Coca-Cola Consolidated, Inc. — FY2021 Form 10-K
Business and period: The company distributes, markets and manufactures nonalcoholic beverages across 14 states and the District of Columbia. It is the largest U.S. Coca-Cola bottler; Coca-Cola brands represented about 83% of retail bottle/can volume. This is the annual report for the fiscal year ended December 31, 2021, compared primarily with FY2020—not a standalone fourth-quarter report.
Key financial metrics
| Metric | FY2021 | FY2020 | Change |
|---|---|---|---|
| Net sales | $5.563 billion | $5.007 billion | +11.1% |
| Gross profit / margin | $1.954 billion / 35.1% | $1.769 billion / 35.3% | Profit +10.5%; margin down 20 bps |
| SD&A / % of sales | $1.515 billion / 27.2% | $1.456 billion / 29.1% | Expense +4.1%; ratio down about 200 bps |
| Operating income | $439.2 million | $313.4 million | +$125.8 million |
| Net income attributable to Coca-Cola Consolidated | $189.6 million | $172.5 million | +$17.1 million |
| Diluted EPS, Common Stock | $20.17 | $18.30 | Increased |
| Cash from operations | $521.8 million | $494.5 million | +$27.3 million |
| Cash and cash equivalents | $142.3 million | $54.8 million | +$87.5 million |
| Long-term debt | $723.4 million | $940.5 million | Down $217.0 million |
Operating margin was approximately 7.9% versus 6.3% in 2020. Net working capital was $241.8 million, up $37.6 million. The company reported $725.0 million of contractual debt principal, with no principal maturities in 2022; it had a $500 million revolving facility with no balance outstanding at year-end. It was in compliance with its debt covenants.
Performance and changes versus 2020
- Physical case volume rose 2.0%; on a comparable selling-day basis it rose 3.0%. Still volume grew faster than sparkling volume, supported by BODYARMOR, smartwater and Monster, while reopening supported on-premise demand.
- Sales growth reflected $412.5 million from pricing and product mix, including price increases to offset input inflation, and $95.5 million from higher physical case volume. Still beverage sales rose 13.4%; sparkling sales rose 9.4%.
- Cost of sales increased 11.4%, with higher aluminum, PET resin and transportation costs among the drivers. Increased still-beverage mix weighed on gross margin.
- Labor costs rose amid turnover, labor shortages and wage inflation. SD&A nevertheless declined as a percentage of sales, reflecting sales growth outpacing expense growth.
- Reported net income included a $146.3 million noncash increase in the fair value of acquisition-related contingent consideration, versus $31.2 million in 2020. Management’s non-GAAP adjusted net income was $301.7 million, versus $193.0 million in 2020; adjusted results exclude specified items and should not be treated as GAAP results.
- 2020 included $9.6 million of income attributable to a noncontrolling interest in Piedmont, which became wholly owned in December 2020.
Outlook, risks and unusual items
- Management expected another solid year of financial performance in 2022 and cited top-line opportunities from its commercial plan, while warning that planning would be challenging because of labor constraints, higher input costs, supply delays and COVID-19 uncertainty and variants. No specific 2022 revenue or earnings guidance was provided.
- Planned 2022 capital expenditures were $200 million to $220 million. Expected 2022 pension contributions were $20 million to $30 million; annual sub-bottling payments were estimated at $35 million to $62 million.
- The $542.1 million contingent consideration liability represents estimated future sub-bottling payments to Coca-Cola Refreshments USA. Its valuation depends on long-range cash-flow forecasts and discount-rate assumptions; the fair-value charge is noncash, but the underlying payments require cash. PwC identified this estimate as a critical audit matter.
- Key exposures include commodity, packaging and fuel inflation; constrained supplies and labor availability; reliance on Coca-Cola brands and agreements; and customer concentration. Walmart and Kroger together represented about 33% of bottle/can volume and 23% of net sales.
- A third-party cybersecurity incident disrupted access to the employee timekeeping system during the fourth quarter and into early 2022. The company reported mitigation actions and no material operational impact to date.
- The Harrison family controlled approximately 86% of voting power. Related-party leases and business arrangements, including sub-bottling payments, are also relevant to assessing governance and economics.
- The company reported ordinary-course litigation with no material adverse outcome considered probable, and no material environmental remediation commitments. It guaranteed $9.5 million of SAC debt at year-end.
Important facts for investors to verify
- Whether pricing and volume gains can continue to offset input-cost inflation without further erosion in gross margin.
- The assumptions and sensitivity behind the $542.1 million contingent consideration liability, its noncash remeasurement, and expected future cash payments.
- 2022 execution against capital expenditure plans, debt repayment priorities and liquidity needs, including working-capital and supply-chain requirements.
- Current labor availability, wage trends, packaging supply, and the recovery of higher-margin on-premise channels.
- Exposure to Walmart and Kroger, Coca-Cola system agreements, and the implications of family voting control and related-party transactions.