Business Context and Reporting Period
Company: The Coca-Cola Company (KO)
Filing Type: Form 10-Q (Quarterly Report)
Reporting Period: Three months ended April 3, 2026 (Q1 2026)
Comparison Period: Three months ended March 28, 2025 (Q1 2025)
The Company reported strong operational performance in Q1 2026, driven by volume growth, favorable pricing, and a weaker U.S. dollar. The quarter included six additional days compared to the prior year, impacting volume metrics. Significant structural changes included the refranchising of bottling operations in India and the sale of finished product operations in Nigeria.
Key Financial Metrics
| Metric (in millions, except per share) | Q1 2026 | Q1 2025 | Change |
|---|---|---|---|
| Net Operating Revenues | $12,472 | $11,129 | +12.1% |
| Gross Profit | $7,852 | $6,966 | +12.7% |
| Gross Margin | 63.0% | 62.6% | +40 bps |
| Operating Income | $4,359 | $3,659 | +19.1% |
| Operating Margin | 35.0% | 32.9% | +210 bps |
| Net Income (Attributable to Shareowners) | $3,924 | $3,330 | +17.8% |
| Diluted EPS | $0.91 | $0.77 | +18.2% |
| Operating Cash Flow | $2,021 | ($5,202) | Significant Improvement |
| Total Debt (Current + Long-term) | $43,558 | $43,941 | -$383 |
| Cash & Short-Term Investments | $11,083 | $13,872 | -$2,789 |
Material Changes vs. Prior Period
- Revenue Growth: Net operating revenues increased 12% year-over-year. This was driven by an 8% increase in concentrate sales volume, a 2% favorable price/mix impact, and a 3% favorable foreign currency impact. Acquisitions and divestitures had a negligible -1% impact.
- Volume Performance: Worldwide unit case volume grew 3% (based on average daily sales). Concentrate sales volume grew 8%. North America led volume growth at 4% (unit cases) and 11% (concentrate), followed by Asia Pacific at 5% and 10% respectively.
- Expense Management: Selling, general, and administrative (SG&A) expenses rose 7% to $3,472 million, primarily due to increased marketing spending ($1,377 million vs. $1,089 million). However, "Other operating charges" dropped significantly from $73 million to $21 million, excluding a $47 million fairlife contingent consideration payment in the prior year.
- Cash Flow Volatility: Operating cash flow swung from a $5.2 billion use of cash in Q1 2025 to a $2.0 billion generation in Q1 2026. The prior year's outflow was heavily influenced by a $6.1 billion milestone payment for the fairlife acquisition.
- Dividends: The Company paid $2,281 million in dividends in Q1 2026, compared to $89 million in Q1 2025, due to the timing of quarterly dividend payments.
Guidance, Outlook, and Risks
Outlook and Guidance
- Full Year 2026 Tax Rate: Management expects an effective tax rate of approximately 19.9% for 2026, excluding the potential impact of significant operating/nonoperating items and the ongoing IRS litigation.
- Capital Expenditures: Expected to be approximately $2.2 billion for 2026.
- Share Repurchases: The Company expects to repurchase shares to offset dilution from employee stock-based compensation. In Q1 2026, $361 million was spent to repurchase 4.9 million shares under the authorized plan.
- Foreign Exchange: Based on current spot rates and hedging, the Company expects foreign currency fluctuations to have a favorable impact on full-year 2026 net operating revenues and operating income.
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 ruled against the Company, assessing $2.7 billion in additional tax plus interest, totaling $6.0 billion. The Company paid this amount in September 2024 to stop interest accrual and has appealed to the U.S. Court of Appeals for the Eleventh Circuit.
- Exposure: If the Company does not prevail, it may not receive a refund of the $6.0 billion deposit. Furthermore, 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's methodology is applied retroactively and prospectively.
- Current Reserve: As of April 3, 2026, the Company has updated its tax reserve to $520 million, maintaining the position that it is more likely than not to prevail on appeal.
- BodyArmor Impairment: In late 2025, the Company recorded a $960 million impairment charge for the BodyArmor trademark due to revised growth projections. As of April 3, 2026, the fair value approximates the carrying value, but further impairment is possible if operating results do not meet revised projections.
- Assets Held for Sale: The Company agreed to sell its bottling operations in Africa to Coca-Cola HBC AG. These assets are classified as held for sale, with an additional $10 million impairment recorded in Q1 2026.
Investor Verification Checklist
- IRS Litigation Status: Monitor the progress of the appeal in the U.S. Court of Appeals for the Eleventh Circuit regarding the $6.0 billion tax deposit and the potential $14 billion exposure for subsequent years.
- BodyArmor Performance: Verify if the BodyArmor business meets the revised financial projections to avoid further impairment charges on the remaining $2.44 billion trademark carrying value.
- Africa Divestiture Closing: Track the regulatory approvals and closing timeline for the sale of African bottling operations to Coca-Cola HBC AG, expected by the end of 2026.
- Foreign Exchange Sensitivity: Assess the impact of currency fluctuations, particularly the U.S. dollar strength against the Argentine peso, Turkish lira, and Indian rupee, which offset favorable impacts from the euro and Mexican peso.
- Capital Allocation: Confirm the execution of the share repurchase program and the timing of the $2.2 billion capital expenditure budget.