The Coca-Cola Company is a global total beverage company. It owns or licenses and markets various beverage brands, which are grouped into categories, such as Coca-Cola; sparkling flavours; water; sports; coffee and tea; juice, dairy and plant-based beverages; and, emerging beverages. Key sparking non-alcoholic beverages are Coca-Cola, Sprite, Fanta, Schwepps, while other brands include Powerade, Dasani, FuzeTea, Costa Coffee Minute Maid. Its global unit case volume mix split in FY23 is 16% US, 33% Mexico, China, Brazil and India, and remaining 51% from other geographies. For its US operations, the revenue contribution ratio between concentrate and finished products in FY23 is 53:47. For international operations, that ratio is 61:39. Overall, the company derives 58% of its revenue from concentrate and 42% from finished products; its concentrate operations also command significantly higher operating margins (est 40%-60%) than its finished products operations (6%-7%). The company has over 200+ brands worldwide and its products are available to consumers in more than 200 countries.
Investment Overview
Transiting to be the world’’s smallest bottler through franchise model. Coca-Cola employs a unique franchise distribution network whereby it will invest in international bottling partners through its Bottling Investment Group and divest its equity stakes in these partners once they are successful. It has over 950 bottling plants across 200 bottling partners worldwide. Post divestment, these partners will continue to hold exclusive rights to bottle Coca-Cola products while paying the company a franchise fee and remains contractually obligated to purchase concentrates from the company. This generates a high margin revenue stream and monetises its bottling stakes.
Balance of volume and price/mix driving growth in 2024 to drive 6-7% organic revenue growth. For majority of the business, the company expects normalized y-o-y price/mix effect to taper off from 10% in 2023 to 3.5% in 2024. On volume, it is expected to grow at a similar pace as 2023 at 2% y-o-y. While the remaining 0.5-1.5% growth likely to come from price/mix effect in geographies with continued hyperinflationary environment.
Material tax dispute with US Internal Revenue Service (IRS). The IRS filed suit against the company in 2015 over underpayment of taxes for tax years 2007 to 2009. IRS has prevailed based on an opinion issued by the tax court on 8 Nov-23. The company is now expected to pay US$5.8bn while awaiting appeal. It remains confident in succeeding on appeal and has recorded a tax reserve of US$439m. However, on the off-chance that it fails, it could be liable for tax underpayment for 2010 onwards which amount to about US$10bn and increase the company’s effective tax rate by 3.5%.
Key risk includes uncertain results of IRS tax dispute appeal. A positive outcome will remove the material tax overhang and lead to upwards re-rating and vice versa.
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