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Coca-Cola Consolidated Reports Third Quarter and First Nine Months 2020 Results

Coca-Cola Consolidated, Inc.
·20 min read
  • Third quarter 2020 net sales increased 4.5% versus the third quarter of 2019, with physical case volume up 3.9% for the quarter(a).

  • Gross profit increased $40.2 million, or 9.3%, in the third quarter of 2020. Gross margin improved 160 basis points due to selling price increases and favorable input costs.

  • Third quarter 2020 income from operations was $103.8 million, up $50.0 million. On an adjusted(b) basis, income from operations increased $46.5 million versus the third quarter of 2019.

Key Results

Third Quarter

First Nine Months

(in millions, except per share data)

2020

2019

Change

2020

2019

Change

Physical case volume

94.1

90.6

3.9

%

268.1

259.3

3.4

%

Net sales

$

1,328.5

$

1,271.0

4.5

%

$

3,728.7

$

3,647.6

2.2

%

Gross profit

$

472.4

$

432.2

9.3

%

$

1,307.0

$

1,257.3

4.0

%

Gross margin

35.6

%

34.0

%

35.1

%

34.5

%

Income from operations

$

103.8

$

53.8

92.9

%

$

219.8

$

141.2

55.6

%

Basic net income per share

$

5.53

$

1.39

$

4.14

$

11.32

$

2.30

$

9.02

Retail Beverage Sales

Third Quarter

First Nine Months

(in millions)

2020

2019

Change

2020

2019

Change

Sparkling bottle/can

$

703.5

$

657.5

7.0

%

$

2,040.1

$

1,928.3

5.8

%

Still bottle/can

$

464.9

$

438.6

6.0

%

$

1,239.3

$

1,201.0

3.2

%

Fountain(c)

$

36.0

$

55.5

(35.2

)%

$

99.3

$

150.0

(33.8

)%

Third Quarter and First Nine Months 2020 Review

CHARLOTTE, N.C., Nov. 03, 2020 (GLOBE NEWSWIRE) -- Coca-Cola Consolidated, Inc. (NASDAQ:COKE) today reported operating results for the third quarter and first nine months ended September 27, 2020.

“Our strong third quarter results are a testament to the hard work of our teammates across our territory and the overall strength of the Coca-Cola system,” said J. Frank Harrison, III, Chairman and Chief Executive Officer. “Based on the strength of our year-to-date results and our outlook for the remainder of the year, we are moving forward with a number of large capital projects designed to increase our manufacturing capacity, expand key warehouses and improve the use of automation and technology within our business.”

“My family has been a Coca-Cola bottler for over 118 years and our long-term view of this business enables us to look past the business volatility and economic uncertainty we are currently facing,” Mr. Harrison continued. “We are confident that the operating and reinvestment decisions we are making this year will strengthen the long-term health of our business by supporting future growth and making our operations more efficient and effective.”

Physical case volume increased 3.9% in the third quarter of 2020, as sales of multi-serve packages in larger retail stores remained strong and single-serve sales began to gradually improve in small stores and accounts where our products are consumed on-premise. Sparkling category volume increased 3.6% in the third quarter of 2020, while Still beverages grew 4.5%. Still beverage sales are more tied to smaller outlets than our Sparkling category, and sales of Still products improved as certain government-imposed restrictions were eased or lifted during the third quarter. While volume growth was strong for the third quarter of 2020, sales volume softened in the last two months of the quarter, as indicated by the monthly volume summary shown below.

Bottle/can physical case volume

(in millions)

July

August

September

Third Quarter

2020

30.6

28.5

35.0

94.1

2019

27.7

28.6

34.3

90.6

Change

2.9

(0.1)

0.8

3.5

% Change

10.3%

(0.4)%

2.2%

3.9%

Revenue increased 4.5% in the third quarter of 2020. Revenue from our bottle/can Sparkling beverages increased 7.0% in the third quarter of 2020, driven primarily by volume growth and price realization within this category. Sales of multi-serve PET packages were especially strong in the quarter as we adjusted our commercial plans to emphasize PET packages and limit product assortment in cans as demand for aluminum cans has exceeded supply this year. Revenue from our Still beverages increased 6.0% in the third quarter of 2020 as a result of higher sales volume in small stores and on-premise outlets. Revenue from fountain syrup, which is primarily sold through restaurants, convenience stores, amusement parks, and other on-premise outlets, declined $19.5 million, or 35.2%, during the third quarter of 2020. While the decline in fountain syrup revenue was significant, we are experiencing gradual improvement within this revenue stream as compared to the second quarter of 2020, as traffic continues to increase at our on-premise outlets.

For the first nine months of 2020, revenue increased $81.1 million, or 2.2%. While sales within our Sparkling and Still categories grew 5.8% and 3.2% for the first nine months of 2020, respectively, fountain syrup sales decreased 33.8%.

Gross profit increased $40.2 million, or 9.3%, in the third quarter of 2020, while gross margin increased 160 basis points to 35.6%. On an adjusted(b) basis, gross profit increased $39.0 million, or 9.0%, in the third quarter of 2020. The improvement in gross profit and gross margin was primarily due to price realization within our Sparkling category, favorable input costs, and lower manufacturing costs. Gross profit in the first nine months of 2020 increased $49.7 million, or 4.0%, while gross margin increased 60 basis points to 35.1%. On an adjusted(b) basis, gross profit increased $47.9 million compared to the first nine months of 2019.

“We made tough decisions in the early days of the pandemic to adjust both our commercial plan and our operating model. Demand for our products remained strong in the third quarter as consumers continued to adapt to changes in local markets and fluctuations in their daily routines,” said Dave Katz, President and Chief Operating Officer. “We are staying nimble with our business plans and adjusting our operating model, as needed. Our team has done an incredible job working through raw material supply issues and manufacturing constraints to keep our products in-stock to support our retail partners and loyal consumers.”

Selling, delivery and administrative (“SD&A”) expenses in the third quarter of 2020 decreased $9.8 million, or 2.6%. SD&A expenses as a percentage of net sales decreased 210 basis points in the third quarter of 2020. Adjusted(b) SD&A expenses in the third quarter of 2020 decreased $7.4 million, or 2.0%. The decrease in SD&A expenses related to lower labor and benefits costs as a result of adjustments we made to our operating model earlier in the year in response to COVID-19-related impacts on our business. Additionally, we generated favorable results in a number of expense categories due to the diligent management of our variable operating expenses. SD&A expenses in the first nine months of 2020 decreased $28.8 million, or 2.6%. SD&A expenses as a percentage of net sales decreased 140 basis points in the first nine months of 2020 as compared to the first nine months of 2019.

“Our 2020 margins, profit and cash flow are all exceeding our initial expectations as we generate strong top-line growth, realize favorable input costs, and tightly manage our operating expenses. Lower single-serve sales during the pandemic resulted in gross profit shortfalls that we have more than offset by significantly reducing spending in a number of categories during this unique time,” Mr. Katz continued. “While we are working to maximize our results in 2020, we recognize it will be difficult to maintain this low level of spending in the months ahead. Our operating expenses will increase as businesses, educational institutions, and entertainment venues reopen and consumer activity returns to pre-COVID levels, and we expect moderate commodity price inflation to return in 2021 as well.”

Income from operations in the third quarter of 2020 was $103.8 million, compared to $53.8 million in the third quarter of 2019, an increase of 92.9%. Adjusted(b) income from operations in the third quarter of 2020 was $105.2 million, an increase of 79.1%. For the first nine months of 2020, income from operations increased $78.6 million to $219.8 million. Adjusted(b) income from operations in the first nine months of 2020 was $223.6 million, an increase of $66.6 million, or 42.4%, compared to the first nine months of 2019.

Net income in the third quarter of 2020 was $51.9 million, compared to $13.0 million in the third quarter of 2019, an improvement of $38.9 million. Net income in the third quarter of 2020 was adversely impacted by fair value adjustments to our acquisition related contingent consideration liability, driven by changes in future cash flow projections. Fair value adjustments to this liability are non-cash in nature and a routine part of our quarterly financial closing process. Net income increased $84.6 million for the first nine months of 2020 to $106.1 million, as compared to the first nine months of 2019.

Cash flows provided by operations for the first nine months of 2020 were $376.4 million, compared to $204.6 million for the first nine months of 2019. The significant increase in operating cash flows for the first nine months of 2020 was a result of our strong operating performance and working capital improvement, primarily related to lower inventory and the timing of accounts payable.

(a)

All comparisons are to the corresponding period in the prior year unless specified otherwise.

(b)

The discussion of the results for the third quarter ended September 27, 2020 includes selected non-GAAP financial information, such as “adjusted” results. The schedules in this news release reconcile such non-GAAP financial measures to the most directly comparable GAAP financial measures.

(c)

Fountain syrups are dispensed through equipment that mixes with carbonated or still water, enabling fountain retailers to sell finished products to consumers in cups or glasses.

About Coca-Cola Consolidated, Inc.
Coca-Cola Consolidated is the largest Coca-Cola bottler in the United States. Our Purpose is to honor God in all we do, serve others, pursue excellence and grow profitably. For over 118 years, we have been deeply committed to the consumers, customers and communities we serve and passionate about the broad portfolio of beverages and services we offer. We make, sell and distribute beverages of The Coca-Cola Company and other partner companies in more than 300 brands and flavors across 14 states and the District of Columbia to over 66 million consumers.

Headquartered in Charlotte, N.C., Coca-Cola Consolidated is traded on the NASDAQ Global Select Market under the symbol “COKE.” More information about the Company is available at www.cokeconsolidated.com. Follow Coca-Cola Consolidated on Facebook, Twitter, Instagram and LinkedIn.

Cautionary Information Regarding Forward-Looking Statements

Certain statements contained in this news release are “forward-looking statements” that involve risks and uncertainties. The words “anticipate,” “believe,” “expect,” “project,” “may,” “will,” “should,” “could” and similar expressions are intended to identify those forward-looking statements. These forward-looking statements reflect the Company’s best judgment based on current information, and, although we base these statements on circumstances that we believe to be reasonable when made, there can be no assurance that future events will not affect the accuracy of such forward-looking information. As such, the forward-looking statements are not guarantees of future performance, and actual results may vary materially from the projected results and expectations discussed in this news release. Factors that might cause the Company’s actual results to differ materially from those anticipated in forward-looking statements include, but are not limited to: increased costs, disruption of supply or shortages of raw materials, fuel and other supplies; the reliance on purchased finished products from external sources; changes in public and consumer perception and preferences, including concerns related to obesity, artificial ingredients, product safety and sustainability and brand reputation; changes in government regulations related to nonalcoholic beverages, including regulations related to obesity, public health, artificial ingredients and product safety and sustainability; technology failures or cyberattacks on our technology systems or our effective response to technology failures or cyberattacks on our customers’, suppliers’ or other third parties’ technology systems; decreases from historic levels of marketing funding support provided to us by The Coca‑Cola Company and other beverage companies; material changes in the performance requirements for marketing funding support or our inability to meet such requirements; decreases from historic levels of advertising, marketing and product innovation spending by The Coca‑Cola Company and other beverage companies, or advertising campaigns that are negatively perceived by the public; any failure of the several Coca‑Cola system governance entities of which we are a participant to function efficiently or on our best behalf and any failure or delay of ours to receive anticipated benefits from these governance entities; provisions in our beverage distribution and manufacturing agreements with The Coca‑Cola Company that could delay or prevent a change in control of us or a sale of our Coca‑Cola distribution or manufacturing businesses; the concentration of our capital stock ownership; unfavorable changes in the general economy; changes in our top customer relationships and marketing strategies; lower than expected net pricing of our products resulting from continued and increased customer and competitor consolidations and marketplace competition; our inability to meet requirements under our beverage distribution and manufacturing agreements; the effect of changes in our level of debt, borrowing costs and credit ratings on our access to capital and credit markets, operating flexibility and ability to obtain additional financing to fund future needs; the failure to attract, train and retain qualified employees while controlling labor costs, and other labor issues; the failure to maintain productive relationships with our employees covered by collective bargaining agreements, including failing to renegotiate collective bargaining agreements; changes in accounting standards; our use of estimates and assumptions; changes in the inputs used to calculate our acquisition related contingent consideration liability; changes in tax laws, disagreements with tax authorities or additional tax liabilities; changes in legal contingencies; natural disasters, changing weather patterns and unfavorable weather; climate change or legislative or regulatory responses to such change; and the COVID-19 pandemic and other pandemic outbreaks in the future. These and other factors are discussed in the Company’s regulatory filings with the Securities and Exchange Commission, including those in “Item 1A. Risk Factors” of the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2019 and in “Item 1A. Risk Factors” of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 28, 2020. The forward-looking statements contained in this news release speak only as of this date, and the Company does not assume any obligation to update them, except as required by applicable law.

FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

Third Quarter

First Nine Months

(in thousands, except per share data)

2020

2019

2020

2019

Net sales

$

1,328,484

$

1,271,029

$

3,728,720

$

3,647,600

Cost of sales

856,046

838,805

2,421,686

2,390,289

Gross profit

472,438

432,224

1,307,034

1,257,311

Selling, delivery and administrative expenses

368,594

378,378

1,087,251

1,116,097

Income from operations

103,844

53,846

219,783

141,214

Interest expense, net

9,033

10,965

27,778

35,846

Other expense, net

21,394

20,711

39,826

67,743

Income before income taxes

73,417

22,170

152,179

37,625

Income tax expense

18,363

6,624

38,911

10,801

Net income

55,054

15,546

113,268

26,824

Less: Net income attributable to noncontrolling interest

3,170

2,540

7,153

5,279

Net income attributable to Coca-Cola Consolidated, Inc.

$

51,884

$

13,006

$

106,115

$

21,545

Basic net income per share based on net income attributable to Coca-Cola Consolidated, Inc.:

Common Stock

$

5.53

$

1.39

$

11.32

$

2.30

Weighted average number of Common Stock shares outstanding

7,141

7,141

7,141

7,141

Class B Common Stock

$

5.53

$

1.39

$

11.32

$

2.30

Weighted average number of Class B Common Stock shares outstanding

2,232

2,232

2,232

2,228

Diluted net income per share based on net income attributable to Coca-Cola Consolidated, Inc.:

Common Stock

$

5.51

$

1.38

$

11.25

$

2.29

Weighted average number of Common Stock shares outstanding – assuming dilution

9,430

9,413

9,430

9,409

Class B Common Stock

$

5.51

$

1.38

$

11.24

$

2.28

Weighted average number of Class B Common Stock shares outstanding – assuming dilution

2,289

2,272

2,289

2,268


FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)

(in thousands)

September 27, 2020

December 29, 2019

ASSETS

Current Assets:

Cash and cash equivalents

$

164,823

$

9,614

Trade accounts receivable, net

428,352

419,770

Accounts receivable, other

99,085

105,505

Inventories

207,773

225,926

Prepaid expenses and other current assets

69,829

69,461

Assets held for sale

7,036

Total current assets

976,898

830,276

Property, plant and equipment, net

979,210

997,403

Right-of-use assets - operating leases

135,559

111,376

Leased property under financing leases, net

71,281

17,960

Other assets

111,775

113,269

Goodwill

165,903

165,903

Other identifiable intangible assets, net

872,267

890,739

Total assets

$

3,312,893

$

3,126,926

LIABILITIES AND EQUITY

Current Liabilities:

Current portion of obligations under operating leases

$

18,812

$

15,024

Current portion of obligations under financing leases

5,814

9,403

Accounts payable and accrued expenses

659,364

597,768

Total current liabilities

683,990

622,195

Deferred income taxes

131,218

125,130

Pension and postretirement benefit obligations and other liabilities

782,792

783,397

Noncurrent portion of obligations under operating leases

121,288

97,765

Noncurrent portion of obligations under financing leases

71,183

17,403

Long-term debt

962,867

1,029,920

Total liabilities

2,753,338

2,675,810

Equity:

Stockholders’ equity

448,238

346,952

Noncontrolling interest

111,317

104,164

Total liabilities and equity

$

3,312,893

$

3,126,926


FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

First Nine Months

(in thousands)

2020

2019

Cash Flows from Operating Activities:

Net income

$

113,268

$

26,824

Depreciation expense, amortization of intangible assets and deferred proceeds, net

134,489

136,416

Fair value adjustment of acquisition related contingent consideration

35,068

62,017

Deferred income taxes

5,302

5,254

Stock compensation expense

2,045

Change in assets and liabilities

74,884

(39,071

)

Other

13,390

11,098

Net cash provided by operating activities

$

376,401

$

204,583

Cash Flows from Investing Activities:

Additions to property, plant and equipment

$

(110,717

)

$

(96,747

)

Other

627

(5,339

)

Net cash used in investing activities

$

(110,090

)

$

(102,086

)

Cash Flows from Financing Activities:

Payments on revolving credit facility, term loan facility and senior notes

$

(302,500

)

$

(508,839

)

Borrowings under revolving credit facility and proceeds from issuance of senior notes

235,000

431,339

Payments of acquisition related contingent consideration

(31,999

)

(18,784

)

Cash dividends paid

(7,030

)

(7,026

)

Principal payments on financing obligations

(4,428

)

(6,441

)

Debt issuance fees

(145

)

(305

)

Net cash used in financing activities

$

(111,102

)

$

(110,056

)

Net increase (decrease) in cash during period

$

155,209

$

(7,559

)

Cash at beginning of period

9,614

13,548

Cash at end of period

$

164,823

$

5,989


NON-GAAP FINANCIAL MEASURES(d) The following tables reconcile reported results (GAAP) to adjusted results (non-GAAP):

Third Quarter 2020

(in thousands, except per share data)

Gross
profit

SD&A
expenses

Income
from
operations

Income
before
income taxes

Net
income

Basic net
income
per share

Reported results (GAAP)

$

472,438

$

368,594

$

103,844

$

73,417

$

51,884

$

5.53

Fair value adjustment of acquisition related contingent consideration

19,808

14,895

1.59

Fair value adjustments for commodity derivative instruments

(1,194

)

575

(1,769

)

(1,769

)

(1,330

)

(0.14

)

Supply chain and asset optimization

3,122

3,122

3,122

2,348

0.25

Other tax adjustments

(421

)

(0.04

)

Total reconciling items

$

1,928

$

575

$

1,353

$

21,161

$

15,492

1.66

Adjusted results (non-GAAP)

$

474,366

$

369,169

$

105,197

$

94,578

$

67,376

$

7.19


Third Quarter 2019

(in thousands, except per share data)

Gross
profit

SD&A
expenses

Income
from
operations

Income
before
income taxes

Net
income

Basic net
income
per share

Reported results (GAAP)

$

432,224

$

378,378

$

53,846

$

22,170

$

13,006

$

1.39

Fair value adjustment of acquisition related contingent consideration

18,749

14,099

1.51

Fair value adjustments for commodity derivative instruments

(487

)

(74

)

(413

)

(413

)

(311

)

(0.04

)

Supply chain and asset optimization

3,581

3,581

3,581

2,693

0.29

Capitalization threshold change for certain assets

(1,732

)

1,732

1,732

1,302

0.14

Other tax adjustments

1,482

0.15

Total reconciling items

3,094

(1,806

)

4,900

23,649

19,265

2.05

Adjusted results (non-GAAP)

$

435,318

$

376,572

$

58,746

$

45,819

$

32,271

$

3.44


First Nine Months 2020

(in thousands, except per share data)

Gross
profit

SD&A
expenses

Income
from
operations

Income
before
income taxes

Net
income

Basic net
income
per share

Reported results (GAAP)

$

1,307,034

$

1,087,251

$

219,783

$

152,179

$

106,115

$

11.32

Fair value adjustment of acquisition related contingent consideration

35,068

26,371

2.81

Fair value adjustments for commodity derivative instruments

(924

)

(949

)

25

25

19

Supply chain and asset optimization

4,441

601

3,840

3,840

2,888

0.31

Other tax adjustments

(1,103

)

(0.11

)

Total reconciling items

3,517

(348

)

3,865

38,933

28,175

3.01

Adjusted results (non-GAAP)

$

1,310,551

$

1,086,903

$

223,648

$

191,112

$

134,290

$

14.33


First Nine Months 2019

(in thousands, except per share data)

Gross
profit

SD&A
expenses

Income
from
operations

Income
before
income taxes

Net
income

Basic net
income
per share

Reported results (GAAP)

$

1,257,311

$

1,116,097

$

141,214

$

37,625

$

21,545

$

2.30

Fair value adjustment of acquisition related contingent consideration

62,017

46,637

4.98

Fair value adjustments for commodity derivative instruments

482

2,575

(2,093

)

(2,093

)

(1,574

)

(0.17

)

Supply chain and asset optimization

4,875

4,875

4,875

3,666

0.39

Capitalization threshold change for certain assets

(6,111

)

6,111

6,111

4,595

0.49

System transformation expenses

(6,915

)

6,915

6,915

5,200

0.56

Other tax adjustments

(2,178

)

(0.24

)

Total reconciling items

5,357

(10,451

)

15,808

77,825

56,346

6.01

Adjusted results (non-GAAP)

$

1,262,668

$

1,105,646

$

157,022

$

115,450

$

77,891

$

8.31


(d)

The Company reports its financial results in accordance with accounting principles generally accepted in the United States (“GAAP”). However, management believes that certain non-GAAP financial measures provide users with additional meaningful financial information that should be considered when assessing the Company’s ongoing performance. Management also uses these non-GAAP financial measures in making financial, operating and planning decisions and in evaluating the Company’s performance. Non-GAAP financial measures should be viewed in addition to, and not as an alternative for, the Company’s reported results prepared in accordance with GAAP. The Company’s non-GAAP financial information does not represent a comprehensive basis of accounting.


MEDIA CONTACT:

INVESTOR CONTACT:

Kimberly Kuo

Scott Anthony

Senior Vice President
Public Affairs, Communications
& Communities

Executive Vice President &
Chief Financial Officer

Kimberly.Kuo@cokeconsolidated.com

Scott.Anthony@cokeconsolidated.com

(704) 557-4584

(704) 557-4633

A PDF accompanying this release is available at: http://ml.globenewswire.com/Resource/Download/dbe68e8b-a8a5-4eeb-870d-ed0301995670