DBRS Morningstar Confirms The Coca-Cola Company’s Issuer Rating at A (high), Stable Trend, and Discontinues and Withdraws the Senior Unsecured Debt Rating

DBRS Limited (DBRS Morningstar) confirmed the Issuer Rating of The Coca-Cola Company (Coke or the Company) at A (high) and the Short-Term Issuer Rating at R-1 (low), both with Stable trends. DBRS Morningstar also discontinued and withdrew Coke’s Senior Unsecured Debt rating. The discontinuation does not reflect any change in DBRS Morningstar’s view of Coke’s credit quality. The rating confirmations are supported by the combination of solid growth in operating income and debt repayment which resulted in an improvement in leverage to a level more appropriate for the current ratings (i.e., below 4.0 times (x)). The ratings continue to be supported by Coke’s strong brands and solid market positions, geographic diversification and large size, scale, and efficient operations. The ratings also consider the intense competitive environment, Coke’s mature core markets and product categories, and ongoing changes to consumer preferences.

Coke’s business risk profile is expected to continue to be strong for the current A (high) rating, as the Company continues to benefit from ongoing product innovation and bolt-on acquisitions, coupled with benefits from productivity improvement initiatives. In the near term, revenue is forecast to grow by a low-single-digit percentage to approximately $38.5 billion. Price/mix and volume growth in developing markets are expected to drive organic revenue growth, which is forecast to increase by a mid-single-digit percentage on a constant currency basis in F2020. Bolt-on acquisitions should also contribute toward revenue growth. However, DBRS Morningstar believes that the topline would continue to be pressured by adverse foreign currency fluctuations. EBITDA margins are expected to remain stable over the near to medium term, as unfavourable foreign exchange fluctuations offset margin expansion from a favourable price/mix and benefits from productivity improvement initiatives. As such, DBRS Morningstar forecasts EBITDA to grow to approximately $12.4 billion in F2020, from $12 billion in F2019.

Despite the forecast growth in earnings, Coke’s free cash flow after dividends and before changes in working capital is expected to remain relatively flat on F2019 levels, as capital expenditure remains relatively flat and the Company continues to increase its returns to shareholders. Coke’s dividend outlay is expected to be approximately $7 billion in F2020. DBRS Morningstar believes that the Company will continue to use free cash flow to pursue acquisitions and complete share buybacks to offset common share issuance. Notably, share buybacks are expected to remain at modest levels. As such, debt-to-EBITDA is forecast to modestly improve to 3.6x by the end of F2020. Should leverage increase above 4.0x for a sustained period as a result of weaker-than-expected operating performance and/or more aggressive financial management, the ratings will be pressured. Although unlikely, a positive rating action could be influenced by a material reduction in leverage on a sustainable basis

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodologies are Rating Companies in the Consumer Products Industry and DBRS Morningstar Criteria: Rating Corporate Holding Companies and Parent/Subsidiary Rating Relationships, which can be found on dbrs.com under Methodologies & Criteria.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link under Related Documents or by contacting us at info@dbrs.com.

This rating was not initiated at the request of the rated entity.

The rated entity or its related entities did not participate in the rating process for this rating action. DBRS Morningstar did not have access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

This is an unsolicited credit rating.

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