Coca-Cola Consolidated, Inc. — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022, compared primarily with fiscal 2021. This is an annual filing; it does not provide a standalone fourth-quarter results summary.
Business context
The company is the largest Coca-Cola bottler in the United States, distributing, marketing and manufacturing nonalcoholic beverages across 14 states and the District of Columbia. Coca-Cola Company products represented approximately 86% of bottle/can volume sold to retail customers. The Nonalcoholic Beverages segment generated most consolidated sales and operating income.
Financial and operating performance
| Metric | FY2022 | FY2021 | Change |
|---|---|---|---|
| Net sales | $6.201 billion | $5.563 billion | Up 11.5% |
| Gross profit | $2.278 billion | $1.954 billion | Up $323.8 million |
| Gross margin | 36.7% | 35.1% | Up 160 basis points |
| Income from operations | $641.0 million | $439.2 million | Up $201.9 million |
| Net income | $430.2 million | $189.6 million | Up $240.6 million |
| Operating cash flow | $554.5 million | $521.8 million | Up $32.8 million |
- Basic earnings per share were $45.88 for Common Stock and $45.93 for Class B Common Stock.
- Bottle/can sales volume was essentially flat at 366.1 million physical cases. Sparkling volume rose 0.6%; still beverage volume fell 1.3%.
- Higher average bottle/can pricing contributed approximately $610 million to sales growth. Sparkling and still net sales increased 16.6% and 8.5%, respectively.
- Cost of sales rose 8.7% to $3.923 billion, including approximately $365 million of higher input costs, notably aluminum, PET resin and transportation.
- SD&A increased 8.0% to $1.637 billion, but declined as a share of sales to 26.4% from 27.2%. Higher labor costs, inflation and charitable commitments contributed to the increase.
- Capital expenditures were $298.6 million, versus $155.7 million in 2021. Investing cash outflow was $325.0 million. The company repaid $125 million of debt and paid $36.5 million in acquisition-related consideration.
Financial position and liquidity
- Cash and cash equivalents were $197.6 million at year-end. Net working capital was $340.6 million, up $98.8 million year over year.
- Long-term debt carrying value was $598.8 million, down from $723.4 million; the $500 million revolving credit facility had no borrowings outstanding. The company reported compliance with debt covenants.
- Debt principal maturities were $350 million in 2025, $100 million in 2026 and $150 million in 2030; no principal was contractually due in 2023. S&P upgraded its rating to BBB+ with a stable outlook; Moody’s rating was Baa1, stable.
- The acquisition-related contingent consideration liability was $541.5 million, including $40.1 million classified as current. Expected annual payments under these arrangements were estimated at $42 million to $74 million.
Material changes, outlook and notable items
- Revenue and operating profit growth reflected portfolio-wide price increases, steady volume and improved product mix, while elevated input costs were a significant offset. Management said volume held up better than historical experience following price increases.
- Net income also benefited from lower noncash fair-value expense on acquisition-related contingent consideration: the liability adjustment was a $32.3 million increase in 2022 versus $146.3 million in 2021. The year-end liability valuation depends on long-term cash-flow projections and discount-rate assumptions.
- Management forecast 2023 capital expenditures of $250 million to $300 million and said significant supply-chain and growth investments would continue. It stated that available capital sources should be sufficient for the business plan and liquidity needs for at least 12 months.
- The company anticipated a significant noncash 2023 charge associated with terminating its frozen Primary Plan, principally from reclassifying actuarial losses from accumulated other comprehensive loss. Gross actuarial losses associated with that plan were approximately $117 million at year-end 2022. The plan termination process included anticipated lump-sum offers and annuity purchases.
- The board declared a $3.00-per-share special dividend and raised the regular quarterly dividend from $0.25 to $0.50 per share, payable February 10, 2023. Total payments were $32.8 million.
- Supply-chain risks were evident: intermittent carbon dioxide shortages caused work stoppages at some plants in 2022, offset by production elsewhere. The company also cited commodity inflation, fuel costs, labor availability and weather as risks.
- Other key exposures include reliance on Coca-Cola brands and agreements, customer concentration (Walmart and Kroger together were 26% of net sales), changing consumer preferences and regulation, and potential disruption to shared bottler technology systems. The CEO controlled approximately 71% of voting power.
- Management said ordinary-course legal proceedings were not expected to have a material adverse effect and no material loss beyond recorded amounts was considered reasonably possible. The auditor issued an unqualified opinion and identified valuation of the contingent consideration liability as a critical audit matter.
Most important facts for investors to verify
- Whether price-led growth can persist without weakening bottle/can volume, particularly for still beverages and higher-margin channels.
- Whether input-cost and labor pressures, including commodity exposure, can be offset by pricing and productivity improvements.
- Execution, timing and returns on the planned $250–$300 million 2023 capital program and broader supply-chain investments.
- The cash-flow, earnings and equity effects of the Primary Plan termination, including the timing and final amount of the anticipated noncash charge and pension payments.
- Assumptions behind the $541.5 million contingent consideration valuation and expected future payments; the filing estimates a roughly $5 million liability sensitivity for a 10-basis-point change in the underlying risk-free rate.
- Customer and supplier concentration, Coca-Cola agreement requirements, debt maturities, and the sustainability of the increased regular and special dividends.