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Coca-Cola Bottling Co. Consolidated$136.42$2.051.53%

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 Coca-Cola Bottling Co. Consolidated Reports First Quarter 2018 Results
   Tuesday, May 08, 2018 4:10:00 PM ET

A PDF accompanying this announcement is available at: http://resource.globenewswire.com/Resource/Download/513770d9-915f-44c7-97d0-10497627ea82

First Quarter 2018 Highlights            

  • Q1 net sales growth of 23.8%, including organic(a) net sales growth of 2.4%.                                 
  • Q1 sales volume growth of 19.6%, including organic(a) volume growth of 2.2%.    
  • Reported basic EPS of ($1.52) in Q1 2018, as compared to basic EPS of ($0.54) in Q1 2017.
  • Gross margin decline of 440 basis points from Q1 2017 driven by higher commodity and transportation costs, a higher mix of sales from lower-margin acquired territories, and shifting product mix. 
  • Taking actions to address headwinds experienced in Q1 2018.     


“Our industry continues to face some challenges, including higher commodity and transportation costs. Despite these headwinds, we’re pleased we achieved solid volume and sales growth. As we continue to integrate our teams and transition our business platform, we are extremely appreciative of the commitment of our employees and remain sharply focused on investing strategically in order to position our business for long-term success.”

- Frank Harrison
Chairman & CEO
Coca-Cola Consolidated                                                                                                                                

Key Results

  First Quarter         
(in millions, except per share data) 2018  2017  Change  % Change 
Physical case volume  78.0   65.2   12.8   19.6%
Net sales $1,072.1  $865.7  $206.4   23.8%
Gross profit $364.9  $332.0  $32.9   9.9%
Gross margin  34.0%  38.4%        
Income (loss) from operations $(19.0) $15.0  $(34.0) N/M 
Basic net loss per share $(1.52) $(0.54) $(0.98) N/M 
                 
Bottle/Can Sales First Quarter         
(in millions) 2018  2017  Change  % Change 
Sparkling beverages $562.7  $479.8  $82.9   17.3%
Still beverages $324.6  $256.1  $68.5   26.7%

             
(a)  The discussion of the first quarter results includes selected non-GAAP financial information, such as “organic” results. Organic net sales and organic sales volume include results from our distribution territories not impacted by acquisition or divestiture activity during 2017. The schedules in this press release reconcile such non-GAAP measures to the most directly comparable GAAP financial measures.

First Quarter 2018 Review

CHARLOTTE, N.C., May 08, 2018 (GLOBE NEWSWIRE) -- Coca-Cola Bottling Co. Consolidated (NASDAQ:COKE) today reported operating results for the first quarter ended April 1, 2018.

Our Company delivered strong volume and sales growth during the first quarter of 2018. Volume increased to 78.0 million physical cases in Q1 2018, from 65.2 million physical cases in Q1 2017, an increase of 19.6%. Most of this growth was driven by acquisition (net of divestitures) results, as well as organic volume growth of 2.2%. In addition, we achieved price and mix realization greater than volume growth, which drove net sales growth of 23.8% for our total business and 2.4% organic growth. These results were driven by growth in both the sparkling and still beverage categories, with sparkling bottle/can sales growing 17.3% and still bottle/can sales growing 26.7%. While these volume and net sales results were strong, we believe poor weather and product sourcing challenges associated with our evolving integrated business platform exerted significant pressure on our Q1 2018 results, as compared to Q1 2017. This pressure was partially offset by the shift of the Easter holiday.

While volume and top line growth were strong, we experienced margin compression compared to the same period last year. Gross margin declined to 34.0% in Q1 2018 from 38.4% in Q1 2017. The primary drivers of this margin compression were (i) recent commodity and transportation cost pressures, (ii) the acquisition of new territories that generally experience margins lower than our legacy territories, and (iii) the continued volume shift to lower-margin still products to meet changing consumer preferences. We expect these drivers to continue throughout 2018, and we are taking pricing actions in certain markets to help offset the cost pressures. In addition to the operating headwinds in our business, structural changes in our underlying financial results reduced reported gross margin, which included (i) the amortization of our legacy distribution rights that converted from franchise rights in Q2 2017, and (ii) the new profit margin structure on sales to other Coca-Cola bottlers as part of a Coca-Cola system governance agreement. Incremental amortization expense related to converted legacy distribution rights in Q1 2018 totaled $2.2 million. Total sales to other Coca-Cola bottlers in Q1 2018 totaled $101.7 million, as compared to $64.7 million in Q1 2017, an increase of $37.0 million or 57.2%.

Selling, delivery and administrative expenses increased by $66.8 million, or 21.1%, in Q1 2018 as compared to Q1 2017, reflecting the increased volume delivered, incremental effort and costs associated with managing two ERP systems and our continued costs to integrate our acquired territory into our overall business. While we were successful in leveraging our selling, delivery and administrative expenses on increased sales volume, we believe there are additional opportunities to secure scale advantages and further leverage our cost structure against our expanded territories. Initiatives are underway to address these scale opportunities, including both operational and back office synergies.

Income (loss) from operations in Q1 2018 was lower than in Q1 2017. We experienced an operating loss of $19.0 million in Q1 2018, as compared to operating income of $15.0 million in Q1 2017.

While we completed our system transformation acquisitions and divestitures in October 2017, we continue integrating the acquired distribution territories, manufacturing facilities and related operations and investing resources to improve efficiencies, capabilities and market share. While doing so, we are focused on balancing these investments with our overall financial management strategy and debt reduction goals. We have revised our capital spending plans for the balance of 2018 in order to optimize our focus on strategic capital priorities and operational initiatives. We now estimate spending between $160 million and $180 million on capital expenditures in 2018, as compared to our previous estimated range of $200 million to $230 million.

We also continue to devote significant time and resources to our system transformation work, particularly converting all of our legacy information technology systems to the new CONA system which, when completed, will enable us to operate on one integrated information technology system going forward. We expect this conversion to be completed later this year. During Q1 2018, we incurred non-recurring expenses relating to our system transformation of approximately $12.5 million, the majority of which were IT-related costs. We anticipate incurring an additional $30 million to $35 million of related expenses in the remainder of 2018.

About Coca-Cola Bottling Co. Consolidated

Coca-Cola Consolidated is the largest Coca-Cola bottler in the United States. Our Purpose is to honor God, serve others, pursue excellence and grow profitably. For more than 115 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 deliver beverages of The Coca-Cola Company and other partner companies in more than 300 brands and flavors to 65 million consumers in territories spanning 14 states and the District of Columbia.

Headquartered in Charlotte, N.C., Coca-Cola Consolidated is traded on the NASDAQ 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 “believe,” “expect,” “project,” “will,” “should,” “could” and similar expressions are intended to identify those forward-looking statements. Factors that might cause Coca-Cola Consolidated’s actual results to differ materially from those anticipated in forward-looking statements include, but are not limited to: our inability to integrate the operations and employees acquired in system transformation transactions; lower than expected selling pricing resulting from increased marketplace competition; changes in how significant customers market or promote our products; changes in our top customer relationships; changes in public and consumer preferences related to nonalcoholic beverages, including concerns related to obesity and health concerns; unfavorable changes in the general economy; miscalculation of our need for infrastructure investment; our inability to meet requirements under beverage agreements; material changes in the performance requirements for marketing funding support or our inability to meet such requirements; decreases from historic levels of marketing funding support; changes in The Coca-Cola Company’s and other beverage companies’ levels of advertising, marketing and spending on brand innovation; the inability of our aluminum can or plastic bottle suppliers to meet our purchase requirements; our inability to offset higher raw material costs with higher selling prices, increased bottle/can sales volume or reduced expenses; consolidation of raw material suppliers; incremental risks resulting from increased purchases of finished goods; sustained increases in fuel costs or our inability to secure adequate supplies of fuel; sustained increases in the cost of labor and employment matters, product liability claims or product recalls; technology failures or cyberattacks; changes in interest rates; the impact of debt levels on operating flexibility and access to capital and credit markets; adverse changes in our credit rating (whether as a result of our operations or prospects or as a result of those of The Coca-Cola Company or other bottlers in the Coca-Cola system); changes in legal contingencies; legislative changes affecting our distribution and packaging; adoption of significant product labeling or warning requirements; additional taxes resulting from tax audits; natural disasters and unfavorable weather; global climate change or legal or regulatory responses to such change; issues surrounding labor relations with unionized employees; bottler system disputes; our use of estimates and assumptions; changes in accounting standards; the impact of volatility in the financial markets on access to the credit markets; the impact of acquisitions or dispositions of bottlers by their franchisors; changes in the inputs used to calculate our acquisition related contingent consideration liability; and the concentration of our capital stock ownership. These and other factors are discussed in the Company’s regulatory filings with the Securities and Exchange Commission, including those in the Company’s fiscal 2017 Annual Report on Form 10-K, Item 1A. Risk Factors. 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 law.

FINANCIAL STATEMENTS
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED) 


  First Quarter 
(in thousands, except per share data) 2018  2017 
Net sales $1,072,064  $865,702 
Cost of sales  707,116   533,681 
Gross profit  364,948   332,021 
Selling, delivery and administrative expenses  383,945   317,071 
Income (loss) from operations  (18,997)  14,950 
Interest expense, net  12,046   9,470 
Other income (expense), net  4,510   (13,588)
Loss before income taxes  (26,533)  (8,108)
Income tax benefit  (12,971)  (3,691)
Net loss  (13,562)  (4,417)
Less: Net income attributable to noncontrolling interest  623   634 
Net loss attributable to Coca-Cola Bottling Co. Consolidated $(14,185) $(5,051)
         
Basic net loss per share based on net loss attributable to Coca-Cola Bottling Co. Consolidated:        
Common Stock $(1.52) $(0.54)
Weighted average number of Common Stock shares outstanding  7,141   7,141 
         
Class B Common Stock $(1.52) $(0.54)
Weighted average number of Class B Common Stock shares outstanding  2,199   2,178 
         
Diluted net loss per share based on net loss attributable to Coca-Cola Bottling Co. Consolidated:        
Common Stock $(1.52) $(0.54)
Weighted average number of Common Stock shares outstanding – assuming dilution  9,340   9,319 
         
Class B Common Stock $(1.52) $(0.54)
Weighted average number of Class B Common Stock shares outstanding – assuming dilution  2,199   2,178 



FINANCIAL STATEMENTS
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED) 


 (in thousands) April 1, 2018  December 31, 2017 
ASSETS        
Current Assets:        
Cash and cash equivalents $8,479  $16,902 
Trade accounts receivable, net  412,455   388,416 
Accounts receivable, other  92,485   104,956 
Inventories  207,163   183,618 
Prepaid expenses and other current assets  108,319   100,646 
Total current assets  828,901   794,538 
Property, plant and equipment, net  1,022,325   1,031,388 
Leased property under capital leases, net  28,175   29,837 
Other assets  115,519   116,209 
Goodwill  170,262   169,316 
Other identifiable intangible assets, net  925,261   931,672 
Total assets $3,090,443  $3,072,960 
         
LIABILITIES AND EQUITY        
Current Liabilities:        
Current portion of obligations under capital leases $8,265  $8,221 
Accounts payable and accrued expenses  566,691   631,231 
Total current liabilities  574,956   639,452 
Deferred income taxes  97,471   112,364 
Pension and postretirement benefit obligations and other liabilities  726,174   738,971 
Long-term debt and obligations under capital leases  1,244,260   1,123,266 
Total liabilities  2,642,861   2,614,053 
         
Equity:        
Stockholders’ equity  354,754   366,702 
Noncontrolling interest  92,828   92,205 
Total liabilities and equity $3,090,443  $3,072,960 


FINANCIAL STATEMENTS
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)


  First Quarter 
(in thousands) 2018  2017 
Cash Flows from Operating Activities:        
Net loss $(13,562) $(4,417)
Depreciation expense and amortization of intangible assets and deferred proceeds, net  47,220   34,981 
Deferred income taxes  (15,394)  (15,495)
Proceeds from bottling agreements conversion  -   87,066 
Stock compensation expense  752   2,060 
Fair value adjustment of acquisition related contingent consideration  (5,186)  12,246 
Change in assets and liabilities (exclusive of acquisitions)  (96,817)  (1,014)
Other  2,241   1,091 
Net cash provided by (used in) operating activities  (80,746)  116,518 
         
Cash Flows from Investing Activities:        
Acquisition of distribution territories and regional manufacturing facilities related investing activities  -   (155,556)
Additions to property, plant and equipment (exclusive of acquisitions)  (42,048)  (41,580)
Other  1,824   77 
Net cash used in investing activities  (40,224)  (197,059)
         
Cash Flows from Financing Activities:        
Borrowings under Revolving Credit Facility and Term Loan Facility and proceeds from issuance of Senior Notes  320,000   245,000 
Payments on Revolving Credit Facility and Senior Notes  (197,000)  (150,000)
Cash dividends paid  (2,333)  (2,328)
Payment of acquisition related contingent consideration  (5,882)  - 
Principal payments on capital lease obligations  (2,053)  (1,828)
Debt issuance fees  (185)  (213)
Net cash provided by financing activities  112,547   90,631 
         
Net increase (decrease) in cash during period  (8,423)  10,090 
Cash at beginning of period  16,902   21,850 
Cash at end of period $8,479  $31,940 

                   

NON-GAAP FINANCIAL MEASURES(1)
The following tables reconcile reported GAAP results to organic/adjusted results (non-GAAP) for Q1 2018 and Q1 2017:


  First Quarter           
(in thousands) 2018  2017           
Total bottle/can sales $887,233  $735,818           
Total other sales  184,831   129,884           
Total net sales $1,072,064  $865,702    First Quarter 
          (in millions) 2018  2017 
Total bottle/can sales $887,233  $735,818  Physical case volume  78.0   65.2 
Less: Acquisition/divestiture related sales  260,843   123,935  Less: Acquisition/divestiture related physical case volume  22.5   10.9 
Organic net sales (non-GAAP) $626,390  $611,883  Organic physical case volume  55.5   54.3 
increase in organic net sales  2.4%     increase in organic physical case volume  2.2%    


  First Quarter 2018 
(in thousands, except per share data) Net sales  Gross
profit
  Loss from
operations
  Loss before
income taxes
  Net loss  Basic net loss
per share
 
Reported results (GAAP) $1,072,064  $364,948  $(18,997) $(26,533) $(14,185) $(1.52)
System transformation transactions expenses  -   199   12,450   12,450   9,362   1.00 
Fair value adjustment of acquisition related contingent consideration  -   -   -   (5,186)  (3,900)  (0.42)
Amortization of converted distribution rights, net  -   2,231   2,231   2,231   1,678   0.18 
Fair value adjustments for commodity hedges  -   2,765   2,967   2,967   2,231   0.24 
Other tax adjustments  -   -   -   -   (2,856)  (0.30)
Total reconciling items  -   5,195   17,648   12,462   6,515   0.70 
Adjusted results (non-GAAP) $1,072,064  $370,143  $(1,349) $(14,071) $(7,670) $(0.82)
                         
  First Quarter 2017 
(in thousands, except per share data) Net sales  Gross
profit
  Income from
operations
  Income (loss) before
income taxes
  Net income (loss)  Basic net income (loss) per share 
Reported results (GAAP) $865,702  $332,021  $14,950  $(8,108) $(5,051) $(0.54)
System transformation transactions expenses  -   88   7,652   7,652   4,714   0.51 
Fair value adjustment of acquisition related contingent consideration  -   -   -   12,246   7,544   0.81 
Fair value adjustments for commodity hedges  -   (698)  (327)  (327)  (201)  (0.02)
Other tax adjustments  -   -   -   -   (747)  (0.09)
Total reconciling items  -   (610)  7,325   19,571   11,310   1.21 
Adjusted results (non-GAAP) $865,702  $331,411  $22,275  $11,463  $6,259  $0.67 

(1) The Company reports its financial results in accordance with U.S. generally accepted accounting principles (“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. Further, given the transformation of the Company’s business through System Transformation transactions with The Coca-Cola Company and the conversion of its information technology systems, the Company believes these non-GAAP financial measures allow users to better appreciate the impact of these transactions on the Company’s 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:
Kimberly Kuo
Senior Vice President
Public Affairs, Communications & Communities
Kimberly.Kuo@ccbcc.com
(704) 557-4584
 INVESTOR CONTACT:
Dave Katz
Executive Vice President & Chief Financial Officer
Dave.Katz@ccbcc.com
(704) 557-4929

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Source: Coca-Cola Bottling Co. Consolidated


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