COKE

Business Context and Reporting Period

Company: Coca-Cola Bottling Co. Consolidated (CCBCC)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: March 29, 2009
Business Overview: CCBCC is the second-largest bottler of The Coca-Cola Company products in the United States, operating primarily in the Southeast. The company produces, markets, and distributes nonalcoholic beverages, including sparkling and still beverages. The first quarter is historically a low-volume season compared to the second and third quarters.

Key Financial Metrics

Material Changes vs. Prior Period

• Profitability Turnaround: The company reported a significant improvement from a net loss of $4.3 million in Q1 2008 to net income of $8.5 million in Q1 2009. Operating income surged from $3.7 million to $21.1 million.
• Revenue Mix: Net sales decreased slightly by 0.4% ($1.4 million). This was driven by a 7.0% decrease in bottle/can volume, partially offset by a 5.2% increase in average sales price per unit.
• Expense Reduction: Selling, delivery, and administrative (S,D&A) expenses decreased by 7.5% ($10.3 million). Key drivers included a 5% workforce reduction implemented in 2008, lower fuel costs, and a gain on the termination of a capital lease.
• Interest Costs: Net interest expense decreased 11.3% due to lower effective interest rates (5.6% in Q1 2009 vs. 5.9% in Q1 2008) and reduced debt levels.
• Working Capital: Net working capital increased by $118.2 million compared to year-end 2008, primarily due to the reclassification of $110 million of debt from current to long-term following a new debt issuance.

Guidance, Outlook, and Risks

• Capital Expenditures: Management anticipates total additions to property, plant, and equipment for fiscal year 2009 will range between $45 million and $60 million.
• Pension Contributions: The company expects to contribute between $8 million and $12 million to its sponsored pension plans for the remainder of 2009.
• Cost Savings: The company suspended matching contributions to its 401(k) plan effective April 1, 2009, anticipating a reduction in benefit costs of approximately $7 million for the year.
• Debt Maturities: The company issued $110 million in Senior Notes in April 2009 to repay a $119.3 million debt maturity in May 2009. It expects to use operating cash flow and its credit facility to repay a $57.4 million maturity in July 2009.
• Risks:
  • Commodity Prices: Exposure to price fluctuations in aluminum, corn, resin, and diesel fuel. A 10% increase in commodity prices could increase costs by approximately $21 million annually.
  • Customer Concentration: Wal-Mart and Food Lion accounted for approximately 19% and 12% of bottle/can volume, respectively.
  • Guarantees: The company guarantees approximately $40.3 million of debt and lease obligations for two manufacturing cooperatives (SAC and Southeastern).

Investor Verification Checklist

• Debt Refinancing: Verify the successful repayment of the May 2009 debt maturity using proceeds from the April 2009 Senior Notes issuance.
• Volume Trends: Monitor the 7.0% decline in bottle/can volume to determine if price increases can continue to offset volume losses in subsequent quarters.
• Commodity Hedging: Review the effectiveness of fuel and aluminum hedging programs, which provided $2.1 million in gains in Q1 2009.
• Pension Obligations: Track actual pension contributions against the $8–12 million forecast for the remainder of 2009.
• Restructuring Savings: Assess whether the anticipated annual savings from the 2008 workforce reduction (350 positions) are being realized in S,D&A expenses.