Coca-Cola Consolidated, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; comparable quarter ended April 1, 2022. The company distributes, markets and manufactures nonalcoholic beverages across 14 states and the District of Columbia, primarily Coca-Cola products.
Financial performance
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Net sales | $1,571.6 million | $1,404.4 million | +11.9% |
| Gross profit | $624.1 million | $507.6 million | +23% |
| Gross margin | 39.7% | 36.1% | +360 bps |
| Income from operations | $206.1 million | $131.0 million | +57% |
| Net income | $118.1 million | $93.4 million | +26.5% |
| Diluted EPS, Common Stock | $12.57 | $9.94 | — |
| Operating cash flow | $184.7 million | $130.9 million | +$53.8 million |
Net sales growth was driven primarily by approximately $175 million in higher average bottle/can prices, partly offset by an approximately $30 million volume-related decline. Standard physical case volume fell 3.1%; excluding the prior-year quarter’s extra selling day, comparable volume declined 2.0%. Sparkling volume was down 0.9% and still beverage volume down 8.9%. Cost of sales rose 5.7%, including about $60 million of higher input costs, while SD&A rose 11% on labor, fuel and broader inflation. SD&A was 26.6% of sales versus 26.8%.
Cash, debt and liquidity
- Cash and cash equivalents were $289.8 million at March 31, up $92.1 million from year-end. Net working capital was $541.1 million.
- Capital expenditures were $52.7 million; investing cash outflow was $52.5 million. Financing cash outflow was $40.0 million, including $32.8 million of dividends.
- Long-term debt was $598.9 million, with no revolving-credit borrowings outstanding; the facility has $500 million of capacity. The company reported compliance with its debt covenants.
- Management said available capital sources should be sufficient for operations, working capital and planned capital spending for at least the next 12 months.
Material changes, outlook and risks
- Other expense was $43.9 million versus $3.3 million of other income a year earlier. This included a $41.7 million noncash increase in the fair value of acquisition-related contingent consideration, reflecting a lower discount rate and higher projected cash flows. That liability totaled $576.4 million; expected annual payments are $35–$76 million.
- Management expects 2023 capital expenditures of $250–$300 million. It also anticipates a significant noncash charge related to termination of the primary pension plan; the filing does not provide a clear amount for the charge.
- A $3.00-per-share special cash dividend was included in Q1 dividends; reported cash dividends per share were $3.50 for each share class, compared with $0.25 in Q1 2022. Future dividends remain at the board’s discretion.
- Key exposures include commodity and labor inflation, supply availability, customer and consumer shifts, competition, weather, and dependence on Coca-Cola brands and agreements. A 10% rise in relevant commodity prices could increase costs by about $74 million over the next 12 months, assuming unchanged volume. A 10-basis-point change in the risk-free rate used in contingent-consideration valuation could change that liability by about $6 million.
- The company guarantees $9.5 million of SAC debt and has $137.1 million of future payments under marketing arrangements. Management does not expect ordinary-course legal matters or the SAC guarantee to result in material losses. No material change to the previously reported risk factors was disclosed.
Important facts for investors to verify
- Whether pricing can continue to offset input-cost inflation without materially weakening sales volumes, particularly in still beverages.
- The drivers and potential volatility of the $576.4 million contingent-consideration liability and its future cash payments.
- The size and timing of the expected pension-termination charge and the plan’s completion.
- Execution of the $250–$300 million capital-spending plan and its effect on cash generation and leverage.
- Dependence on major customers: Walmart and Kroger represented approximately 25% of Q1 net sales combined.