Business Context and Reporting Period
Company: Coca-Cola Consolidated, Inc. (Coca-Cola Bottling Co. Consolidated)
Filing Type: Form 10-K (Annual Report)
Reporting Period: Fiscal year ended January 3, 2010 (53-week year)
Business Overview: The Company is the second-largest Coca-Cola bottler in the United States, producing, marketing, and distributing nonalcoholic beverages primarily in the Southeast. Approximately 88% of its bottle/can volume consists of The Coca-Cola Company products. The Company operates in seven principal geographic markets covering parts of North Carolina, South Carolina, West Virginia, Alabama, Mississippi, Tennessee, Kentucky, Virginia, Pennsylvania, Georgia, and Florida.
Key Financial Metrics
| Metric (in thousands) | 2009 | 2008 | 2007 |
|---|---|---|---|
| Net Sales | $1,442,986 | $1,463,615 | $1,435,999 |
| Gross Margin | $619,994 | $615,206 | $621,134 |
| Gross Margin % | 43.0% | 42.0% | 43.3% |
| Income from Operations | $94,503 | $59,478 | $81,883 |
| Net Income | $40,543 | $11,483 | $21,859 |
| Net Income Attributable to Company | $38,136 | $9,091 | $19,856 |
| Diluted EPS (Common Stock) | $4.15 | $0.99 | $2.17 |
| Total Debt & Capital Leases | $601,024 | $669,064 | $679,065 |
| Cash & Cash Equivalents | $17,770 | $45,407 | $9,871 |
Material Changes vs. Prior Period
- Revenue: Net sales decreased 1.4% to $1.44 billion in 2009 compared to 2008. This was driven by a 3.4% decrease in bottle/can volume (primarily sugar sparkling beverages and bottled water) partially offset by a 1.0% increase in sales price per unit.
- Profitability: Net income attributable to the Company increased significantly by 319.6% to $38.1 million. This surge was largely due to one-time items in 2008 that depressed earnings, including a $14.0 million charge to freeze liability to a multi-employer pension plan and $4.6 million in restructuring costs.
- Cost of Sales: Decreased 3.0% to $823.0 million. A $10.8 million pre-tax favorable mark-to-market adjustment related to aluminum hedging programs reduced costs significantly.
- Operating Expenses: Selling, delivery, and administrative (S,D&A) expenses decreased 5.4% to $525.5 million. Reductions were driven by lower fuel costs, the absence of the 2008 pension freeze charge, and lower restructuring costs, partially offset by higher pension expenses ($11.2 million in 2009 vs. $2.3 million income in 2008).
- Debt: Total debt and capital lease obligations decreased to $601.0 million from $669.1 million. The Company repaid $176.7 million of debentures due in 2009, issuing $110 million in new senior notes and utilizing its revolving credit facility.
Guidance, Outlook, and Risks
- Outlook: Management anticipates overall bottle/can sales growth will depend on diet sparkling products, sports drinks, enhanced water, tea, and energy products. The Company expects capital expenditures in 2010 to range between $50 million and $60 million.
- Pension Costs: Pension expense is estimated at $6.0 million for 2010, a decrease from 2009 due to strong investment returns in 2009. Anticipated cash contributions for 2010 are $5 million to $7 million.
- Key Risks:
- Concentration: The Company relies heavily on The Coca-Cola Company (88% of volume) and two major customers (Wal-Mart and Food Lion account for 30% of volume).
- Commodity Prices: Exposure to price volatility in aluminum, plastic resin, and fuel. A 10% increase in commodity prices could increase costs by approximately $23 million.
- Consumer Trends: Declining demand for sugar sparkling beverages and potential health-related legislation or taxes on sugary drinks.
- Debt Service: High debt levels restrict operating flexibility and increase vulnerability to economic downturns.
Investor Verification Checklist
- One-Time Items: Verify the impact of the $10.8 million aluminum hedging gain and the $5.4 million tax benefit on 2009 earnings to assess normalized profitability.
- Pension Liability: Review the funded status of pension plans, which showed a net underfunded status of $47.0 million as of January 3, 2010.
- Volume Trends: Monitor the continued decline in sugar sparkling beverage volume and the success of new product introductions (e.g., Monster Energy, enhanced waters) in offsetting this trend.
- Debt Maturities: Confirm the Company's ability to service its debt, noting $165 million in debt maturities due in 2012.
- Customer Concentration: Assess the risk associated with Wal-Mart (19% of volume) and Food Lion (11% of volume) changing their promotional strategies or pricing.