Coca-Cola Company (KO) — 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This is an annual filing; the supplied filing text does not provide a clear standalone fourth-quarter income statement. Financial amounts below are in U.S. dollars unless noted.
Business context
Coca-Cola is a global beverage company operating in more than 200 countries and territories. It sells concentrates and syrups to bottling partners and finished beverages through consolidated bottling operations and other channels. Independent bottling partners remain central to its distribution system. Worldwide unit case volume rose to 32.7 billion from 31.3 billion in 2021; concentrate operations generated 56% of net operating revenue.
Key financial metrics
| Metric | 2022 | 2021 |
|---|---|---|
| Net operating revenue | $43.004 billion | $38.655 billion |
| Gross profit / gross margin | $25.004 billion / 58.1% | $23.298 billion / 60.3% |
| Operating income / operating margin | $10.909 billion / 25.4% | $10.308 billion / 26.7% |
| Net income attributable to Coca-Cola shareowners | $9.542 billion | $9.771 billion |
| Diluted earnings per share | $2.19 | $2.25 |
| Net cash provided by operating activities | $11.018 billion | $12.625 billion |
| Capital expenditures | $1.484 billion | $1.367 billion |
| Cash, cash equivalents and short-term investments | $10.562 billion | $10.926 billion |
| Long-term debt, net of current maturities | $36.377 billion | $38.116 billion |
- Revenue increased 11%; growth reflected 5% volume contribution, 11% favorable price, product and geographic mix, a 7% unfavorable foreign-exchange impact, and 2% from acquisitions and divestitures.
- Operating income grew 6%, but gross and operating margins declined. Management attributed margin pressure chiefly to foreign exchange, higher commodity and transportation costs, increased marketing, and the BodyArmor finished-goods business.
- Net income attributable to shareowners declined about 2%, and diluted EPS fell from $2.25 to $2.19. The filing reports 2022 other nonoperating expense of $262 million versus $2.0 billion of other income in 2021, which included material acquisition and divestiture gains.
- Operating cash flow fell 13%, primarily due to higher marketing, incentive and tax payments, currency effects, and inventory buildup. Operating cash flow less capital expenditures was approximately $9.5 billion, calculated from the reported figures.
- Cash, cash equivalents, short-term investments and marketable securities totaled approximately $11.6 billion. The Company also reported $4.4 billion of unused corporate backup credit lines. Cash dividends paid were $7.616 billion; the Board raised the 2023 quarterly dividend to $0.46 per share, or $1.84 annualized.
- Commercial paper borrowings were $2.146 billion, with a 4.2% weighted-average rate at year-end. Total contractual obligations were $85.296 billion, including debt, interest, purchase, marketing and lease obligations.
Material changes versus 2021
- Higher pricing and recovering away-from-home channels supported revenue and volume, while the stronger U.S. dollar reduced reported revenue by 7% and operating income by 9%.
- Other operating charges increased to $1.215 billion from $846 million. The largest 2022 item was a $1.0 billion fair-value remeasurement of fairlife acquisition contingent consideration; other items included productivity costs, a $57 million Asia Pacific trademark impairment and North America restructuring.
- Interest expense declined to $882 million from $1.597 billion, largely because 2021 included $650 million of debt-extinguishment charges; higher interest rates partly offset the decrease.
- Operating cash flow decreased despite higher operating income. Inventories rose to $4.233 billion from $3.414 billion, with management citing cost increases and stockpiling to manage potential supply disruptions.
- The Company refranchised bottling operations in Cambodia and acquired a controlling interest in a Malawi bottler. It received $823 million in advance of refranchising Vietnam operations, completed in January 2023.
Outlook, risks and unusual items
- Management expects 2023 capital expenditures of approximately $1.9 billion and an effective tax rate of approximately 19.5% before significant items. It expects foreign-exchange movements to weigh on full-year 2023 revenue and commodity and transportation costs to pressure gross margin; inflationary input costs and supply-chain pressures were expected to continue.
- The IRS transfer-pricing dispute remains a significant contingency. Coca-Cola recorded a $423 million tax reserve but estimated potential aggregate incremental tax and interest of approximately $14 billion as of year-end 2022 if the Tax Court methodology were ultimately upheld and applied to subsequent years. A potential payment for 2007–2009 was estimated at $5.2 billion plus further interest; the Company intends to appeal and says it believes its tax position is more likely than not to prevail.
- Other risks include inflation and commodity availability, foreign exchange, geopolitical disruption (including suspended business in Russia and disruption in Ukraine), bottler and supply-chain dependence, changing consumer preferences, competition, water scarcity, packaging and climate regulation, product safety, and cybersecurity and privacy obligations.
- Other unusual 2022 items included a $96 million impairment of an equity-method investee in Russia, a $371 million net loss from investment-security activity, and a $153 million gain on Cambodia refranchising. The filing says pending legal proceedings other than the disclosed tax matter are not expected to have a material adverse effect on the Company as a whole.
- Management and the independent auditor reported effective internal control over financial reporting; the auditor issued unqualified opinions on the financial statements and internal controls.
Important facts for investors to verify
- Track the Tax Court’s final decision, appeal timeline, possible 2007–2009 payment, and whether the IRS seeks to apply its methodology to later years.
- Assess whether pricing can continue to offset input-cost inflation without materially weakening volume, mix or margins.
- Review the source and sustainability of cash flow, including the effect of receivables factoring and extended supplier payment terms; receivables sold under the factoring program increased to $10.709 billion from $6.266 billion.
- Monitor fairlife’s contingent consideration remeasurement and related charges, as well as the performance and impairment assumptions for acquired brands and goodwill.
- Check foreign-exchange effects, debt maturities and funding costs, dividend and repurchase commitments, and the execution of the Vietnam refranchising and other bottler changes.