The Coca-Cola Company — 2014 Form 10-K
Reporting period: Fiscal year ended December 31, 2014. This is an annual filing; the filing also reports unaudited fourth-quarter results. Unless noted otherwise, financial amounts are U.S. dollars.
Business context and reporting period
Coca-Cola owns or licenses more than 500 nonalcoholic beverage brands, selling in more than 200 countries through Company-controlled operations and independent bottling partners. The business includes higher-margin concentrate operations and finished-beverage operations, which generally produce higher revenue but lower margins. Worldwide system volume grew 2% to 28.6 billion unit cases; sparkling beverages were 73% of volume.
Financial performance and liquidity
| Metric | 2014 | 2013 | Change |
|---|---|---|---|
| Net operating revenues | $46.0 billion | $46.9 billion | (2%) |
| Gross profit / margin | $28.1 billion / 61.1% | $28.4 billion / 60.7% | Profit (1%); margin +0.4 pts |
| Operating income / margin | $9.7 billion / 21.1% | $10.2 billion / 21.8% | Income (5%) |
| Net income attributable to shareowners | $7.1 billion | $8.6 billion | (17%) |
| Diluted earnings per share | $1.60 | $1.90 | (16%) |
| Cash provided by operating activities | $10.6 billion | $10.5 billion | +1% |
| Capital expenditures | $2.4 billion | $2.6 billion | Lower |
Net income was also affected by substantial unusual items, including a $1.263 billion net loss in other income (loss), versus $576 million of income in 2013. Cash, cash equivalents and short-term investments totaled $18.0 billion at year-end; marketable securities were a further $3.7 billion. Current assets were $33.0 billion and current liabilities $32.4 billion. Loans and notes payable were $19.1 billion, current maturities of long-term debt $3.6 billion, and long-term debt $19.1 billion. The Company had $7.7 billion of undrawn general-purpose credit lines.
Shareowners received $1.22 per share in dividends during 2014. The Company repurchased 98 million shares, at an average price of $40.97 per share.
Material changes versus the prior comparable period
- Revenue declined 2%, reflecting structural changes and unfavorable currency effects, partly offset by volume growth and favorable price, product and geographic mix. Foreign currency reduced revenue by an estimated 2%.
- Worldwide unit-case volume rose 2%, but growth varied: Asia Pacific +5%, Eurasia and Africa +4%, Europe (2%), Latin America +1%, and North America flat. After structural changes, concentrate sales volume growth was 1%.
- Gross margin improved to 61.1%, helped by lower commodity costs and bottling-system changes; operating margin fell to 21.1%, with higher restructuring and other unusual costs.
- Shareowner net income fell 17%, including the swing to a large other-income loss. Operating cash flow remained broadly stable.
- North America refranchising and other bottling changes altered the consolidated business mix and comparability. The Company recorded assets held for sale of $679 million at year-end.
Fourth quarter: Revenue was $10.9 billion versus $11.0 billion; shareowner net income was $770 million versus $1.71 billion, and diluted EPS was $0.17 versus $0.38. Fourth-quarter 2014 included significant refranchising, restructuring and Venezuela-related charges. It also had one more shipping day than the prior-year quarter.
Outlook, management commentary, risks and unusual items
- Management said the near-term outlook remained strong and expected substantial operating cash flow in 2015. The filing estimated 2015 foreign-exchange headwinds of about 5% to revenue and 7%–8% to income before taxes; these are estimates, not earnings guidance.
- The Company forecast 2015 capital expenditures of $2.5–$3.0 billion, share repurchases of $2.0–$3.0 billion net of employee-option proceeds, and an effective tax rate of approximately 22.5% before unusual items. It expected total annualized productivity of approximately $3.6 billion by 2019.
- 2014 other operating charges were $1.183 billion, including $601 million for productivity and reinvestment initiatives and $208 million for German bottling integration. Separately, other income (loss) included $799 million of North America refranchising charges and $569 million of foreign-exchange losses.
- Venezuela was a significant unusual exposure: currency remeasurement charges totaled $372 million; the Company recorded a $296 million write-down of bottler receivables and an $18 million trademark impairment. Further currency changes, limited convertibility or regulation could cause additional losses.
- Strategic transactions included a 10-year Keurig collaboration and a proposed Monster energy-drink transaction expected to close in 2015, including a planned $2.15 billion net cash payment to Monster. Their execution and anticipated benefits remained uncertain.
- Key ongoing risks include currency volatility, water availability, changing health and consumer preferences, taxes or regulation affecting sugary drinks, input-cost and supply risks, competition, bottler financial health, cybersecurity, litigation and impairment risk. Management identified no material adverse effect from pending legal proceedings overall; an Atlanta wastewater-permit matter was under settlement discussions, with any expected sanctions considered immaterial.
Important facts for investors to verify
- How much of the earnings decline reflects recurring operating performance versus refranchising, restructuring, Venezuela and other unusual items.
- Whether volume, pricing and mix can offset currency headwinds and continued softness in certain markets, especially Europe and North America.
- The realization, timing and costs of productivity savings, North America refranchising and the expected margin benefits.
- Venezuela exposure, receivable recovery and the impact of the new currency system and profit-margin rules.
- Debt and refinancing needs, pension funding and the cash requirements of dividends, repurchases, Keurig and Monster-related commitments.