Coca-Cola Co. (The)

We attribute Coke's relatively good performance through the pandemic (especially considering almost half of its sales are generated from on-premise customers, many of which experienced substantially lower sales due to lockdowns and social distancing) to several factors, including the strength of its brand names as demonstrated by its ability to gain market share especially in off-premise/retail grocery (further evidenced by the only 12% reported sales decline) and reductions in discretionary expenses such as advertising, travel, and other nonessential costs. We believe in arriving at its conclusions, the IRS compared what the company charges independent bottlers for the use of its brand names to what it charges its controlled foreign subsidiaries. Although Coke disagrees with the IRS' position and intends to

...The Coca Cola Co. is performing above our expectations and can reduce adjusted leverage to below 3x by the end of 2021 (excluding the expected $4.7 billion IRS litigation appeal payment). Coke entered the pandemic with credit ratios at the weaker end of our expectations for the rating, including adjusted leverage of about 3x. However, Coke successfully limited credit metric deterioration through the pandemic to less than a half-turn of adjusted leverage. While the company is still operating above our 3x adjusted leverage downgrade trigger (3.2x as of the 12 months ended April 2, 2021), we believe the company can reduce adjusted leverage to below 3x by Dec. 31, 2021, subject to financial policy decisions and excluding the expected $4.7 billion IRS litigation appeal payment that will likely be made in the next few quarters. Coke targets a company-defined net debt leverage target of 2x-2.5x. We believe Coke is at or slightly above the high end of this range. Therefore, the company's financial...

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