Coca-Cola Consolidated, Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The following Management’s Discussion and Analysis of Financial Condition and Results of Operations of Coca‑Cola Consolidated, Inc., a Delaware corporation (together with its majority-owned subsidiaries, the “Company,” “we,” “us” or “our”), is intended to help the reader understand our financial condition and results of operations and is provided as an addition to, and should be read in conjunction with, our condensed consolidated financial statements and the accompanying notes to the condensed consolidated financial statements. The condensed consolidated financial statements include the accounts and the consolidated operations of the Company and its majority-owned subsidiaries. All comparisons are to the corresponding period in the prior year unless specified otherwise. Each of the Company’s quarters, other than the fourth quarter, ends on the Friday closest to the last day of the corresponding quarterly calendar period. The Company’s fourth quarter and fiscal year end on December 31 regardless of the day of the week on which December 31 falls. The condensed consolidated financial statements presented are: • The financial position as of March 28, 2025 and December 31, 2024. • The results of operations, comprehensive income and changes in stockholders’ equity for the three-month periods ended March 28, 2025 (the “first quarter” of fiscal 2025 (“2025”)) and March 29, 2024 (the “first quarter” of fiscal 2024 (“2024”)). • The changes in cash flows for the first quarter of 2025 and the first quarter of 2024. Our Business and the Nonalcoholic Beverage Industry We distribute, market and manufacture nonalcoholic beverages in territories spanning 14 states and the District of Columbia. The Company was incorporated in 1980 and, together with its predecessors, has been in the nonalcoholic beverage manufacturing and distribution business since 1902. We are the largest Coca‑Cola bottler in the United States. Approximately 85% of our total bottle/can sales volume to retail customers consists of products of The Coca‑Cola Company, which include some of the most recognized and popular beverage brands in the world. We also distribute products for several other beverage companies, including Keurig Dr Pepper Inc. (“Dr Pepper”) and Monster Energy Company. Our Purpose is to honor God in all we do, to serve others, to pursue excellence and to grow profitably. Our Common Stock, par value $1.00 per share (“Common Stock”), is traded on The Nasdaq Global Select Market under the symbol “COKE.” We offer a range of nonalcoholic beverage products and flavors, including both sparkling and still beverages, designed to meet the demands of our consumers. Sparkling beverages are carbonated beverages and the Company’s principal sparkling beverage is Coca‑Cola. Still beverages include energy products and noncarbonated beverages such as bottled water, ready-to-drink tea, ready-to-drink coffee, enhanced water, juices and sports drinks. Our sales are divided into two main categories: (i) bottle/can sales and (ii) other sales. Bottle/can sales include products packaged primarily in plastic bottles and aluminum cans. Bottle/can net pricing is based on the invoice price charged to customers reduced by any promotional allowances. Bottle/can net pricing per unit is impacted by the price charged per package, the sales volume generated for each package and the channels in which those packages are sold. Other sales include sales to other Coca‑Cola bottlers, post-mix sales, transportation revenue and equipment maintenance revenue. Post-mix products are dispensed through equipment that mixes fountain syrups with carbonated or still water, enabling fountain retailers to sell finished products to consumers in cups or glasses. The Company’s products are sold and distributed in the United States through various channels, which include selling directly to customers, including grocery stores, mass merchandise stores, club stores, convenience stores and drug stores, selling to on-premise locations, where products are typically consumed immediately, such as restaurants, schools, amusement parks and recreational facilities, and selling through other channels such as vending machine outlets. The Company also distributes its products using alternative routes to market, which include third-party distributors, the manufacturer of the product or the customer’s supply chain infrastructure. The nonalcoholic beverage industry is highly competitive for both sparkling and still beverages. Our competitors include bottlers and distributors of nationally and regionally advertised and marketed products, as well as bottlers and distributors of private label beverages. Our principal competitors include local bottlers of PepsiCo, Inc. products and, in some regions, local bottlers of Dr Pepper products. The principal methods of competition in the nonalcoholic beverage industry are new brand and product introductions, point-of-sale merchandising, new vending and dispensing equipment, packaging changes, pricing, sales promotions, product quality, retail space management, customer service, frequency of distribution and advertising. We believe we are competitive in our territories with respect to these methods of competition. 24 Business seasonality results primarily from higher unit sales of the Company’s products in the second and third quarters of the fiscal year, as sales of our products are typically correlated with warmer weather. We believe that we and other manufacturers from whom we purchase finished products have adequate production capacity to meet sales demand for sparkling and still beverages during these peak periods. Sales volume can also be impacted by weather conditions. Fixed costs, such as depreciation expense, are not significantly impacted by business seasonality. Executive Summary Volume was down 6.6% in the first quarter of 2025. The first quarter of 2025 had two fewer selling days as compared to the first quarter of 2024, which accounted for approximately 2.1% of the volume decline in the quarter, as discussed in the “Comparable and Adjusted Results (Non-GAAP)” section. Adjusting for the two additional selling days in the first quarter of 2024, our Sparkling and Still category volume declined 3.0% and 9.0%, respectively. Volume in the first quarter of 2025 was also lower as compared to the prior year due to the timing of the Easter holiday. In the second quarter of 2024, we shifted the distribution of casepack Dasani water sold in Walmart stores to a non-direct store delivery (“DSD”) method of distribution. As a result, these cases are not included in our reported case sales volume for the first quarter of 2025. The impact of this distribution change reduced our reported case sales volume by 1.3% during the first quarter of 2025. Net sales decreased 0.7% to $1.6 billion in the first quarter of 2025. Net sales in the first quarter of 2025 was negatively impacted by two fewer selling days as compared to the first quarter of 2024, which accounted for approximately $40 million of net sales, or 2.5% of net sales change in the quarter. The calendar impacts of two fewer selling days and a shift of the Easter holiday were partially offset by our annual 2025 pricing actions that took effect during the quarter. Sparkling and Still net sales declined 1.9% and 0.5%, respectively, compared to the first quarter of 2024. The decline in Sparkling category sales during the quarter was partially driven by softness in the Coca-Cola Original Taste brand. Sales of most remaining core products within the Sparkling category, including zero-sugar and other flavor offerings, demonstrated solid growth compared to the prior year. Excluding Dasani, net sales within our Still category increased by 1.8%, led primarily by growth within our sports drinks, protein and enhanced water products. Gross profit in the first quarter of 2025 was $627.1 million, a decrease of $13.5 million, or 2.1%, while gross margin decreased 50 basis points to 39.7%. During the first quarter of 2025, our product mix shifted slightly towards Still beverages, which typically carry lower gross margins. Additionally, the timing of annual price increases in the first quarter of 2025 also contributed to the gross margin compression. Selling, delivery and administrative (“SD&A”) expenses in the first quarter of 2025 increased $12.1 million, or 2.9%. SD&A expenses as a percentage of net sales in the first quarter of 2025 increased 100 basis points to 27.7% as compared to the first quarter of 2024. The increase in SD&A expenses was primarily driven by an increase in labor costs related to annual wage adjustments and inflationary pressures across expense categories during the first quarter of 2025. SD&A expense growth was partially offset by the impact of the two fewer selling days. Income from operations in the first quarter of 2025 was $189.8 million, compared to $215.4 million in the first quarter of 2024, a decrease of 11.9%. The two fewer selling days in the first quarter of 2025 accounted for approximately $10 million of the decline in income from operations. The timing of the Easter holiday also contributed to the decline in income from operations. Operating margin for the first quarter of 2025 was 12.0% as compared to 13.5% for the first quarter of 2024, a decrease of 150 basis points. Net income in the first quarter of 2025 was $103.6 million, compared to $165.7 million in the first quarter of 2024, a decline of $62.1 million. On an adjusted basis, as defined in the “Comparable and Adjusted Results (Non-GAAP)” section, net income in the first quarter of 2025 was $136.3 million, compared to $162.5 million in the first quarter of 2024, a decrease of $26.2 million. Net income for the first quarter of 2025 was adversely impacted by routine, non-cash fair value adjustments to our acquisition related contingent consideration liability, driven primarily by a decrease in the discount rate used to compute the fair value of the liability. Cash flows from operations for the first quarter of 2025 were $198.2 million, compared to $194.3 million for the first quarter of 2024. In the first quarter of 2025, we invested approximately $98 million in capital expenditures as we continue to optimize our supply chain and invest for future growth. In 2025, we expect capital expenditures to be approximately $300 million. 25 Areas of Emphasis Key priorities for the Company include executing our commercial strategy, executing our revenue management strategy, optimizing our supply chain, generating cash flow, determining the optimal route to market and creating and maintaining a digitally enabled selling platform. Commercial Execution : Our success is dependent on our ability to execute our commercial strategy within our customers’ stores. Our ability to obtain shelf space within stores and remain in-stock across our portfolio of brands and packages in a profitable manner will have a significant impact on our results. We are focused on execution at every step in our supply chain, including raw material and finished product procurement, manufacturing conversion, transportation, warehousing and distribution, to ensure in-store execution can occur. We continue to invest in tools and technology to enable our teammates to operate more effectively and efficiently with our customers and to drive long-term value in our business. We also continue to focus on opportunities to enhance the customer experience by adapting to changes in our customer landscape, enabling operational flexibility and focusing on customer service. Revenue Management : Our revenue management strategy focuses on pricing our brands and packages optimally within product categories and channels, creating effective working relationships with our customers and making disciplined fact-based decisions. Pricing decisions are made considering a variety of factors, including brand strength, competitive environment, input costs, the roles certain brands play in our product portfolio and other market conditions. Supply Chain Optimization : We are continually focused on optimizing our supply chain, which includes identifying nearby warehousing and distribution operations that can be consolidated into new facilities to increase capacity, expand production capabilities, reduce overall production costs and add automation to allow the Company to better serve its customers and consumers. The Company expects to continue to make significant capital investments to optimize our supply chain and to invest for future growth during 2025. During the first quarter of 2025, the Company began operations in a new 430,000-square foot automated distribution center in Columbus, Ohio. Cash Flow Generation : We have several initiatives in place to optimize cash flow, improve profitability, prudently manage capital expenditures and enhance capital returns to our stockholders. We believe strengthening our balance sheet gives us the flexibility to make optimal capital allocation decisions for long-term value creation. We have returned, and expect to continue to return, value to our stockholders. Optimal Route to Market : We are focused on implementing optimal methods of distribution of our products within our territory. DSD is our preferred and primary route to market. Our typical DSD method uses Company-owned vehicles and warehouses, but we increasingly shifted to alternative methods of distribution during 2024 and the first quarter of 2025. For example, in instances of post-mix delivery for use in fountain machines, we have shifted, and continue to shift, our delivery method towards alternative distributors in order to enhance profitability and customer service. We receive a fee from our brand partners on these post-mix gallons delivered to locally managed customers in our territory, which is recorded as a reduction to cost of sales. In instances of bottle/can delivery, we have shifted certain products for certain customers and channels of business to alternative routes to market. These alternative routes to market include third-party distributors, the manufacturer of the product or the customer’s supply chain infrastructure. These bottle/can arrangements generally come with favorable commercial terms for the Company. During the first quarter of 2025, nearly two-thirds of our post-mix gallons and less than 10% of our bottle/can volume was delivered through alternative routes to market. Digitally Enabled Selling Platform : Through our investment in CONA Services LLC, we, along with other Coca-Cola bottlers, have built a digitally enabled selling platform called MyCoke that we believe has enabled, and will continue to enable, us to better serve our customers. This platform creates a more seamless order and payment platform for certain customers and we expect this platform will continue to enable us to enhance customer service and create more selling opportunities for our teammates. This platform is currently targeted to certain on-premise and small store customers. 26 Results of Operations First Quarter Results The Company’s results of operations for the first quarter of 2025 and the first quarter of 2024 are highlighted in the table below and discussed in the following paragraphs. First Quarter (in thousands) 2025 2024 Change Net sales $ 1,579,977 $ 1,591,626 $ (11,649) Cost of sales 952,873 951,067 1,806 Gross profit 627,104 640,559 (13,455) Selling, delivery and administrative expenses 437,284 425,153 12,131 Income from operations 189,820 215,406 (25,586) Interest expense (income), net 6,874 (2,716) 9,590 Mark-to-market on acquisition related contingent consideration 42,728 (5,541) 48,269 Other expense, net 745 828 (83) Income before taxes 139,473 222,835 (83,362) Income tax expense 35,862 57,094 (21,232) Net income 103,611 165,741 (62,130) Other comprehensive loss, net of tax (14) (153) 139 Comprehensive income $ 103,597 $ 165,588 $ (61,991) Net Sales Net sales decreased $11.6 million, or 0.7%, to $1.58 billion in the first quarter of 2025, as compared to $1.59 billion in the first quarter of 2024. The largest driver of the decrease in net sales was two fewer selling days during the first quarter of 2025 as compared to the first quarter of 2024. During the first quarter of 2025, lower case sales volume within both the Still and Sparkling categories, which was partially attributable to the two fewer selling days, decreased net sales by approximately $85 million. Net sales in the first quarter of 2025 was also lower as compared to the first quarter of 2024 due to the timing of the Easter holiday. The decrease in net sales was partially offset by higher average bottle/can sales price per unit charged to retail customers, which increased net sales by approximately $40 million. Net sales was also positively impacted by shifts in product mix during the first quarter of 2025, as certain of the Company’s higher-priced products, including sports drinks, protein and enhanced water products, had strong sales during the quarter. Net sales by product category were as follows: First Quarter (in thousands) 2025 2024 % Change Bottle/can sales: Sparkling beverages $ 933,837 $ 951,992 (1.9) % Still beverages 509,157 511,642 (0.5) % Total bottle/can sales 1,442,994 1,463,634 (1.4) % Other sales: Sales to other Coca‑Cola bottlers 85,936 78,703 9.2 % Post-mix sales and other 51,047 49,289 3.6 % Total other sales 136,983 127,992 7.0 % Total net sales $ 1,579,977 $ 1,591,626 (0.7) % 27 Product category sales volume of standard physical cases (as defined below) and the percentage change by product category were as follows: First Quarter (in thousands) 2025 2024 % Change Bottle/can sales volume: Sparkling beverages 58,629 61,785 (5.1) % Still beverages 18,098 20,326 (11.0) % Total bottle/can sales volume 76,727 82,111 (6.6) % A standard physical case is a volume metric used to standardize differing package configurations in order to measure delivered cases on an equivalent basis. As the Company evaluates its volume metrics, it reassesses the way in which physical case volume is measured, which may lead to differences from previously presented results in order to conform with current period standard volume measurement techniques, as used by management. Additionally, as the Company introduces new products, it reassesses the category assigned to its products at the SKU level, therefore categorization could differ from previously presented results in order to conform with current period categorization. Any differences are not material. The bottle/can sales volume above represents volume that is delivered directly to our customer outlets using Company-owned vehicles and warehouses. In order to serve our customers in the most efficient way, respond to customer demands and increase profitability, the Company has, in certain circumstances, shifted the delivery of our products to third-party distributors, the manufacturer of the product or the customer’s supply chain infrastructure, rather than using Company-owned vehicles and warehouses. We have shifted the distribution of casepack Dasani water sold in Walmart stores to a non-DSD method of distribution. As a result, these cases are not included in our reported case sales volume for the first quarter of 2025. The impact of this distribution change reduced our reported case sales volume by 1.3% during the first quarter of 2025. There was no impact related to this distribution change during the first quarter of 2024, as the shift had not yet taken place. As a result of not physically delivering the product, the sales volume delivered using these alternative methods of distribution is not reflected in our volume metrics. However, because we have the exclusive distribution rights for nonalcoholic beverages within our franchise territory, we receive fees from our brand partners for the delivery of qualified product in our territory. These fees are reported in net sales. Changes in the delivery of our products to our customers have increasingly impacted our reported volume and net sales over the past several years as the transition has occurred and accelerated. Less than 10% of the bottle/can volume sold in our franchise territory during the first quarter of 2025 was delivered using these alternative distribution methods. The following table summarizes the percentage of the Company’s total bottle/can sales volume to its largest customers, as well as the percentage of the Company’s total net sales that such volume represents: First Quarter 2025 2024 Approximate percent of the Company’s total bottle/can sales volume: Walmart Inc. (1) 21 % 21 % The Kroger Co. (2) 15 % 15 % Total approximate percent of the Company’s total bottle/can sales volume 36 % 36 % Approximate percent of the Company’s total net sales: Walmart Inc. (1) 17 % 17 % The Kroger Co. (2) 12 % 12 % Total approximate percent of the Company’s total net sales 29 % 29 % (1) Includes bottle/can sales volume related to the Walmart, Sam’s Club and Walmart Neighborhood Market chains. (2) Includes bottle/can sales volume related to the Kroger and Harris Teeter chains. Cost of Sales Inputs representing a substantial portion of the Company’s cost of sales include: (i) purchases of finished products, (ii) raw material costs, including aluminum cans, plastic bottles, carbon dioxide and sweetener, (iii) concentrate costs and (iv) manufacturing costs, including labor, overhead and warehouse costs. In addition, cost of sales includes shipping, handling and fuel costs related to the movement of finished products from manufacturing plants to distribution centers, amortization expense of 28 distribution rights, distribution fees of certain products and marketing credits and post-mix funding from brand companies. Input costs, including underlying commodity costs for aluminum cans, plastic bottles, carbon dioxide and sweetener, as well as labels and other packaging materials, and excluding concentrate, represent approximately 20% of total annual cost of sales. Cost of sales increased $1.8 million, or 0.2%, to $952.9 million in the first quarter of 2025, as compared to $951.1 million in the first quarter of 2024. The increase in cost of sales was primarily driven by higher input costs and shifts in product mix as compared to the first quarter of 2024. The increase in cost of sales was largely offset by lower case sales volume during the first quarter of 2025 as compared to the first quarter of 2024, which was partially attributable to the impact of the two fewer selling days during the first quarter of 2025. The Company relies extensively on advertising and sales promotions in the marketing of its products. The Coca‑Cola Company and other beverage companies that supply concentrates, syrups and finished products to the Company make substantial marketing and advertising expenditures, including national advertising programs, to develop their brand identities and to promote sales in the Company’s territories. Our brand partners also provide funding related to the delivery of post-mix gallons to locally managed customers within the Company’s territory. Certain of these marketing, advertising and other funding expenditures are made pursuant to annual arrangements. Total funding support from The Coca‑Cola Company and other beverage companies, which includes both direct payments to the Company and payments to customers for marketing programs, was $45.2 million in the first quarter of 2025 and $45.3 million in the first quarter of 2024. Selling, Delivery and Administrative Expenses SD&A expenses include the following: sales management labor costs, distribution costs resulting from transporting finished products from distribution centers to customer locations, distribution center overhead including depreciation expense, distribution center warehousing costs, delivery vehicles and cold drink equipment, point-of-sale expenses, advertising expenses, cold drink equipment repair costs, amortization of intangible assets and administrative support labor and operating costs. Labor costs represent approximately 60% of total annual SD&A expenses. SD&A expenses increased $12.1 million, or 2.9%, to $437.3 million in the first quarter of 2025, as compared to $425.2 million in the first quarter of 2024. SD&A expenses as a percentage of net sales increased to 27.7% in the first quarter of 2025 from 26.7% in the first quarter of 2024. The increase in SD&A expenses was primarily driven by an increase in labor costs related to annual wage adjustments and inflationary pressures across expense categories during the first quarter of 2025. The increase in SD&A expenses was partially offset by the impact of two fewer selling days during the first quarter of 2025 as compared to the first quarter of 2024. Shipping and handling costs included in SD&A expenses were approximately $194 million in the first quarter of 2025 and approximately $193 million in the first quarter of 2024. Interest Expense (Income), Net Interest expense (income), net changed $9.6 million to $6.9 million of interest expense, net in the first quarter of 2025, as compared to $2.7 million of interest income, net in the first quarter of 2024. The change in interest expense (income), net was primarily a result of an increase in interest expense on higher debt balances in the first quarter of 2025, as compared to the first quarter of 2024, partially offset by an increase in interest income due to higher cash, cash equivalent and short-term investment balances. Mark-to-Market on Acquisition Related Contingent Consideration Each reporting period, the Company adjusts its acquisition related contingent consideration liability to fair value, which is determined by discounting future expected acquisition related sub-bottling payments using the Company’s estimated weighted average cost of capital (“WACC”) and future cash flow projections, and records the fair value adjustment as mark-to-market on acquisition related contingent consideration in the condensed consolidated statement of operations. Mark-to-market on acquisition related contingent consideration was an increase of $42.7 million in the first quarter of 2025 and a decrease of $5.5 million in the first quarter of 2024. During the first quarter of 2025, the $42.7 million increase in the fair value of the acquisition related contingent consideration liability was primarily driven by a decrease in the WACC used to calculate the fair value of the liability, as compared to December 31, 2024. During the first quarter of 2024, the $5.5 million decrease in the fair value of the acquisition related contingent consideration liability was primarily driven by an increase in the WACC used to 29 calculate the fair value of the liability, partially offset by higher projections of future cash flows in the distribution territories subject to acquisition related sub-bottling payments. Other Expense, Net Other expense, net decreased $0.1 million to $0.7 million in the first quarter of 2025, as compared to $0.8 million in the first quarter of 2024. The decrease in other expense, net was primarily driven by changes in the actuarial assumptions related to our pension and postretirement medical benefit plan liabilities. Income Tax Expense The Company’s effective income tax rate was 25.7% for the first quarter of 2025 and 25.6% for the first quarter of 2024. The Company’s income tax expense decreased $21.2 million, or 37.2%, to $35.9 million for the first quarter of 2025, as compared to $57.1 million for the first quarter of 2024. The decrease in income tax expense was primarily attributable to lower income before taxes during the first quarter of 2025 compared to the first quarter of 2024. Other Comprehensive Loss, Net of Tax Other comprehensive loss, net of tax was $0.0 million in the first quarter of 2025, as compared to $0.2 million in the first quarter of 2024. Segment Operating Results The Company evaluates segment reporting in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 280, Segment Reporting, each reporting period, including evaluating the reporting package reviewed by the Chief Operating Decision Maker (the “CODM”). The Company has concluded the Chief Executive Officer, the Chief Operating Officer and the Chief Financial Officer, as a group, represent the CODM. Segment asset information is not provided to the CODM. The Company has three operating segments, each identified by its unique products and services. Nonalcoholic Beverages represents the vast majority of the Company’s consolidated net sales and income from operations. The additional two operating segments, which include Data Ventures, Inc. and the Red Classic subsidiaries, do not meet the quantitative thresholds for separate reporting, either individually or in the aggregate, and, therefore, have been combined into “All Other.” The accounting policies of the Nonalcoholic Beverages segment are the same as those described in the summary of significant accounting policies presented in Note 1 to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for 2024. The CODM uses net sales, gross profit and income from operations in the annual budgeting and forecasting process. Monthly, the CODM considers budget-to-actual variances and current year to prior year variances for these profit measures when making strategic business decisions and allocating resources to Company operations. 30 The Company’s segment results are as follows: First Quarter 2025 (in thousands) Nonalcoholic Beverages All Other Eliminations (1) Total Net sales $ 1,569,000 $ 75,988 $ (65,011) $ 1,579,977 Cost of goods sold 954,935 45,293 (47,355) 952,873 Gross profit 614,065 30,695 (17,656) 627,104 Selling, delivery and administrative expenses: Payroll costs (2) $ 265,933 $ 12,772 $ — $ 278,705 Fleet costs (3) 23,827 7,683 — 31,510 Depreciation and amortization expense (4) 28,254 538 — 28,792 All other segment items (5) 108,808 7,125 (17,656) 98,277 Total selling, delivery and administrative expenses 426,822 28,118 (17,656) 437,284 Income from operations $ 187,243 $ 2,577 $ — $ 189,820 Total depreciation and amortization expense (4) $ 48,048 $ 5,325 $ — $ 53,373 First Quarter 2024 (in thousands) Nonalcoholic Beverages All Other Eliminations (1) Total Net sales $ 1,574,712 $ 88,102 $ (71,188) $ 1,591,626 Cost of goods sold 946,456 56,761 (52,150) 951,067 Gross profit 628,256 31,341 (19,038) 640,559 Selling, delivery and administrative expenses: Payroll costs (2) $ 262,697 $ 13,276 $ — $ 275,973 Fleet costs (3) 26,078 8,115 — 34,193 Depreciation and amortization expense (4) 25,057 493 — 25,550 All other segment items (5) 102,282 6,193 (19,038) 89,437 Total selling, delivery and administrative expenses 416,114 28,077 (19,038) 425,153 Income from operations $ 212,142 $ 3,264 $ — $ 215,406 Total depreciation and amortization expense (4) $ 43,098 $ 3,653 $ — $ 46,751 (1) The entire net sales elimination represents net sales from the All Other segment to the Nonalcoholic Beverages segment. The entire cost of goods sold and SD&A eliminations represent costs incurred by the All Other segment in the generation of net sales to the Nonalcoholic Beverages segment. (2) Payroll costs includes compensation, incentive plans, defined contribution plans, healthcare benefits and tax-advantaged spending accounts. (3) Fleet costs includes fleet repairs, maintenance and fuel and oil costs. (4) Total depreciation and amortization expense is included within both cost of goods sold and SD&A expenses. For segment reporting, the difference between total depreciation and amortization expense and the portion within SD&A expenses is the amount within cost of goods sold. (5) All other segment items includes information technology costs, stewardship, insurance and other costs incurred in the selling and delivery of the Company’s products. Comparable and Adjusted Results (Non-GAAP) The Company reports its financial results in accordance with accounting principles generally accepted in the United States (“GAAP”). However, management believes that certain non-GAAP financial measures provide users of the financial statements with additional, meaningful financial information that should be considered, in addition to the measures reported in accordance with GAAP, when assessing the Company’s ongoing 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. 31 The tables below reconcile reported results (GAAP) to comparable and adjusted results (non-GAAP). Results for the first quarter of 2024 include two additional selling days compared to the first quarter of 2025. For comparison purposes, the estimated impact of the additional selling days in the first quarter of 2024 has been excluded from our comparable volume results. First Quarter (in thousands) 2025 2024 Change Standard physical case volume 76,727 82,111 (6.6) % Volume related to extra days in fiscal period — (1,760) Comparable standard physical case volume 76,727 80,351 (4.5) % First Quarter 2025 (in thousands, except per share data) Gross profit SD&A expenses Income from operations Income before taxes Net income Basic net income per share Reported results (GAAP) $ 627,104 $ 437,284 $ 189,820 $ 139,473 $ 103,611 $ 11.88 Fair value adjustment of acquisition related contingent consideration (1) — — — 42,728 32,174 3.69 Fair value adjustments for commodity derivative instruments (2) 799 165 634 634 477 0.05 Total reconciling items 799 165 634 43,362 32,651 3.74 Adjusted results (non-GAAP) $ 627,903 $ 437,449 $ 190,454 $ 182,835 $ 136,262 $ 15.62 First Quarter 2024 (in thousands, except per share data) Gross profit SD&A expenses Income from operations Income before taxes Net income Basic net income per share Reported results (GAAP) $ 640,559 $ 425,153 $ 215,406 $ 222,835 $ 165,741 $ 17.68 Fair value adjustment of acquisition related contingent consideration (1) — — — (5,541) (4,172) (0.45) Fair value adjustments for commodity derivative instruments (2) 1,156 (43) 1,199 1,199 903 0.10 Total reconciling items 1,156 (43) 1,199 (4,342) (3,269) (0.35) Adjusted results (non-GAAP) $ 641,715 $ 425,110 $ 216,605 $ 218,493 $ 162,472 $ 17.33 Following is an explanation of non-GAAP adjustments: (1) This non-cash, fair value adjustment of acquisition related contingent consideration fluctuates based on factors such as long-term interest rates and future cash flow projections of the distribution territories subject to acquisition related sub-bottling payments. (2) The Company enters into commodity derivative instruments from time to time to hedge some or all of its projected purchases of aluminum, PET resin, diesel fuel and unleaded gasoline in order to mitigate commodity price risk. The Company accounts for its commodity derivative instruments on a mark-to-market basis. Financial Condition Total assets were $5.40 billion as of March 28, 2025, which was an increase of $90.6 million from December 31, 2024. Net working capital, defined as current assets less current liabilities, was $1.32 billion as of March 28, 2025, which was an increase of $89.1 million from December 31, 2024. Significant changes in net working capital as of March 28, 2025 as compared to December 31, 2024 were as follows: • An increase in short-term investments of $38.8 million, primarily due to $150.2 million in purchases of short-term investments during the first quarter of 2025, partially offset by disposals of short-term investments of $112.8 million. • An increase in accounts payable to The Coca-Cola Company of $47.6 million, primarily due to the timing of cash payments. • A decrease in accrued compensation of $84.3 million, primarily as a result of the timing of bonus and incentive payments in the first quarter of 2025. 32 Liquidity and Capital Resources The Company’s sources of capital include cash flows from operations, available credit facilities and the issuance of debt and equity securities. As of March 28, 2025, the Company had $1.15 billion in cash and cash equivalents. The Company’s cash equivalent balance as of March 28, 2025 consisted predominantly of investments in money market funds, time deposits and commercial paper with maturities of 90 days or less. As of March 28, 2025, the Company had $340.1 million in short-term investments, which consisted primarily of U.S. Treasury securities and investment-grade corporate bonds with maturities of one year or less. The Company has obtained its debt from public markets, private placements and bank facilities. Management believes the Company has sufficient sources of capital available to finance its business plan, to meet its working capital requirements and to maintain an appropriate level of capital spending for at least the next 12 months from the issuance of the condensed consolidated financial statements. On March 4, 2025, the Company announced that its Board of Directors had approved a 10-for-1 forward stock split of Common Stock and the Company’s Class B Common Stock, par value $1.00 per share (“Class B Common Stock”), to be effected through an amendment to the Company’s Restated Certificate of Incorporation (the “Amendment”). The Amendment would also effect a proportionate increase in the number of authorized shares of Common Stock and Class B Common Stock. The Amendment is subject to stockholder approval at the Company’s 2025 Annual Meeting of Stockholders, which is scheduled to take place on May 13, 2025. Subject to stockholder approval of the Amendment, each stockholder of record as of the close of business on May 16, 2025 will have nine additional shares for each share of Common Stock or Class B Common Stock held as of such date reflected in the stockholder’s account on or about May 23, 2025. Trading is expected to begin on a split-adjusted basis on or about May 27, 2025. On August 20, 2024, the Company announced that its Board of Directors had approved a share repurchase program under which the Company is authorized to repurchase up to $1.00 billion of Common Stock. The Company expects share repurchases to be made from time to time in the open market or through private transactions or block trades. The timing and amount of repurchases will depend on market conditions, the prevailing market price, applicable legal requirements and other factors. The share repurchase authorization is discretionary and has no expiration date. There were no shares of Common Stock repurchased under the share repurchase program during the first quarter of 2025. As of March 28, 2025, the total remaining share repurchase authorization was $948.4 million. The Company’s debt as of March 28, 2025 and December 31, 2024 was as follows: (in thousands) Maturity Date March 28, 2025 December 31, 2024 Senior bonds (the “2025 Senior Bonds”) (1) 11/25/2025 $ 350,000 $ 350,000 Senior notes 10/10/2026 100,000 100,000 Senior bonds (the “2029 Senior Bonds”) (2) 6/1/2029 700,000 700,000 Revolving credit facility (3) 6/10/2029 — — Senior notes 3/21/2030 150,000 150,000 Senior bonds (the “2034 Senior Bonds”) (4) 6/1/2034 500,000 500,000 Unamortized discount on senior bonds (1)(2)(4) Various (1,412) (1,482) Debt issuance costs (11,639) (12,170) Total debt 1,786,949 1,786,348 Less: Current portion of debt (1) 349,781 349,699 Total long-term debt $ 1,437,168 $ 1,436,649 (1) The 2025 Senior Bonds were issued at 99.975% of par. As of March 28, 2025 and December 31, 2024, the 2025 Senior Bonds, net of debt issuance costs and unamortized discount, were classified as current portion of debt in the condensed consolidated balance sheets. (2) The 2029 Senior Bonds were issued at 99.843% of par. (3) The Company’s revolving credit facility has an aggregate maximum borrowing capacity of $500 million. The Company currently believes all banks participating in the revolving credit facility have the ability to and will meet any funding requests from the Company. (4) The 2034 Senior Bonds were issued at 99.893% of par. The indentures under which the 2025 Senior Bonds, the 2029 Senior Bonds and the 2034 Senior Bonds were issued do not include financial covenants, but do limit the incurrence of certain liens and encumbrances as well as indebtedness by the Company’s subsidiaries in excess of certain amounts. The agreements under which the Company’s nonpublic debt, including its revolving 33 credit facility, was issued include two financial covenants: a consolidated cash flow/fixed charges ratio and a consolidated funded indebtedness/cash flow ratio, each as defined in the respective agreement. The Company was in compliance with these covenants as of March 28, 2025. These covenants have not restricted, and are not expected to restrict, the Company’s liquidity or capital resources. All outstanding debt has been issued by the Company and none has been issued by any of its subsidiaries. There are no guarantees of the Company’s debt. The Company’s credit ratings are reviewed periodically by certain nationally recognized rating agencies. Changes in the Company’s operating results or financial position could result in changes in the Company’s credit ratings. Lower credit ratings could result in higher borrowing costs for the Company or reduced access to capital markets, which could have a material adverse impact on the Company’s operating results or financial position. As of March 28, 2025, the Company’s credit ratings and outlook for its debt were as follows: Credit Rating Rating Outlook Moody’s Baa1 Stable Standard & Poor’s BBB+ Stable The Company’s Board of Directors has declared, and the Company has paid, dividends on the Common Stock and the Class B Common Stock and each class of common stock has participated equally in all dividends declared by the Board of Directors and paid by the Company for more than 30 years. The amount and frequency of future dividends will be determined by the Company’s Board of Directors in light of the earnings and financial condition of the Company at such time, and no assurance can be given that dividends will be declared or paid in the future. We review supplier terms and conditions on an ongoing basis, and we have negotiated payment term extensions in recent years in connection with our efforts to improve cash flow and working capital. Separate from those term extension actions, the Company has an agreement with a third-party financial institution to facilitate a supply chain finance program (the “SCF program”), which allows qualifying suppliers to sell their receivables from the Company to the financial institution in order to negotiate shorter payment terms on their outstanding receivable arrangements. The Company’s obligations to its suppliers, including amounts due and scheduled payment terms, are not impacted by a supplier’s participation in the SCF program. See Note 13 to the condensed consolidated financial statements for additional information related to the SCF program. The Company’s only Level 3 asset or liability is the acquisition related contingent consideration liability. There were no transfers of assets or liabilities from Level 1 or Level 2 in any period presented. Fair value adjustments were non-cash and, therefore, did not impact the Company’s liquidity or capital resources. Following is a summary of the Level 3 activity: First Quarter (in thousands) 2025 2024 Beginning balance - Level 3 liability $ 654,191 $ 669,337 Payments of acquisition related contingent consideration (19,819) (9,700) Reclassification to current payables 4,700 (4,500) Increase (decrease) in fair value 42,728 (5,541) Ending balance - Level 3 liability $ 681,800 $ 649,596 34 Cash Sources and Uses A summary of cash-based activity is as follows: First Quarter (in thousands) 2025 2024 Cash Sources: Net cash provided by operating activities (1) $ 198,171 $ 194,273 Proceeds from the disposal of short-term investments 112,755 1,116 Proceeds from the sale of property, plant and equipment 157 100 Total cash sources $ 311,083 $ 195,489 Cash Uses: Purchases of short-term investments $ 150,157 $ 183,806 Additions to property, plant and equipment 97,866 77,040 Cash dividends paid 21,794 154,666 Payments of acquisition related contingent consideration 19,819 9,700 Investment in equity method investees 4,584 3,632 Payments on financing lease obligations 650 601 Debt issuance fees 232 53 Total cash uses $ 295,102 $ 429,498 Net increase (decrease) in cash during period $ 15,981 $ (234,009) (1) Net cash provided by operating activities in the first quarter of 2025 included net income tax payments of $1.9 million and net interest payments of $2.5 million. Net cash provided by operating activities in the first quarter of 2024 included net income tax payments of $2.7 million and net interest payments of $2.6 million. Cash Flows From Operating Activities During the first quarter of 2025, cash provided by operating activities was $198.2 million, which was an increase of $3.9 million as compared to the first quarter of 2024. Cash Flows From Investing Activities During the first quarter of 2025, cash used in investing activities was $139.7 million, which was a decrease of $123.6 million as compared to the first quarter of 2024. The decrease was primarily a result of fewer purchases of short-term investments, net of proceeds, as compared to the first quarter of 2024. Purchases of short-term investments, net of proceeds, were $37.4 million during the first quarter of 2025 and $182.7 million during the first quarter of 2024. This decrease was partially offset by an increase in additions to property, plant and equipment in the first quarter of 2025 as compared to the first quarter of 2024. Additions to property, plant and equipment, were $97.9 million during the first quarter of 2025 and $77.0 million during the first quarter of 2024. There were $28.0 million and $24.3 million of additions to property, plant and equipment accrued in accounts payable, trade as of March 28, 2025 and March 29, 2024, respectively. The additions to property, plant and equipment reflect the Company’s focus on optimizing its supply chain and investing for future growth. The Company anticipates additions to property, plant and equipment in 2025 will be approximately $300 million. Cash Flows From Financing Activities During the first quarter of 2025, cash used in financing activities was $42.5 million, which was a decrease of $122.5 million as compared to the first quarter of 2024. The primary driver of the decrease was lower dividend payments as compared to the first quarter of 2024. The Company made dividend payments of approximately $22 million (including a regular cash dividend of $2.50 per share) during the first quarter of 2025, as compared to dividend payments of approximately $155 million (including a special cash dividend of $16.00 per share and a regular cash dividend of $0.50 per share) during the first quarter of 2024. The Company had cash payments for acquisition related contingent consideration of $19.8 million during the first quarter of 2025 and $9.7 million during the first quarter of 2024. For the next five future years, the Company anticipates that the amount it could 35 pay annually under the acquisition related contingent consideration arrangements for the distribution territories subject to acquisition related sub-bottling payments will be in the range of approximately $50 million to $80 million. Hedging Activities The Company uses commodity derivative instruments to manage its exposure to fluctuations in certain commodity prices. Fees paid by the Company for commodity derivative instruments are amortized over the corresponding period of the instrument. The Company accounts for its commodity derivative instruments on a mark-to-market basis with any expense or income being reflected as an adjustment to cost of sales or SD&A expenses, consistent with the expense classification of the underlying hedged item. The Company uses several different financial institutions for commodity derivative instruments to minimize the concentration of credit risk. The Company has master agreements with the counterparties to its commodity derivative instruments that provide for net settlement of derivative transactions. The net impact of the commodity derivative instruments on the condensed consolidated statements of operations was as follows: First Quarter (in thousands) 2025 2024 Increase in cost of sales $ 993 $ 1,534 Increase in SD&A expenses 67 323 Net impact $ 1,060 $ 1,857 Cautionary Note Regarding Forward-Looking Statements Certain statements made in this report, or in other public filings, press releases, or other written or oral communications made by the Company, which are not historical facts, are forward-looking statements subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve risks and uncertainties which we expect will or may occur in the future and may impact our business, financial condition and results of operations. The words “anticipate,” “believe,” “expect,” “intend,” “project,” “may,” “will,” “should,” “could” and similar expressions are intended to identify those forward-looking statements. These forward-looking statements reflect the Company’s best judgment based on current information, and, although we base these statements on circumstances that we believe to be reasonable when made, there can be no assurance that future events will not affect the accuracy of such forward-looking information. As such, the forward-looking statements are not guarantees of future performance, and actual results may vary materially from the projected results and expectations discussed in this report. Factors that might cause the Company’s actual results to differ materially from those anticipated in forward-looking statements include, but are not limited to: increased costs (including due to inflation) or disruption, unavailability or shortages of raw materials, fuel and other supplies; the reliance on purchased finished products from external sources; changes in public and consumer perception and preferences, including concerns related to product safety and sustainability, artificial ingredients, brand reputation and obesity; changes in government regulations related to nonalcoholic beverages, including regulations related to obesity, public health, artificial ingredients, recycling, sustainability and product safety; decreases from historic levels of marketing funding support provided to us by The Coca‑Cola Company and other beverage companies; material changes in the performance requirements for marketing funding support or our inability to meet such requirements; decreases from historic levels of advertising, marketing and product innovation spending by The Coca‑Cola Company and other beverage companies, or advertising campaigns that are negatively perceived by the public; any failure of the several Coca‑Cola system governance entities of which we are a participant to function efficiently or in our best interest and any failure or delay of ours to receive anticipated benefits from these governance entities; provisions in our beverage distribution and manufacturing agreements with The Coca‑Cola Company that could delay or prevent a change in control of us or a sale of our Coca‑Cola distribution or manufacturing businesses; the concentration of our capital stock ownership; our inability to meet requirements under our beverage distribution and manufacturing agreements; changes in the inputs used to calculate our acquisition related contingent consideration liability; technology failures or cyberattacks on our information technology systems or our effective response to technology failures or cyberattacks on our third-party service providers’, business partners’, customers’, suppliers’ or other third parties’ information technology systems; unfavorable changes in the general economy; changes in trade policies, including the imposition of, or increase in, tariffs on imported goods; the concentration risks among our customers and suppliers; lower than expected net pricing of our products resulting from continued and increased customer and competitor consolidations and marketplace competition; the effect of changes in our level of debt, borrowing costs and credit ratings on our access to capital and credit markets, operating flexibility and ability to obtain additional financing to fund future needs; the failure to attract, train and retain qualified employees while controlling labor costs and other labor issues; the failure to maintain productive relationships with our employees covered by collective bargaining agreements, including failing to renegotiate collective bargaining agreements; changes in accounting standards; our use of estimates and assumptions; changes in 36 tax laws, disagreements with tax authorities or additional tax liabilities; changes in legal contingencies; natural disasters, changing weather patterns and unfavorable weather; climate change or legislative or regulatory responses to such change; and the risks discussed in “Item 1A. Risk Factors” of the Company’s Annual Report on Form 10-K for 2024 and elsewhere in this report. Caution should be taken not to place undue reliance on the forward-looking statements included in this report. The Company assumes no obligation to update any forward-looking statements, except as may be required by law. In evaluating forward-looking statements, these risks and uncertainties should be considered, together with the other risks described from time to time in the Company’s reports and other filings with the United States Securities and Exchange Commission.