Business Context and Reporting Period
Company: The Coca-Cola Company (KO)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: July 3, 2026 (Second Quarter)
Reporting Status: Large Accelerated Filer
The Company reported strong operational performance in the second quarter of 2026, driven by volume growth across most geographic segments and favorable pricing initiatives. The reporting period includes the impact of structural changes, including the refranchising of bottling operations in India and the sale of finished product operations in Nigeria.
Key Financial Metrics
| Metric (in millions) | Three Months Ended July 3, 2026 |
Three Months Ended June 27, 2025 |
Six Months Ended July 3, 2026 |
Six Months Ended June 27, 2025 |
|---|---|---|---|---|
| Net Operating Revenues | $13,380 | $12,535 | $25,852 | $23,664 |
| Gross Profit | $8,415 | $7,821 | $16,267 | $14,787 |
| Operating Income | $4,672 | $4,280 | $9,031 | $7,939 |
| Net Income (Attributable to Shareowners) | $4,425 | $3,810 | $8,349 | $7,140 |
| Diluted EPS | $1.03 | $0.88 | $1.94 | $1.65 |
| Operating Cash Flow (6mo) | $7,543 | ($1,391) | ||
| Free Cash Flow (6mo) | ||||
| Cash & Equivalents (Balance Sheet) | $12,907 (as of July 3, 2026) | |||
| Total Debt (Current + Long-term) | $43,495 (as of July 3, 2026) |
Margins (Six Months Ended July 3, 2026):
- Gross Profit Margin: 62.9% (vs. 62.5% prior year)
- Operating Margin: 34.9% (vs. 33.6% prior year)
- Effective Tax Rate: 16.7% (vs. 19.4% prior year)
Material Changes vs. Prior Period
- Revenue Growth: Net operating revenues increased 7% in the quarter and 9% year-to-date. Growth was driven by a 4% increase in concentrate sales volume (quarter) and 6% (year-to-date), alongside a 2% favorable price/mix impact.
- Profitability: Operating income rose 9% in the quarter and 14% year-to-date. This was supported by lower operating expenses, reduced other operating charges, and favorable foreign currency impacts, partially offset by higher commodity costs.
- Cash Flow: Operating cash flow improved significantly to $7.5 billion for the six months ended July 3, 2026, compared to a use of $1.4 billion in the prior year. The prior year included a $6.1 billion milestone payment for the fairlife acquisition.
- Debt Reduction: Total debt decreased from $43.9 billion at year-end 2025 to $43.5 billion in Q2 2026. Commercial paper borrowings were fully repaid, reducing short-term debt.
- Dividends: The Board approved a quarterly dividend of $0.53 per share, payable October 1, 2026. Total dividends paid in the first six months of 2026 were $4.6 billion.
Guidance, Outlook, and Risks
Outlook and Commentary:
- Management expects foreign currency exchange rate fluctuations to have a favorable impact on full-year 2026 net operating revenues and operating income based on current spot rates and hedging coverage.
- Worldwide concentrate sales volume growth is expected to be slightly behind unit case volume growth for the full year 2026.
- Capital expenditures for 2026 are expected to be approximately $2.2 billion.
- The Company expects to repurchase shares to offset dilution from employee stock-based compensation.
Key Risks and Contingencies:
- IRS Tax Litigation: The Company is in litigation with the IRS regarding transfer pricing for tax years 2007–2009. The Tax Court assessed a liability of $6.0 billion (including interest), which the Company paid in September 2024 as a deposit pending appeal. The Company estimates a potential aggregate remaining incremental tax and interest liability of approximately $14 billion for tax years 2010–2025 if the Tax Court methodology is upheld. A tax reserve of $529 million has been recorded as of July 3, 2026.
- Operational Disruption: A ransomware event at fairlife operations in the U.S. occurred in July 2026, causing a temporary suspension of production. Management does not believe this will have a material impact on financial results.
- Impairment Risks: The Company continues to monitor the fair value of the BodyArmor trademark, which was impaired by $960 million in late 2025. Further impairment could occur if operating results do not meet revised projections.
Investor Verification Checklist
- IRS Litigation Status: Verify the current status of the appeal in the U.S. Court of Appeals for the Eleventh Circuit and any updates to the $14 billion potential liability estimate.
- BodyArmor Performance: Monitor future quarterly results for the BodyArmor brand to assess if the revised growth projections are being met, given the recent $960 million impairment.
- Foreign Currency Hedging: Review the effectiveness of hedging strategies as the U.S. dollar fluctuates against key currencies (Mexican peso, Brazilian real, Euro, Japanese yen).
- Structural Changes: Confirm the closing timeline and financial impact of the sale of bottling operations in Africa to Coca-Cola HBC AG, currently classified as "held for sale."
- Commodity Costs: Track raw material costs (sugar, aluminum, resin) as they offset some of the pricing and volume gains in the current period.