreased to $1,046 million for the three months ended September 30, 2016, from $1,449 million in the prior year period.
  • 3Gross profit margin improved to 61.1% for the three months ended September 30, 2016, from 59.9% in the prior year period, driven by favorable price, product, and geographic mix, as well as lower commodity costs.
  • 4The company incurred significant "Other Operating Charges" in the nine months ended September 30, 2016, totaling $830 million, largely due to productivity and reinvestment programs, integration costs, and refranchising efforts.
  • 5Cash and cash equivalents increased significantly from $7,309 million at December 31, 2015, to $11,147 million at September 30, 2016.
  • 6Long-term debt increased by $3,352 million to $31,663 million at September 30, 2016, primarily due to new debt issuances.
  • 7The company continues to actively refranchise bottling territories in North America and other regions, which impacts reported revenues and assets.
  • 8A significant portion of the "Other Income (Loss) — Net" for the three months ended September 30, 2016, was a $1,089 million loss related to the refranchising of bottling territories in North America.

Frequently Asked Questions

The decline in net operating revenues was primarily attributed to adverse foreign currency fluctuations, with the U.S. dollar strengthening against many foreign currencies, and divestitures, particularly the refranchising of bottling territories in North America and the deconsolidation of German and South African bottling operations.

The company incurred significant expenses related to its ongoing productivity and reinvestment program, which aims to drive savings and reinvest in marketing and innovation. Additionally, costs were incurred for the integration of German bottling operations and for refranchising efforts in North America. These initiatives, while impacting short-term results, are part of the company's strategy to improve long-term efficiency and profitability.

The company's cash and cash equivalents increased substantially to $11,147 million as of September 30, 2016. Long-term debt also increased to $31,663 million, mainly due to new debt issuances, suggesting the company is leveraging debt financing for its operations and strategic initiatives.

The gross profit margin improved due to a combination of factors including positive price, product, and geographic mix, along with lower commodity costs. These factors helped offset the negative impact of foreign currency fluctuations and divestitures on the company's top line.