Why did reported EPS decline even though comparable EPS grew?

Reported EPS of $0.56 (down 5%) includes a $1.34 billion charge in Q2 related to remeasuring the contingent consideration liability for the 2020 fairlife acquisition. Management excludes this and other items impacting comparability to present comparable EPS of $0.84, up 7%. Comparable EPS is a non-GAAP measure, and the company notes it may not be comparable to similar measures reported by other companies.

How much of the revenue growth came from price versus volume?

Price/mix contributed 9 points of the 15% organic revenue growth, and concentrate sales ran 4 points ahead of unit case volume largely due to shipment timing. Unit case volume grew only 2%, with developed markets flat and developing and emerging markets up mid-single digits. Roughly 5 points of price/mix came from markets with intense inflation, so a large share of growth reflects pricing rather than consumption gains.

What changed in full-year 2024 guidance?

Organic revenue growth guidance was raised to 9%-10%, and comparable currency neutral EPS growth was raised to 13%-15%. Comparable EPS growth guidance of 5%-6% (against $2.69 in 2023) is reported after an 8%-9% currency headwind. Management also expects a 4%-5% headwind from acquisitions, divestitures and structural changes on comparable net revenues. The underlying effective tax rate is estimated at 19.0%, and free cash flow guidance of about $9.2 billion is unchanged.

What are the main risks to cash flow and the tax outlook?

First-half operating cash flow fell to $4.1 billion, driven by higher tax payments and the unwinding of prior-year working capital benefits. Free cash flow guidance excludes any potential payments tied to the ongoing U.S. IRS tax litigation, and the 19.0% tax rate estimate also excludes the impact if the company does not prevail. An unfavorable outcome could materially affect cash flow and earnings.

What drove the decline in year-to-date operating income?

Reported operating income for the six months fell 17% to $4.8 billion. The decline was mainly due to a $760 million impairment of the BODYARMOR trademark, recorded because of lower projected operating results and higher discount rates, and a $2.1 billion transaction-related charge tied to the fairlife contingent consideration. Excluding these items, comparable operating income rose 6% and comparable currency neutral operating income rose 15%.

KO 8-K: Earnings & Results

01—Abstract

Summary

Summary of the 8-K filed July 23, 2024. Cited figures are marked; the original filing is the authoritative source.

Coca-Cola's Q2 2024 results (quarter ended June 28, 2024) show a split picture for investors: the underlying business grew strongly, but reported GAAP earnings declined.

Net revenues rose 3% to $12.4 billion^a, while organic revenues (non-GAAP) grew 15%, driven by 9% price/mix growth and 6% concentrate sales growth. Unit case volume grew only 2%, and the company points to pricing in markets experiencing intense inflation as a major driver. Reported operating income grew 10% to $2.6 billion, and reported EPS fell 5% to $0.56.

Comparable currency neutral operating income (non-GAAP) grew 18%, and comparable EPS (non-GAAP) rose 7% to $0.84^b despite an 11-point currency headwind. The gap between reported and comparable results is driven mainly by a $1.34 billion charge tied to remeasuring the contingent consideration liability for the fairlife acquisition, which was offset in part by India refranchising effects. Year-to-date reported operating income fell 17%, largely due to a $760 million BODYARMOR trademark impairment and the fairlife remeasurement charges.

Cash flow weakened: operating cash flow was $4.1 billion^c (down $516 million) and free cash flow was $3.3 billion (down $693 million), mainly because of higher tax payments and the reversal of prior-year working capital benefits. Management raised its full-year 2024 guidance for organic revenue growth to 9% to 10% and comparable currency neutral EPS growth to 13% to 15%, but it lowered comparable EPS growth to 5% to 6% from the prior-year $2.69 base because of an 8% to 9% currency headwind.

Free cash flow guidance of about $9.2 billion^d is unchanged. Investors should weigh strong underlying pricing and margin momentum against currency pressure, the volume slowdown relative to pricing, weaker cash conversion, and the continuing uncertainty from the IRS tax dispute, which is excluded from guidance.

02—Key points

Key Highlights

Net revenues grew 3% to $12.4 billion; organic revenues (non-GAAP) grew 15%, led by 9% price/mix growth, while unit case volume grew 2%.
Reported EPS fell 5% to $0.56; comparable EPS (non-GAAP) rose 7% to $0.84, absorbing an 11-point currency headwind on reported EPS.
Comparable operating margin (non-GAAP) expanded to 32.8% from 31.6%; reported operating margin was 21.3% versus 20.1%.
Full-year 2024 organic revenue growth guidance raised to 9%-10%; comparable currency neutral EPS growth guidance raised to 13%-15%.
Full-year comparable EPS growth guidance of 5%-6% reflects an 8%-9% currency headwind; free cash flow guidance held at approximately $9.2 billion.
Year-to-date reported operating income fell 17%, driven by a $760 million BODYARMOR trademark impairment and $2.1 billion in transaction-related charges, mainly fairlife contingent consideration remeasurement.
Operating cash flow was $4.1 billion (down $516 million) and free cash flow was $3.3 billion (down $693 million) in the first half, reflecting higher tax payments and working capital timing.

03—Questions

Frequently Asked Questions

Why did reported EPS decline even though comparable EPS grew?
Reported EPS of $0.56 (down 5%) includes a $1.34 billion charge in Q2 related to remeasuring the contingent consideration liability for the 2020 fairlife acquisition. Management excludes this and other items impacting comparability to present comparable EPS of $0.84, up 7%. Comparable EPS is a non-GAAP measure, and the company notes it may not be comparable to similar measures reported by other companies.
How much of the revenue growth came from price versus volume?
Price/mix contributed 9 points of the 15% organic revenue growth, and concentrate sales ran 4 points ahead of unit case volume largely due to shipment timing. Unit case volume grew only 2%, with developed markets flat and developing and emerging markets up mid-single digits. Roughly 5 points of price/mix came from markets with intense inflation, so a large share of growth reflects pricing rather than consumption gains.
What changed in full-year 2024 guidance?
Organic revenue growth guidance was raised to 9%-10%, and comparable currency neutral EPS growth was raised to 13%-15%. Comparable EPS growth guidance of 5%-6% (against $2.69 in 2023) is reported after an 8%-9% currency headwind. Management also expects a 4%-5% headwind from acquisitions, divestitures and structural changes on comparable net revenues. The underlying effective tax rate is estimated at 19.0%, and free cash flow guidance of about $9.2 billion is unchanged.
What are the main risks to cash flow and the tax outlook?
First-half operating cash flow fell to $4.1 billion, driven by higher tax payments and the unwinding of prior-year working capital benefits. Free cash flow guidance excludes any potential payments tied to the ongoing U.S. IRS tax litigation, and the 19.0% tax rate estimate also excludes the impact if the company does not prevail. An unfavorable outcome could materially affect cash flow and earnings.
What drove the decline in year-to-date operating income?
Reported operating income for the six months fell 17% to $4.8 billion. The decline was mainly due to a $760 million impairment of the BODYARMOR trademark, recorded because of lower projected operating results and higher discount rates, and a $2.1 billion transaction-related charge tied to the fairlife contingent consideration. Excluding these items, comparable operating income rose 6% and comparable currency neutral operating income rose 15%.

04—Continue

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