Coca-Cola Consolidated, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 29, 2024; comparable period ended March 31, 2023. The company distributes, markets and manufactures nonalcoholic beverages across 14 states and the District of Columbia, primarily under Coca-Cola brands.
Financial performance
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Net sales | $1.592 billion | $1.572 billion | +1.3% |
| Gross profit / margin | $640.6 million / 40.2% | $624.1 million / 39.7% | +3%; margin +50 bps |
| Income from operations / margin | $215.4 million / 13.5% | $206.1 million / 13.1% | +5%; margin +40 bps |
| Net income | $165.7 million | $118.1 million | +40.3% |
| Diluted EPS, Common Stock | $17.66 | $12.57 | Up |
| Cash from operations | $194.3 million | $184.7 million | +$9.6 million |
Adjusted non-GAAP net income was $162.5 million versus $151.8 million, up $10.7 million. Adjusted basic EPS was $17.33 versus $16.20. The large GAAP earnings increase was substantially affected by the contingent-consideration fair-value line: a $5.5 million gain in Q1 2024 versus a $41.7 million expense in Q1 2023. These are non-cash remeasurement items.
Liquidity, debt and cash flows
- At March 29, cash and cash equivalents were $401.3 million and short-term investments were $183.6 million; the latter were newly purchased during the quarter. Net working capital was $797.0 million.
- Long-term debt was $599.3 million, with no borrowings on the $500 million revolving credit facility. The company reported compliance with its debt covenants. Cash, cash equivalents and short-term investments totaled approximately $584.9 million.
- Operating cash flow was $194.3 million. Investing activities used $263.3 million, including $183.8 million for short-term investments and $77.0 million in capital expenditures. Financing activities used $165.0 million, principally reflecting $154.7 million of dividends paid.
- Dividends paid included a $16.00-per-share special dividend; total cash dividends were approximately $155 million, compared with $32.8 million in Q1 2023.
- The acquisition-related contingent-consideration liability was $649.6 million, down from $669.3 million at year-end. This Level 3 fair-value estimate depends on forecasts and discount-rate assumptions.
Material changes and management commentary
- Net sales growth was led by higher average bottle/can pricing, which added approximately $40 million; lower external freight revenue and lower case volume partly offset the increase. The quarter had one fewer selling day than the prior-year quarter.
- Reported standard physical case volume declined 0.4%; comparable volume, excluding the extra prior-year selling day, rose 0.7%. Comparable Sparkling volume grew 2.0%, while Still volume declined 3.1%.
- Bottle/can sales rose 2.3%; other sales fell 9.5%, partly reflecting a shift to alternative distributors for post-mix deliveries. Alternative routes can also affect reported volume measures.
- Gross margin improved on pricing actions, stable commodity prices and stronger Sparkling sales. SD&A increased 1.7%, primarily due to annual wage adjustments.
- Interest moved from $2.9 million of net expense to $2.7 million of net income, mainly due to higher balances and yields on cash and investments.
- The company announced after quarter-end, on May 6, an intended purchase of up to $3.1 billion of Common Stock: a Dutch auction tender offer for up to $2.0 billion and a separate purchase agreement with a Coca-Cola Company subsidiary. It intends to use new funded debt and cash on hand; completion and final terms are not established by this filing.
Outlook, risks and contingencies
- Management expects 2024 capital expenditures of approximately $300 million to $350 million, with approximately $250 million to $300 million annually over the following five years. No specific earnings or revenue guidance is provided.
- Annual payments under acquisition-related sub-bottling arrangements are expected to be approximately $50 million to $70 million for each of the next five years. The company estimates a 10-basis-point change in the underlying risk-free rate used in its discount rate would change the liability by about $6 million.
- Management said available capital is sufficient for its business plan and expected needs for at least the next 12 months. Key risks include input-cost inflation, commodity and supply availability, pricing and volume sensitivity, weather and seasonality, customer and supplier concentration, labor costs, reliance on Coca-Cola system agreements and marketing support, and interest-rate effects on the contingent liability.
- A 10% increase in raw-material commodity prices is estimated to raise costs by approximately $70 million over the next 12 months, assuming no volume change. Commodity derivatives are used for risk management, not speculation.
- The company reported ordinary-course legal claims with no material adverse outcome expected, no material changes to previously disclosed risk factors, and effective disclosure controls. Its SAC debt guarantee was $0 at quarter-end, versus $9.5 million at year-end.
Important facts for investors to verify
- Whether the proposed $3.1 billion share repurchase proceeds, its final funding mix and its effect on leverage, interest expense and liquidity.
- Underlying operating trends: pricing versus volume, especially the Still category decline and the effect of alternative distribution routes on reported sales and volume.
- How much reported earnings growth reflects operations versus non-cash contingent-consideration and commodity-derivative adjustments.
- Delivery of the $300 million to $350 million 2024 capital-spending plan and resulting cash generation after dividends.
- Future sub-bottling payments and sensitivity of the $649.6 million estimated liability to discount rates and cash-flow assumptions.