Shares of Coca-Cola Consolidated (NASDAQ: COKE) — the largest bottler of products from The Coca-Cola Company as well as a bottler of other beverages — skyrocketed over $1,000 this morning after the company reported financial results for the first quarter of 2024 and announced a massive plan to repurchase shares. As of 10:20 a.m. ET on Monday, Coca-Cola Consolidated stock was up almost 16%.
A massive share repurchase plan
As far as growth goes, Coca-Cola Consolidated doesn’t really have any. Its first-quarter volume was down less than 1% year over year. And with slightly higher prices, its net sales rose 1%.
Regarding profitability, there was improvement in the company’s first quarter. Its operating margin was 13.1% in the prior-year period, but it improved to 13.5% in the first quarter. That’s good but hardly worthy of a massive 16% jump for the stock.
The real surprise today was Coca-Cola Consolidated’s announcement of a plan to repurchase up to $3.1 billion of its stock. For perspective, the company had a market cap of $8 billion before the announcement. Therefore, its buyback plan represented nearly 40% of the company, which is unheard of.
Buying back this much stock would greatly increase earnings per share (EPS). And that’s why the stock was up even though growth is quite modest.
Should the company make this move?
Coca-Cola Consolidated doesn’t have $3.1 billion just lying around, but management says that now is the right time to take on debt to reward shareholders.
In 2023, the company achieved more cash than debt for the first time in 40 years — a point that management made sure to highlight. Many companies, including Apple, have grown shareholder value by taking on debt. But for Coca-Cola Consolidated, it seems like taking on debt is a change from what management was prioritizing in recent years.
That said, at its size, the company could struggle to find avenues for growth, as evidenced by the quarter’s results. Therefore, growing its EPS will also be hard, and EPS growth often drives stock performance. With this in mind, reducing its share count might be the company’s best option for growing EPS at this point, so the move is understandable.
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