IRS tax overhang limiting shareholder returns
- 4Q23 net revenue and non-GAAP EPS at US$10.85bn and US$0.49 respectively, beating expectations on top-line while meeting bottom-line estimates
- Non-GAAP organic revenue registered growth of 6% (4Q)/ 7% (FY23) and comparable EPS growth at 10% (4Q)/ 8% (FY23) to US$0.49/ US$2.69, respectively
- Provided FY24F guidance of 8%-10% EPS growth on 6%-7% topline
- Shoring up balance sheet in view of outstanding IRS tax case
4Q23 EPS of US$0.46 – in-line with consensus. The Coca-cola Company reported 4Q23 non-GAAP comparable EPS of US$0.49, up 10% y-o-y. Net revenue came in at US$10.8bn, up 7% y-o-y, above estimates of US$10.7bn. Consolidated organic revenue grew by 12% on 2% volume growth and 10% price/mix effect. Operating profits was below consensus on higher-than-expected corporate expenses at US$849m vs est of US$415m, slightly mitigated by stronger-than-expected performance in EMEA, Global Ventures and Bottling Investments segments.
| Overview of 4Q23 actual revenue breakdown vs consensus | Overview of 4Q23 actual operating income/(loss) breakdown vs consensus | ||||||||
| in US$ ‘m | 4Q23A | 4Q23C | % delta | in US$ ‘m | 4Q23A | 4Q23C | % delta | ||
| EMEA | 1,690 | 1,633 | 3.5% | EMEA | 798 | 676 | 18.1% | ||
| Latin America | 1,492 | 1,469 | 1.6% | Latin America | 797 | 836 | -4.6% | ||
| North America | 4,040 | 4,038 | 0.0% | North America | 910 | 929 | -2.1% | ||
| Asia Pacific | 1,115 | 1,075 | 3.7% | Asia Pacific | 313 | 286 | 9.3% | ||
| Global Ventures | 813 | 797 | 2.0% | Global Ventures | 119 | 50 | 136.6% | ||
| Bottling Investments | 2,013 | 1,974 | 2.0% | Bottling Investments | 185 | 137 | 35.2% | ||
| Corporate | 31 | 18 | 71.3% | Corporate | -849 | -415 | 104.7% | ||
| Adjustment | -345 | -345 | NA | Total | 2,273 | 2,499 | -9.1% | ||
| Total | 10,849 | 10,660 | 1.8% |
Source: Company, Visible Alpha, DBS Bank
FY24F guidance of 6% to 7% top-line growth and 8% to 10% bottom-line growth. The company expects top-line growth of 6% to 7%, which is unexpectedly higher compared to its close peer, PepsiCo (guided for >4% top-line growth). Top-line growth will be driven by a consistent 2% volume growth (as per last 5 year CAGR) and 4% to 5% price/mix effect (vs 10% in FY23 on easing inflation). Margin is also projected to expand on re-franchising of bottling operations and easing cost inflation.
Shoring up balance sheet in view of IRS tax case. The company’s net debt to EBITDA is now at 1.7x, below its target range of 2x to 2.5x. While the company continues to generate strong free cash flow and will be receiving proceeds for sale from bottler re-franchising, it is cautious in not leveraging up to support aggressive share repurchases. While we like the company’s resilient household brands and strong execution, we remain cautious given the IRS overhang with potential significant US$14bn tax repayment risk.