10-QPeriod: Q2 FY2018

COCA COLA CO Quarterly Report for Q2 Ended Jun 29, 2018

Filed July 26, 2018For Securities:KO

Summary

Coca-Cola Co. (KO) reported its second-quarter and year-to-date results for 2018, highlighting a significant increase in net income attributed to shareholders, rising from $1.37 billion in Q2 2017 to $2.32 billion in Q2 2018, and from $2.55 billion for the first six months of 2017 to $3.68 billion for the same period in 2018. This substantial growth was driven by a combination of factors including the adoption of new accounting standards, strategic divestitures, and improved operational performance. Despite a slight decrease in net operating revenues for the quarter, falling from $9.70 billion in Q2 2017 to $8.93 billion in Q2 2018, the company's effective management of costs and expenses, particularly a reduction in selling, general, and administrative expenses, contributed to the improved profitability. The company continues to actively manage its portfolio through refranchising efforts and strategic acquisitions, as evidenced by the refranchising of Latin American bottling operations and acquisitions of additional interests in bottlers in the UAE and Oman. While the company faces ongoing scrutiny regarding U.S. federal income tax matters, it maintains a strong belief in its position. The balance sheet reflects increased cash and cash equivalents and deferred income tax assets, alongside a reduction in long-term debt, indicating a strengthening financial position. Overall, KO demonstrated resilience and profitability improvements in the period, with a focus on strategic portfolio management and cost efficiency.

Financial Highlights

55 data points
Beta

Revenue

$9.42B

62.4% Gross Margin

Net Income

$2.32B

24.6% Net Margin

EPS (Diluted)

$0.54

Total Assets

$89.59B

Cash & Equivalents

$8.15B

Free Cash Flow

$1.66B

Financial Statements
Beta
Revenue$9.42B
Cost of Revenue$3.54B
Gross Profit$5.88B
SG&A Expenses$2.89B
Operating Income$2.77B
Interest Expense$247.00M
Net Income$2.32B
EPS (Basic)$0.54
EPS (Diluted)$0.54
Shares Outstanding (Basic)4.25B
Shares Outstanding (Diluted)4.29B

Key Highlights

  • 1Net income attributable to shareowners significantly increased, reaching $2.32 billion in Q2 2018 compared to $1.37 billion in Q2 2017.
  • 2Total net operating revenues decreased by 8% to $8.93 billion for the three months ended June 29, 2018, compared to $9.70 billion for the same period in 2017.
  • 3Selling, general, and administrative expenses decreased by 14% to $2.72 billion for the three months ended June 29, 2018, contributing to improved profitability.
  • 4The company's cash and cash equivalents increased to $7.975 billion as of June 29, 2018, from $6.006 billion as of December 31, 2017.
  • 5Long-term debt decreased by approximately 10% to $28.06 billion as of June 29, 2018.
  • 6The company adopted new accounting standards, including ASC 606 for revenue recognition, which impacted reported revenues and earnings.
  • 7Significant refranchising activities, particularly of Latin American bottling operations, continued to reshape the company's asset base and revenue streams.

Frequently Asked Questions

The substantial increase in net income attributable to shareowners was driven by a combination of factors including strategic portfolio refranchising, improved operating efficiencies, and the adoption of new accounting standards such as ASC 606. Additionally, a reduction in selling, general, and administrative expenses, along with favorable impacts from foreign currency exchange rates, also contributed to the improved profitability.

The Coca-Cola Company is involved in a significant tax dispute with the IRS concerning transfer pricing for tax years 2007-2009, with the IRS claiming an additional federal income tax liability of approximately $3.3 billion plus interest. The company firmly believes its claims are without merit and is vigorously defending its position in Tax Court. A trial was held, and both parties are required to file final post-trial briefs. The outcome remains uncertain and could have a material adverse impact if the IRS's position is sustained.

The company's balance sheet showed an increase in cash and cash equivalents to $7.975 billion from $6.006 billion. Short-term investments decreased, while trade accounts receivable and inventories saw increases. Notably, deferred income tax assets increased significantly due to the adoption of ASU 2016-16. Long-term debt decreased, and accounts payable and accrued expenses increased. Overall, total assets increased by 2%, and total equity saw a 6% rise.

The refranchising of bottling operations, particularly in Latin America and North America, has been a significant strategic move. While it led to a decrease in net operating revenues for the current quarter and a reduction in the Bottling Investments segment's unit case volume, it has been instrumental in improving profitability by reducing certain operational costs and streamlining the business. The proceeds from these divestitures are reinvested in strategic initiatives.