Investing

Here's Why Coca-Cola Consolidated Will Likely Announce a Stock Split in 2024

John Seetoo

Published: May 13, 2024 10:23 am

There are a number of consumer products that are emblematic of US culture that have become universally recognized and regarded around the globe: Harley Davidson motorcycles, Marlboro cigarettes, Levi denim jeans, McDonald hamburgers, and Coca-Cola soft drinks.

In addition to its iconic Coca-Cola beverage, The Coca-Cola Company (NYSE: KO) has drastically expanded its menu of selections over the decades to include other popular brands, such as Dr. Pepper, Sprite, Fresca, Smart Water, Dasani Water, Minute Maid lemonade and juices, Barq’s Root Beer, Monster Energy Drinks, Seagram’s Ginger Ale, and many others, totalling over 300. 

Coca-Cola and its other beverages are now sold in over 200 countries with an estimated 1.8 billion daily servings. In order to facilitate the mechanics and logistics of getting cans and bottles of Coca-Cola and affiliated brand drinks through the supply chain to its loyal customers, specialized factory operations and logistics were required, so early on, Coca-Cola created a spinoff separate entity.  

This was the Coca-Cola Bottling Consolidated Company, which became shortened to  Coca-Cola Consolidated (NASDAQ: COKE) in 2019, and is presently the largest single Coca-Cola bottler entity in the world, operating across 14 states and Washington, DC to service over 60 million customers. 

Recently, certain news and market developments have become public knowledge that gave some indications that Coca-Cola Consolidated is likely to consider a forward stock-split sometime later this year. 

History

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The original Coca-Cola Bottling operation was created in 1902 by J.B. Harrison, about 16 years after pharmacist Dr. John Pemberton created the Coca-Cola syrup recipe, which remains one of the most highly protected trade secrets in history. Various other bottling sites would emerge over the ensuing decades to be finally merged in 1973 as Coca-Cola Bottling Consolidated Company. 

Current Control Ownership

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Coca-Cola Consolidated remains firmly under the control of the Harrison family to date, with J.B. Harrison III, great-grandson of its founder, serving as current CEO and Chairman. He controls 86% of the voting stock shares. The Coca-Cola Company owns roughly 35% of the common shares at this time.

Analysts’ Metrics

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• At the end of Q1 2023, COKE stock started spiking up nearly 20%. Analysts took notice of the company’s Return On Equity, which is a metric to determine profitability relative to equity capital. Coca-Cola Consolidated’s ROE calculated out at 37% vs. the industry average of 17%.

• In Q3 2023, several fundamental analysts were crunching the numbers for Coca-Cola Consolidated and found some bullish indicators. For example, there was its Return On Capital Employed (ROCE) which is a formula for growth and profits vs. costs. In the case of Coca-Cola Consolidated, that figure came in at 26%, vs an industry average of 16%.

• Total Shareholder Returns for Coca-Cola Consolidated, which includes dividends, spinoffs, etc. in addition to stock price, have been impressive. For example, over the past three years, the TSR for Pepsico (NASDAQ: PEP) has been 7.3%, vs. the industry average of 4.6%.

Over the last three years, Coca-Cola Consoilidated’s TSR  has been 193%. 

The Buyback

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On May 6, 2024, Coca-Cola Consolidated issued a press release stating the following:

“The Company currently intends to purchase up to $3.1 billion in value of its Common Stock through both a modified “Dutch auction” tender offer for up to $2.0 billion of its Common Stock and a separate share purchase agreement (the “Purchase Agreement”) with a subsidiary of The Coca‑Cola Company. The Company expects the price range for the tender offer to be $850 to $925 per share of Common Stock.

Under the Purchase Agreement, the Company has agreed to buy, and a subsidiary of The Coca‑Cola Company has agreed to sell, at a purchase price equal to the price paid by the Company in the tender offer, a number of shares of Common Stock such that The Coca‑Cola Company would beneficially own 21.5% of the Company’s outstanding shares of Common Stock after the repurchase and completion of the tender offer. “

Why There Might Be A Stock Split

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A stock-split doesn’t change a company’s valuation, since it is the equivalent of exchanging 4 quarters for 1 dollar. However, from a market perspective, a forward stock split, which increases the number of shares but decreases the price per share, is usually viewed as a bullish event.  By doing this, the implication is that there is sufficient demand and market support for the stock that the event would be seen as creating liquidity and lowering the price of admission to accommodate investors, as opposed to being dilutive. 

There are several reasons why a number of analysts and investors believe there is a very strong chance that Coca-Cola Consolidated may announce a forward stock-split this year.

• Coca-Cola Consolidated has not undergone a stock split since a 2-for-1 forward split on March 21, 1984.
• The closing market price at the time of this writing was $952, which is pricey for individual investors to obtain a small position minimum of 100 shares. A 4-for-1 split would bring the price down to under $250 per share, which is considerably more affordable.
• The fact that The Coca-Cola Company has agreed to have its stake in Coca-Cola Consolidated reduced to as low as 21% would indicate that there is an upside to this move. A forward split would help to restore a good chunk of its profitable position size in terms of total shares, especially if the earnings growth trends continue.