10-QPeriod: Q2 FY2019

COCA COLA CO Quarterly Report for Q2 Ended Jun 28, 2019

Filed July 25, 2019For Securities:KO

Summary

Coca-Cola Company (KO) reported solid financial results for the second quarter and first half of 2019, demonstrating revenue and profit growth year-over-year. Net operating revenues increased by 6% in the quarter and 5% for the six-month period, driven by a combination of volume growth, strategic acquisitions (notably Costa), and favorable price/package/geographic mix. Despite a challenging foreign currency environment that presented a 6% headwind to net operating revenues, the company's operational execution and pricing strategies helped to mitigate the impact. The acquisition of Costa significantly bolstered the Global Ventures segment, contributing to its substantial revenue growth. Profitability also showed positive trends, with operating income increasing by 8% for the quarter and 15% for the year-to-date period. This improvement was supported by volume increases, productivity initiatives, and careful management of operating expenses. While gross profit margins saw a slight decline due to structural changes and currency impacts, the overall financial health of the company appears robust, with continued investment in growth initiatives and a stable outlook for liquidity and capital resources.

Financial Highlights

53 data points
Beta

Revenue

$10.00B

60.8% Gross Margin

Net Income

$2.61B

26.1% Net Margin

EPS (Diluted)

$0.61

Total Assets

$90.00B

Cash & Equivalents

$6.73B

Free Cash Flow

$3.33B

Financial Statements
Beta
Revenue$10.00B
Cost of Revenue$3.92B
Gross Profit$6.08B
SG&A Expenses$3.00B
Operating Income$2.99B
Interest Expense$236.00M
Net Income$2.61B
EPS (Basic)$0.61
EPS (Diluted)$0.61
Shares Outstanding (Basic)4.27B
Shares Outstanding (Diluted)4.30B

Key Highlights

  • 1Net operating revenues increased by 6% to $9,997 million in Q2 2019 and by 5% to $18,691 million for the first six months of 2019, compared to the prior year periods.
  • 2Diluted Earnings Per Share (EPS) grew to $0.61 in Q2 2019 from $0.54 in Q2 2018, and to $1.00 for the first six months of 2019 from $0.86 in the prior year.
  • 3The acquisition of Costa Limited in January 2019 significantly contributed to the Global Ventures segment, reflecting strategic expansion into new markets and product categories.
  • 4Operating income rose by 8% to $2,988 million in Q2 2019 and by 15% to $5,423 million for the first six months of 2019, indicating improved operational efficiency and profitability.
  • 5Unit case volume grew 3% worldwide for the quarter and 2% for the six-month period, with strong performance in Asia Pacific and Bottling Investments.
  • 6The company managed its debt effectively, with long-term debt increasing by 15% primarily due to the issuance of euro-denominated debt, while maintaining a strong liquidity position.
  • 7Significant investments were made in acquisitions, notably the $5.35 billion spent in the first six months of 2019 on businesses, equity method investments, and nonmarketable securities.

Frequently Asked Questions

Revenue growth in the second quarter of 2019 was primarily driven by a combination of factors, including a 4% increase in concentrate sales volume, strategic acquisitions like Costa, and favorable price, product, and geographic mix. Despite a 6% headwind from currency fluctuations, the company was able to achieve a 6% increase in net operating revenues.

The acquisition of Costa Limited in January 2019 had a significant impact, particularly on the Global Ventures operating segment. It contributed to a substantial increase in net operating revenues and operating income for this segment, reflecting Coca-Cola's strategic expansion into the hot beverage market and its integrated coffee business.

The IRS tax dispute for the tax years 2007-2009, related to transfer pricing of intangible property, is ongoing. While the company believes its claims are without merit and is vigorously defending its position, the IRS is seeking additional federal income tax liability of approximately $3.3 billion plus interest. The U.S. Tax Court trial concluded, and the company awaits the court's decision. The outcome could have a material adverse impact on the company's financial position if the IRS's position is sustained.

The company maintained a strong liquidity position with $13.4 billion in cash, cash equivalents, short-term investments, and marketable securities as of June 28, 2019. Debt financing was utilized, with long-term debt increasing by 15% primarily due to the issuance of euro-denominated debt. The company also has significant credit lines available and expects operating cash flows to remain strong, providing sufficient flexibility to meet financial commitments.