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Coca-Cola Bottling Co. Consolidated Report
Ticker :- COKE Coca-Cola Bottling Co. Consolidated, headquartered in Charlotte, North Carolina, is the largest independent Coca-Cola bottler in the United States. The company makes sells and distributes Coca-Cola products (bottles/cans) along with other beverages, distributing to a market of 65 million people in 14 states. Coca- Cola Consolidated is based in the southeast, midTheyst, and mid-atlantic portion of the United States. The Company has 13 manufacturing facilities, 80 distribution and warehouses, with Corporate offices located in Charlotte, North Carolina.
1. REVENUE DRIVERS
They offer a range of nonalcoholic beverage products and flavors designed to meet the demands of our consumers, including both sparkling and still beverages. Sparkling beverages are carbonated beverages and the Company’s principal sparkling beverage is Coca-Cola. Still beverages include energy products and noncarbonated beverages such as bottled water, tea, ready to drink coffee, enhanced water, juices and sports drinks. Their sales are divided into two main categories: (i) Bottle/can sales : - Bottle/can sales include products packaged primarily in plastic bottles and aluminium cans. (ii) Other sales : - Other sales include sales to other Coca-Cola bottlers, “post-mix” products, transportation revenue and equipment maintenance revenue. Post-mix products are dispensed through equipment that mixes fountain syrups with carbonated or still water, enabling fountain retailers to sell finished products to consumers in cups or glasses
Bottle/Can sales
1. Sparkling Beverages
Sparkling beverages are carbonated beverages and the Company’s principal sparkling beverage is Coca-Cola. The company products include the following
Other sales
1. Sales to other coca cola bottlers.
Sales to other Coca Cola bottlers are categorized as other sales in the financial report of Coca cola bottling consolidated. The historical data of past 10 year shows a lot of fluctuations due to acquisitions and system transformations( As part of The Coca-Cola Company’s plans to refranchise its North American bottling territories, they completed a series of transactions from April 2013 to October 2017 with The Coca-Cola Company, Coca-Cola Refreshments USA, Inc. (“CCR”), a wholly-owned subsidiary of The Coca-Cola Company, and Coca-Cola Bottling Company United, Inc. (“United”), an independent bottler that is unrelated to them, to significantly expand their distribution and manufacturing operations (the “System Transformation ”)) undertaken by the company in year FY13-17.In FY 19 this segment contributed around 7% to the total sales down from 8.3% due to the decrease in sales volume to other Coca-Cola bottlers of about $ million. We expect the Y/Y growth to be 2% as per growth previous the acquisitions and reduction of 50 basis points in further years.
2. Post mix
Post-mix products are dispensed through equipment that mixes fountain syrups with carbonated or still water, enabling fountain retailers to sell finished products to consumers in cups or glasses.(vending m/c) This segment contributed around 7.1% to total sales in FY 2019 up from 7% due to marginal increase in sales volume. Considering the historical data the Y/Y has been between 5-8% but from past years there has been reduction in year on year growth and there are high and lows due to company acquisitions. Considering same trend, we consider Y/Y growth to be 4% and growth by 50 basis points in further year after lockdown as people will visit the theatres and restaurants more often.
Overall Net sales Year 2017 2018 2019 2020 2021 2022 Total net sales 43,23,668 46,25,364 48,26,549 (^) 50,36,390 52,49,664 54,74, Y/Y growth 36.98% 6.98% 4.35% 4.35% 4.23% 4.28% The reason for reduction in Y/Y growth is due to The company’s major revenue comes from carbonated drinks and reduction in growth of the same may result in reduction of the net sales growth %. Changes in public and consumer perception and preferences, including concerns related to obesity, artificial ingredients, product safety and sustainability and brand reputation, could reduce demand for the Company’s products and reduce profitability Changes in government regulations related to non-alcoholic beverages, including regulations related to obesity, public health, artificial ingredients and product safety and sustainability, could reduce demand for the Company’s products and reduce profitability.
2. ASSUMPTIONS
INCOME STATEMENT
expenses, advertising expenses, cold drink equipment repair costs, amortization of intangibles and administrative support labour and operating costs. SD&A is the second highest cost borne by the company. SD&A expenses decreased by 0.5% or $8million in FY 2019 due to decrease in System Transformation expenses net off increase in employee benefit costs including employee salaries primarily as a result of an increase in bonuses and incentives. We are expecting SD&A expenses increase to $1.5billion (30.65% total sales), up 3.4% or $50 million in FY 2020 due to Increase in employee benefit costs including employee salaries primarily as a result of an increase in bonuses and incentives. Further we expect these expenses to be in range of 30.4% - 30.6% of sales in next couple of years. Year 2017 2018 2019 2020 2021 2022 Income from operations
Y/Y growth
The Y/Y growth of operating income jumped around 200% as acquisition costs and system transformation costs got eliminated, we expect it grow around 19%.
3. Other expenses Other expenses include Non-service cost component, fair value of the acquisition related contingent consideration liability etc. It was 2.08 % of Net sales in FY19, an increase of 200 basis points from FY18 due to changes in future cash flow projections of the distribution territories subject to sub- bottling fees and a decrease in the discount rate used to calculate fair value. We expect the other expense to be 0.5% of net sales in FY 2020 as before the changes in future cash flow projections of the distribution territories subject to sub-bottling fees. 4. Tax Expense, Net
The company tax in FY 2019 was $15 million; The Company had a $1.9 million income tax expense in 2018, as compared to an income tax benefit of $39.8 million in
The Tax Act had a substantial impact on the Company’s income tax benefit for 2017. For FY 20 we consider the U.S corporate tax rate 21% of EBIT.
5. Non-controlling interest The consolidated financial statements include the consolidated operations of the Company and its majority-owned subsidiaries including Piedmont Coca-Cola Bottling Partnership (“Piedmont”), the Company’s only subsidiary that has a significant non- controlling interest. Piedmont distributes and markets non-alcoholic beverages in portions of North Carolina and South Carolina. The Company provides a portion of these non-alcoholic beverage products to Piedmont at cost and receives a fee for managing the operations of Piedmont pursuant to a management agreement. Non-controlling interest consists of The Coca-Cola Company’s interest in Piedmont, which was 22.7% for all periods presented. The Company recorded net income attributable to non-controlling interest of $7. million in 2019 and $4.8 million in 2018 related to the portion of Piedmont owned by The Coca-Cola Company. This segment contributed to 0.15% of net sales in FY 19 consider same % in the forthcoming years Year (^2017 2018 2019 2020 2021 ) Net income (loss) attributable to Coca(Cola Consolidated, Inc. 96,535 -19,930 11,375 88,518 1,14,081 1,43, Y/Y Growth -120.65% 157.07% 678.18% 28.88% 25.95% The PAT growth in FY18 is negative due to one time line items, system transformation cost and acquisitions we don’t expect this costs in FY20 and upcoming period.
BALANCE SHEET
An increase in accounts receivable from The Coca-Cola Company of $17.5 million in FY19 from FY 18 primarily as a result of the timing of cash receipts. We expect the further decline in this as before FY19 by 50 basis points.
4. Accounts receivable, other Along with other Coca-Cola bottlers in the United States and Canada, the Company is a member of CCBSS (COCA COLA BOTTLERS SALES & SERVICES), a company formed to provide certain procurement and other services with the intention of enhancing the efficiency and competitiveness of the Coca-Cola bottling system. The Company accounts for CCBSS as an equity method investment and its investment in CCBSS is not material CCBSS negotiates the procurement for the majority of the Company’s raw materials, excluding concentrate, and the Company receives a rebate from CCBSS for the purchase of these raw materials. The Company had rebates due from CCBSS of $10. million on December 29, 2019 and $10.4 million on December 30, 2018, which were classified as accounts receivable, other in the consolidated balance sheets. Account receivable as % sales was 0.89% in FY 19 up from 0.66% in FY18 due to increased balances due from manufacturing cooperatives stemming from favourable commodity price variances. We expect this trend to continue and increase of % sales by 50 basis points in further years. 5. Inventories Inventories consisted of the following:- Finished products, Manufacturing materials ,Plastic shells, plastic pallets and other inventories Inventories are stated at the lower of cost or net realizable value. Cost is determined on the first-in, first-out method( accounting method in which assets purchased or acquired first are disposed of first) for finished products and manufacturing materials and on the average cost method for plastic shells, plastic pallets and other inventories. Inventory contributes to 7.16% of cogs $232 million in FY19 from 6.84% in FY18 an increase in inventories of $15.9 million primarily as a result of inventory builds to support expanded product selections offered by the Company.
We are expecting it to increase by 70 basis points to 7.86% and be in range of 7.5%- 8.5% in future years.
6. Prepaid expenses and other current assets Prepaid expenses and other current assets consisted of the following:- Repair parts, Prepayments for sponsorship contracts, Current portion of income taxes, Prepaid software ,Commodity hedges at fair market value, Other prepaid expenses and other current assets. This segment contributes 4.66% of SD&A expenses in FY19 down from 4.72% in FY due to reduction in prepaid marketing and software. We expect this trend to continue and 4.43% of SD&A in FY 20 i.e. reduction of 50 basis points. 7. Other assets The other assets are not specifically mentioned in the financial report so we would assume it to be similar to previous year. **Liabilities
- Accounts Payable, Trade** Accounts payable is money owed by business to its suppliers. As of December 29, 2019, $19.5 million of additions to property, plant and equipment were accrued in accounts payable, trade. Additions to property, plant and equipment during 2018 were $138.2 million. As of December 30, 2018, $13.7 million of additions to property, plant and equipment were accrued in accounts payable, trade. It increased to 3.88% of sales that is $188 million in FY19 from 3.29% in FY18 due to an increase in accounts payable, trade of $35.4 million primarily as a result of the timing of payments. We expect it to grow by 50 basis points following the historical trend and be in range of 3-4% over years 2. Accounts payable to The Coca-Cola Company
Deferred income taxes are recorded based upon temporary differences between the financial statement and tax bases of assets and liabilities and available net operating loss and tax credit carry forwards. The Company’s deferred income tax assets and liabilities are subject to adjustment in future periods based on the Company’s on-going evaluations of such deferred assets and liabilities and new information available to the Company. Therefore assuming it to be same as previous year.
7. Pension and postretirement benefit obligations There are two Company-sponsored pension plans. The primary Company-sponsored pension plan (the “Primary Plan”) was frozen as of June 30, 2006 and no benefits accrued to participants after this date. The second Company-sponsored pension plan (the “Bargaining Plan”) is for certain employees under collective bargaining agreements. Benefits under the Bargaining Plan are determined in accordance with negotiated formulas for the respective participants. Contributions to the plans are based on actuarial determined amounts and are limited to the amounts currently deductible for income tax purposes. The Company also sponsors a postretirement healthcare plan for employees meeting specified criteria. The expense and liability amounts recorded for the benefit plans reflect estimates related to interest rates, investment returns, employee turnover and age at retirement, mortality rates and healthcare costs. This segment as % of sda contributes around 7% or $114 million up from 5.7 % in FY 18 due to a 0.25% increase in the discount rate assumption would have impacted the postretirement benefit obligation and service cost and interest cost of the Company’s postretirement benefit plan and a 1% increase in the annual healthcare cost trend would have impacted the postretirement benefit obligation and service cost and interest cost of the Company’s postretirement benefit plan We expect this trend to follow in future and % sda of this segment to rise by 70 basis points. 8. Other liabilities
It consists of Noncurrent portion of acquisition related contingent consideration, Accruals for executive benefit plans, Noncurrent deferred proceeds from Territory Conversion The other assets are not specifically mentioned in the financial report so we would assume it to be similar to previous year.
3. CFS (Cash flow Statement)
Property, plant and equipment are recorded at cost, less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets. Leasehold improvements on operating leases are depreciated over the shorter of the estimated useful lives or the term of the lease, including renewal options the Company determines are reasonably assured. Additions and major replacements or betterments are added to the assets at cost. Maintenance and repair costs and minor replacements are charged to expense when incurred. When assets are replaced or otherwise disposed, the cost and accumulated depreciation are removed from the accounts and the gains or losses, if any, are reflected in the statements of operations. Gains or losses on the disposal of manufacturing equipment and manufacturing plants are included in cost of sales. Gains or losses on the disposal of all other property, plant and equipment are included in selling, delivery and administrative (“SD&A”) expenses. It consists of Total capex:- Capex in FY20 is expected to be $83 million down from $108 million in FY19 due STT. Depreciation/amortization:- d&A during year as % net assets of previous year and capex of current year for FY20 was considered to be same as FY Net PPE:- In FY20 net ppe increased by 0.57% i.e. $1003 million from $997 million in FY
2. Goodwill All of the Company’s goodwill resides within one reporting unit within the Non- alcoholic Beverages reportable segment, and, therefore, the Company has determined 1.Land 2.Buildings 3.Machinery and equipment 4.Transportation equipment 5.Furniture and fixtures 6.Cold drink dispensing equipment 7.Leasehold and land improvements 8.Software for internal use 9.Construction in progress
it has one reporting unit for the purpose of assessing goodwill for potential impairment. The Company performs its annual goodwill impairment test as of the first day of the fourth quarter, or more frequently if facts and circumstances indicate such assets may be impaired, including significant declines in actual or future projected cash flows and significant deterioration of market conditions. The Company’s goodwill resides entirely within the Non-alcoholic Beverages segment. The Company performed its annual impairment test of goodwill as of the first day of the fourth quarter during both 2019 and 2018 and determined there was no impairment of the carrying value of these assets. So the Goodwill was assumed to be similar to previous year
4. Distributions agreement Their distribution agreements with Dr Pepper permit them to distribute Dr Pepper beverage brands, as well as certain post-mix products of Dr Pepper. Certain of our agreements with Dr Pepper also authorize us to manufacture certain Dr Pepper beverage brands. Their distribution agreement with Monster Energy grants them the rights to distribute certain products offered, packaged and/or marketed by Monster Energy. Similar to the CBA, these beverage agreements contain restrictions on the use of trademarks, approved bottles, cans and labels and the sale of imitations or substitutes, as well as termination for cause provisions. Sales of beverages under these agreements with other beverage companies represented approximately 15%, 12% and 7% of our bottle/can sales volume to retail customers for 2019, 2018 and 2017, respectively. Distribution agreement reduced to $876 million in FY19 from $900 million in FY18 ,so reduction by 2% due to all final post-closing adjustments for these transactions were completed during 2018 We expect the same trend to follow in subsequent years
- Customer lists and other identifiable intangible assets at cost The Company’s definite-lived intangible assets primarily consist of distribution rights and customer relationships, which have estimated useful lives of 10 to 40 years and five to 12 years, respectively. These assets are amortized on a straight-line basis over their estimated useful lives.
Total long term debt- $984 million in FY Total issuance(repayment)- ($45) million in FY Total interest expense - $35 million in FY
2. Leases. The Company leases office and warehouse space, machinery and other equipment under noncancelable operating lease agreements and also leases certain warehouse space under financing lease agreements. The Company adopted the lease standard using the optional transition method on December 31, 2018, the transition date The long term operating lease in FY19 was $97 million and expected to be $ million in FY20, the short term operating lease in FY19 was $15 million and expected to be $12.8 million in FY The long term capital lease in FY19 was $17 million and expected to be $10 million in FY20, the short term capital lease in FY19 was $9 million and expected to be $ million in FY
6. Equity Schedule
The equity schedule consists of common stock, Class B common stock, capital in excess par values, retained earnings, accumulated other comprehensive, treasury stock- common treasury stock-class B common stock, non-controlling interest (piedmont)
The company has two classes of common stock outstanding : common stock and Class B common stock as of December 29,2019 , the number of stockholders were 7141 and 2229 The company has paid no dividend in FY2019 and we estimate the same for subsequent years The retained earnings of the company has been $467 million in FY19 from $ million in FY18, we expect this to increase further as the net income is estimated to increase. The total equity in FY19 was $346 million down from $358 million due to other loses, we expect this loses to not take place further and total equity to increase to $ 432 million in FY20.
7. Relative valuation
Relative valuation also called valuation using multiples is the notion of comparing the price of an company to the market value of similar companies Compare industry bases on P/E ,P/B and EV/EBITDA ratios Criteria for peers
- Industry/sector
