Coca-Cola Consolidated, Inc. — Q3 2021 Form 10-Q
Period: Fiscal third quarter ended October 1, 2021; comparisons are with the quarter ended September 27, 2020. The filing also reports the first nine months of fiscal 2021. The company distributes, markets and manufactures nonalcoholic beverages across 14 states and the District of Columbia; approximately 82% of bottle/can sales volume is Coca-Cola Company products.
Financial results
Amounts below are in millions, except per-share data. Percentages are approximate.
| Metric | Q3 2021 | Q3 2020 | First 9 months 2021 | First 9 months 2020 |
|---|---|---|---|---|
| Net sales | $1,457.4 | $1,328.5 | $4,160.4 | $3,728.7 |
| Gross profit / margin | $517.7 / 35.5% | $472.4 / 35.6% | $1,461.4 / 35.1% | $1,307.0 / 35.0% |
| Income from operations / margin | $137.0 / 9.4% | $103.8 / 7.8% | $352.1 / 8.5% | $219.8 / 5.9% |
| Net income attributable to Coca-Cola Consolidated | $68.9 | $51.9 | $170.5 | $106.1 |
| Basic earnings per share | $7.36 | $5.53 | $18.19 | $11.32 |
- Q3 sales rose 9.7%; bottle/can volume declined 0.6%. Management attributed most sales growth to pricing and product mix, including pricing actions to help offset higher input costs.
- For the first nine months, sales increased 11.6% and bottle/can volume increased 3.3%. Still-beverage volume grew 8.1%; sparkling volume grew 1.2%.
- Q3 operating income rose 32%. SD&A increased 3.3% to $380.7 million, but declined as a share of sales to 26.1% from 27.7%. Labor, including frontline retention incentives and overtime, was the main expense pressure.
- Other expense included a $33.9 million Q3 and $90.9 million nine-month noncash increase in the fair value of acquisition-related contingent consideration. This contributed to the gap between operating income growth and net income growth.
Cash flow, liquidity and debt
- For the first nine months, operating cash flow was $439.9 million, versus $376.4 million a year earlier. Investing cash outflow was $119.6 million, mainly capital spending; financing cash outflow was $188.2 million. Cash increased $132.1 million to $186.9 million.
- Capital expenditures were $119.6 million. Operating cash flow less capital expenditures was approximately $320.3 million; this is a simple calculation, not a company-reported non-GAAP measure.
- Long-term debt was $793.2 million at October 1, down from $940.5 million at December 31, 2020. The company repaid the remaining $217.5 million on its prior term loan during the period and drew $70 million under a new term loan. It subsequently notified the lender of its intent to repay that $70 million in Q4.
- The new unsecured revolving facility has $500 million of capacity, with no balance outstanding at quarter end. Cash plus the undrawn facility supports liquidity; net working capital was $303.3 million. Management said it expected sufficient capital for at least the next 12 months and reported compliance with debt covenants.
Changes, outlook and risks
- Management said higher input costs—including aluminum, PET resin and transportation—were partly offset by pricing. It expected elevated input costs to continue in Q4 amid volatile commodity markets and supply-chain constraints. Q3 supply challenges affecting several still-beverage brands weighed on category growth.
- Management forecast 2021 capital expenditures of $170–$190 million, including $50–$70 million in Q4. It estimated annual payments under the sub-bottling contingent-consideration arrangements at $32–$59 million.
- The contingent-consideration liability was $496.7 million, up from $434.7 million at year-end. Its Level 3 valuation depends on internal cash-flow projections and discount-rate assumptions; changes can cause material noncash earnings volatility.
- Market-risk sensitivities: a 10% increase in raw-material commodity prices was estimated to raise costs by approximately $63.8 million over the next 12 months, assuming unchanged volume; a 1% increase in market interest rates was estimated to add approximately $0.7 million to next-12-month interest expense.
- The company said it did not expect COVID-19 to materially affect 2021 liquidity or capital access, but flagged possible workforce attrition related to vaccination or testing requirements. Legal claims were described as ordinary-course matters not expected to have a material adverse effect. The company guaranteed $14.7 million of a manufacturing cooperative’s debt.
- Dividends were $0.25 per share for Q3. The filing provides no full-year revenue or earnings guidance. It reported no material change in risk factors from the 2020 Form 10-K.
Important facts for investors to verify
- Whether pricing can continue to offset commodity, freight and labor inflation without materially weakening volume or margins.
- Whether supply constraints, particularly for still beverages, ease and allow volume trends to recover.
- The assumptions behind the $496.7 million contingent-consideration valuation and the range of future annual cash payments.
- Execution of planned capital spending and the announced Q4 repayment of the $70 million term loan.
- Exposure from dependence on Coca-Cola Company brands and related-party arrangements, as well as customer concentration: Walmart and Kroger together represented approximately 23% of nine-month net sales.