10-QPeriod: Q3 FY2018

COCA COLA CO Quarterly Report for Q3 Ended Sep 28, 2018

Filed October 30, 2018For Securities:KO

Summary

The Coca-Cola Company's Q3 2018 results show a decrease in net operating revenues to $8,245 million from $9,078 million in the prior year's comparable quarter, primarily driven by divestitures and unfavorable currency impacts. However, operating income saw an increase to $2,526 million from $2,245 million, aided by productivity initiatives and a favorable price/product/geographic mix, despite the revenue decline. Diluted earnings per share from continuing operations rose to $0.54 from $0.33 in the prior year's third quarter. Significant restructuring efforts continue, including the refranchising of bottling operations, which impacted revenues but is expected to streamline operations. The company is also managing through a major U.S. federal income tax dispute with the IRS, which has the potential for material financial impact if sustained. Overall, the company demonstrates resilience through its strong brand portfolio and operational efficiencies despite economic headwinds and ongoing divestiture activities.

Financial Highlights

55 data points
Beta

Revenue

$8.78B

61.9% Gross Margin

Net Income

$1.88B

21.4% Net Margin

EPS (Diluted)

$0.44

Total Assets

$86.88B

Cash & Equivalents

$9.22B

Free Cash Flow

$2.65B

Financial Statements
Beta
Revenue$8.78B
Cost of Revenue$3.35B
Gross Profit$5.43B
SG&A Expenses$2.66B
Operating Income$2.61B
Interest Expense$214.00M
Net Income$1.88B
EPS (Basic)$0.44
EPS (Diluted)$0.44
Shares Outstanding (Basic)4.25B
Shares Outstanding (Diluted)4.29B

Key Highlights

  • 1Net operating revenues decreased by 9% year-over-year for the third quarter, largely due to divestitures and currency headwinds.
  • 2Operating income increased by 12.5% year-over-year for the third quarter, driven by productivity initiatives and favorable price/product/geographic mix.
  • 3Diluted EPS from continuing operations increased to $0.54 from $0.33 in the prior year's third quarter.
  • 4The company continues to execute on its refranchising strategy, completing the sale of its Canadian bottling operations.
  • 5Significant charges related to the productivity and reinvestment program and refranchising activities were incurred, impacting reported expenses.
  • 6The company is actively managing its liquidity with substantial cash and cash equivalents, and strong cash flow from operations.
  • 7The ongoing U.S. federal income tax dispute with the IRS remains a significant risk factor, with a potential material adverse impact if unfavorable outcomes are realized.

Frequently Asked Questions

The primary drivers for the decrease in net operating revenues were divestitures, specifically the refranchising of bottling operations in Canada and Latin America, and unfavorable foreign currency exchange rate fluctuations, primarily due to a stronger U.S. dollar against several key foreign currencies.

Despite a decline in net operating revenues, the company's operating income increased by 12.5% to $2,526 million from $2,245 million in the same period last year. This improvement was driven by ongoing productivity initiatives, a favorable price, product, and geographic mix, and a reduction in other operating charges.

Yes, the company is involved in a significant U.S. federal income tax dispute with the IRS concerning transfer pricing for tax years 2007-2009. The IRS claims a potential additional federal income tax liability of approximately $3.3 billion plus interest. While the company believes its position is without merit, an unfavorable outcome could have a material adverse impact on its financial position, results of operations, and cash flows.

The company maintains a strong liquidity position, with $9,065 million in cash and cash equivalents as of September 28, 2018. It generated $5,480 million in net cash from operating activities for the nine months ended September 28, 2018, indicating robust cash generation capabilities to meet its financial commitments.