10-QPeriod: Q1 FY2018

COCA COLA CO Quarterly Report for Q1 Ended Mar 30, 2018

Filed May 1, 2018For Securities:KO

Summary

Coca-Cola Company (KO) reported its first-quarter 2018 financial results, showing a net income of $1.4 billion, or $0.32 per diluted share, an increase from $1.18 billion, or $0.27 per diluted share, in the prior year quarter. Net operating revenues for the quarter decreased by 16% to $7.6 billion from $9.1 billion in the first quarter of 2017. This revenue decline was largely attributed to the impact of divestitures, particularly the refranchising of bottling territories, which significantly reduced reported revenue but also led to a substantial decrease in cost of goods sold and selling, general, and administrative expenses. The company's balance sheet reflects a strong liquidity position, with cash and cash equivalents increasing to $8.3 billion. Strategic investments and acquisitions, totaling $183 million in the quarter, focus on acquiring additional interests in bottlers. Management also highlighted ongoing productivity and reinvestment programs aimed at driving long-term profitable growth. Despite the reported revenue decline, the company's operational performance, including a healthy gross profit margin of 64.1%, indicates resilience and a focus on efficiency.

Financial Highlights

54 data points
Beta

Revenue

$7.63B

64.1% Gross Margin

Net Income

$1.37B

17.9% Net Margin

EPS (Diluted)

$0.32

Total Assets

$93.28B

Cash & Equivalents

$8.29B

Free Cash Flow

$339.00M

Financial Statements
Beta
Revenue$7.63B
Cost of Revenue$2.74B
Gross Profit$4.89B
SG&A Expenses$2.54B
Operating Income$1.81B
Interest Expense$230.00M
Net Income$1.37B
EPS (Basic)$0.32
EPS (Diluted)$0.32
Shares Outstanding (Basic)4K
Shares Outstanding (Diluted)4K

Key Highlights

  • 1Net income increased to $1.40 billion ($0.32/share) from $1.18 billion ($0.27/share) year-over-year.
  • 2Net operating revenues decreased by 16% to $7.63 billion, primarily due to divestitures and structural changes in bottling operations.
  • 3Gross profit margin improved to 64.1% from 61.5% year-over-year, largely driven by the impact of divestitures.
  • 4Cash and cash equivalents significantly increased to $8.29 billion from $6.01 billion at the end of the prior year.
  • 5The company adopted new accounting standards (ASC 606 for revenue recognition and others) effective January 1, 2018, which impacted financial statement presentation.
  • 6Operating income was negatively impacted by significant "other operating charges" totaling $536 million, largely due to asset impairments and restructuring costs.
  • 7The company continues its focus on strategic acquisitions, with $183 million invested in bottler interests during the quarter.

Frequently Asked Questions

The primary reason for the significant decrease in net operating revenues is the impact of divestitures, particularly the refranchising of bottling territories, which reduces reported revenue. While this impacts top-line revenue, it also leads to a corresponding reduction in cost of goods sold and selling, general, and administrative expenses.

Despite the decrease in net operating revenues, net income attributable to shareowners increased to $1.37 billion from $1.18 billion in the prior year quarter. This was supported by improved gross profit margins, driven by divestitures, and effective management of operating expenses.

The company's liquidity position remains strong. Cash and cash equivalents increased significantly to $8.29 billion as of March 30, 2018, from $6.01 billion at the end of December 2017, reflecting robust cash generation and effective cash management.

The company is involved in a significant U.S. Federal Income Tax Dispute with the IRS concerning transfer pricing for tax years 2007-2009, with a potential tax liability of approximately $3.3 billion plus interest. While the company believes its claims are without merit and is vigorously defending its position, the ultimate outcome is uncertain and could have a material adverse impact if the IRS prevails. A trial was scheduled to begin in March 2018.