KO
Coca Cola CO
NYSE
10-Q: Coca-Cola's Q1 2024 Results: Revenue Up, But Profitability Impacted by Trademark Impairment and Tax Dispute
Sentiment:
Quarterly Report
2 May 2024 1:52 PM
Coca-Cola's first quarter results show a revenue increase, but operating income was significantly impacted by a BodyArmor trademark impairment and ongoing tax litigation.
Worse than expected
The company's operating income decreased by 36% due to a $760 million impairment charge related to the BodyArmor trademark and a $765 million charge related to the remeasurement of a contingent consideration liability for fairlife.
Summary
- Coca-Cola's net operating revenues for the first quarter of 2024 reached $11.3 billion, a 3% increase compared to $10.98 billion in the same period last year.
- The company's operating income decreased by 36% to $2.141 billion, down from $3.367 billion in the first quarter of 2023.
- This decline was primarily due to a $760 million impairment charge related to the BodyArmor trademark and a $765 million charge related to the remeasurement of a contingent consideration liability for fairlife.
- The company's gross profit margin increased to 62.5% from 60.7% due to favorable pricing and structural changes, but was partially offset by higher commodity costs and unfavorable foreign exchange rates.
- Unit case volume increased by 1%, while concentrate sales volume decreased by 2% globally.
- The company's effective tax rate was 17.7% for the quarter, compared to 23.2% in the same period last year.
- Coca-Cola estimates a potential aggregate incremental tax and interest liability of approximately $16 billion as of December 31, 2023, related to an ongoing tax dispute with the IRS, which could increase by $500 million for the first quarter of 2024.
Sentiment
Score: 4
Explanation: The sentiment is moderately negative due to the significant impairment charges and the ongoing tax dispute, which overshadow the positive revenue growth. The company faces considerable challenges in profitability and potential future liabilities.
Positives
- Net operating revenues increased by 3% year-over-year.
- Gross profit margin improved due to favorable pricing and structural changes.
- The company saw a 1% increase in unit case volume, indicating continued demand for its products.
- Interest income increased by 46% due to higher average investment balances and returns.
Negatives
- Operating income decreased by 36% due to significant charges.
- The company recorded a $760 million impairment charge for the BodyArmor trademark.
- A $765 million charge was recorded for the remeasurement of the fairlife contingent consideration liability.
- Concentrate sales volume decreased by 2% globally.
- The company faces a potential $16 billion tax liability related to an ongoing dispute with the IRS.
- Foreign currency exchange rate fluctuations had an unfavorable impact on operating income.
Risks
- The company faces a potential $16 billion tax liability related to an ongoing dispute with the IRS, which could materially impact its financial position.
- The BodyArmor trademark may require additional impairment charges if near-term operating results do not meet revised financial projections.
- Foreign currency exchange rate fluctuations are expected to continue to negatively impact net operating revenues and operating income for the full year 2024.
- The company's operations are subject to various economic, political, and regulatory risks, particularly in developing and emerging markets.
Future Outlook
The company expects foreign currency exchange rate fluctuations to have an unfavorable impact on full-year 2024 net operating revenues and operating income. The company also projects that the continued application of the Tax Court Methodology in future years would result in an incremental annual tax liability that would increase the company's effective tax rate by approximately 3.5%.
Management Comments
- Management believes that these forward-looking statements are reasonable as and when made.
- Management believes that quantifying the impact that acquisitions and divestitures had on the Company's net operating revenues provides investors with useful information to enhance their understanding of the Company's net operating revenue performance.
- Management believes operating margin provides investors with useful information related to the profitability of our business after considering all of the selling, general and administrative expenses and other operating charges incurred.
Industry Context
The results reflect a mixed performance in the beverage industry, with revenue growth offset by significant charges and ongoing tax disputes. The company's focus on pricing and portfolio management is evident, but challenges remain in managing costs and navigating global economic uncertainties.
Comparison to Industry Standards
- PepsiCo, a major competitor, reported a 2.3% increase in organic revenue in its most recent quarter, indicating a similar trend of growth in the beverage sector, but without the same level of impairment charges.
- Other beverage companies like Keurig Dr Pepper have also shown revenue growth, but their profitability is also being impacted by rising input costs and supply chain issues.
- Coca-Cola's gross profit margin of 62.5% is generally in line with industry standards for large beverage companies, but the operating margin is significantly lower due to the impairment charges.
- The ongoing tax dispute with the IRS is a unique challenge for Coca-Cola, not typically seen in other comparable companies.
Stakeholder Impact
- Shareholders may be concerned about the decrease in operating income and the potential tax liability.
- Employees may be affected by the company's restructuring and productivity programs.
- Customers may see changes in pricing and product offerings due to the company's strategic initiatives.
- Suppliers may be impacted by the company's supply chain finance program.
Next Steps
- The company will continue to monitor the fair value of the BodyArmor trademark.
- The company will continue to defend its position in the ongoing tax litigation with the IRS.
- The company will continue to monitor developments related to the OECD's Anti-Base Erosion and Profit Shifting project.
- The company will pay a regular quarterly dividend of $0.485 per share on July 1, 2024.
Legal Proceedings
- The company is involved in a tax dispute with the IRS, seeking approximately $3.3 billion of additional federal income tax for years 2007 through 2009.
- The company estimates a potential aggregate incremental tax and interest liability of approximately $16 billion as of December 31, 2023, related to the ongoing tax dispute with the IRS.
Key Dates
- December 31, 2023: Fiscal year end for 2023, used as a comparison point for balance sheet data.
- March 29, 2024: End of the first quarter of 2024.
- March 31, 2023: End of the first quarter of 2023, used as a comparison point for income statement data.
- April 30, 2024: Date of share outstanding data.
- July 1, 2024: Date of next dividend payment.
Keywords
Coca-Cola, Q1 2024, Financial Results, Trademark Impairment, Tax Dispute, Revenue, Operating Income, Gross Profit, Unit Case Volume, Concentrate Sales, BodyArmor, fairlife, IRS, Foreign Exchange
KO
Coca Cola CO
NYSE
Sector: TBD
Filings with Classifications
Worse than expected
26 June 2025 11:33 AM
Current Report
- Operating income decreased by 12% in 2024, indicating a decline in core profitability.
- Net cash provided by operating activities significantly decreased by 41% due to the large IRS tax litigation payment, impacting liquidity.
- The company recorded substantial 'Other Operating Charges' including a $760 million impairment for the BodyArmor trademark and a $3,109 million remeasurement of the fairlife contingent consideration liability, indicating significant one-time or non-recurring negative impacts on profitability.
Delay expected
26 June 2025 11:33 AM
Current Report
- Certain initiatives included in the company's productivity and reinvestment program, primarily designed to further simplify and standardize the organization, have been delayed and will now be completed during 2025.
Worse than expected
1 May 2025 3:38 PM
Quarterly Report
- Net operating revenues decreased by 2% due to foreign currency fluctuations and strategic divestitures.
Delay expected
1 May 2025 3:38 PM
Quarterly Report
- Certain initiatives included in the productivity and reinvestment program, which are primarily designed to further simplify and standardize our organization, have been delayed and will be completed during 2025.
Worse than expected
29 April 2025 6:58 AM
Quarterly Report
- Net revenues declined 2% due to currency headwinds and refranchising, indicating worse performance than expected.
- Free cash flow was negative $5.5 billion due to a large contingent consideration payment, indicating worse performance than expected.
Worse than expected
20 February 2025 3:17 PM
Annual Results
- Operating income decreased by 12% due to higher commodity costs, selling, general and administrative expenses, other operating charges, the impact of refranchising, and unfavorable foreign currency exchange rate impact.
Worse than expected
24 October 2024 11:55 AM
Quarterly Report
- The company's operating income decreased by 23% in Q3 2024 compared to Q3 2023.
- The company's net operating revenues decreased by 1% in Q3 2024 compared to Q3 2023.
- The company recorded a $760 million impairment charge related to the BodyArmor trademark.
Worse than expected
23 October 2024 7:00 AM
Quarterly Report
- The company's net revenue declined by 1%, and operating income decreased by 23%, indicating worse than expected results.
- EPS declined by 7%, which is worse than expected.
- The company's cash flow from operations and free cash flow decreased due to a $6.0 billion payment to the IRS, which is worse than expected.
Capital raise
15 August 2024 4:10 PM
Debt Offering Announcement
- The Coca-Cola Company completed a public offering of 1 billion euros in aggregate principal amount of euro-denominated notes.
- The offering includes 500 million euros of 3.375% notes due in 2037 and 500 million euros of 3.750% notes due in 2053.
Capital raise
14 August 2024 4:14 PM
Debt Offering Announcement
- The Coca-Cola Company completed a public offering of $3 billion in senior notes.
- The offering included $750 million of 4.650% notes due in 2034, $1.5 billion of 5.200% notes due in 2055, and $750 million of 5.400% notes due in 2064.
- The company intends to use the net proceeds for general corporate purposes.
Capital raise
9 August 2024 4:24 PM
Debt Offering Announcement
- Coca-Cola is raising $3 billion through a debt offering.
- The offering is split into a US dollar-denominated offering and a euro-denominated offering.
- The US dollar offering includes $750 million of 4.650% notes due 2034, $1.5 billion of 5.200% notes due 2055, and $750 million of 5.400% notes due 2064.
- The euro offering includes 500 million of 3.375% notes due 2037 and 500 million of 3.750% notes due 2053.
Worse than expected
29 July 2024 3:54 PM
Quarterly Report
- Operating income decreased by 17% for the first six months of 2024, indicating a worse performance compared to the same period last year.
- The company recorded significant other operating charges of $2.943 billion for the first six months of 2024, negatively impacting profitability.
- The potential tax liability of $16 billion due to the ongoing dispute with the IRS is a significant financial risk.
Better than expected
23 July 2024 6:58 AM
Quarterly Report
- The company's organic revenue growth of 15% exceeded expectations.
- The company raised its full-year guidance for organic revenue growth to 9-10% and comparable EPS growth to 5-6%.
Capital raise
14 May 2024 4:08 PM
Debt Offering Announcement
- The Coca-Cola Company completed a public offering of €1 billion in Euro-denominated notes.
- The offering was split into two tranches: €500 million of 3.125% notes due in 2032 and €500 million of 3.500% notes due in 2044.
Capital raise
13 May 2024 4:13 PM
Debt Offering Announcement
- Coca-Cola completed a public offering of $3 billion in aggregate principal amount of U.S. dollar-denominated notes.
- The offering included three tranches with different maturities and interest rates.
- The proceeds will be used for general corporate purposes and potentially for tax litigation payments.
Capital raise
8 May 2024 5:07 PM
Debt Offering Announcement
- The company is raising $3 billion through the issuance of US dollar-denominated notes.
- The company is raising 1 billion through the issuance of Euro-denominated notes.
Worse than expected
2 May 2024 1:52 PM
Quarterly Report
- The company's operating income decreased by 36% due to a $760 million impairment charge related to the BodyArmor trademark and a $765 million charge related to the remeasurement of a contingent consideration liability for fairlife.
Worse than expected
30 April 2024 6:58 AM
Quarterly Report
- The company's reported operating income declined by 36%, significantly worse than expected due to substantial charges related to the fairlife acquisition and the BODYARMOR trademark impairment.
Better than expected
13 February 2024 6:57 AM
Quarterly and Annual Earnings Release
- Organic revenue growth exceeded expectations, demonstrating strong underlying business performance.
- Global unit case volume growth indicates continued demand for Coca-Cola products despite market challenges.
Disclaimer: This summary was generated by artificial intelligence and its accuracy is not guaranteed. The information provided here is for general informational purposes only and does not constitute financial advice, recommendation, or endorsement of any kind. It may contain errors or omissions. You should not rely on this information to make financial decisions. Always seek the advice of a qualified financial professional before making any investment or financial decisions. Use of this information is at your own risk.