September 13, 2012 / 7:16 PM / 5 years ago

TEXT-S&P raises The Coca-Cola Co ratings

Overview
     -- The Coca-Cola Co. continues to maintain a very strong financial 
profile.
     -- We are raising our ratings on The Coca-Cola Co., including the 
long-term/short-term corporate credit ratings to 'AA-/A-1+' from 'A+/A-1'.
     -- The outlook is stable, reflecting our belief that its existing 
financial profile will be maintained, including credit measures at or near 
indicative ratios for a modest financial risk profile.

Rating Action
On Sept. 13, 2012, Standard & Poor's Ratings Services raised its ratings on 
Atlanta, Ga.-based The Coca-Cola Co. (Coke), including its long-term corporate 
credit and senior unsecured debt ratings to 'AA-' from 'A+', as well as its 
short-term corporate credit and commercial paper ratings to 'A-1+' from 'A-1'. 
The outlook is stable.

Rationale
The upgrade reflects Coke's continued strong global operating performance and 
financial profile amid weak global economic conditions and following its 
sizable acquisition of Coca-Cola Enterprises Inc.'s (CCE's) North American 
bottling operations in 2010. We expect Coke will continue to maintain a very 
solid financial profile, including a strong liquidity position. 

The ratings on Coke reflect our assessment of the company's business risk 
profile as "excellent" and financial risk profile as "modest." Key credit 
factors in our business risk assessment include its very strong position as 
the world's largest nonalcoholic beverage company, anchored by well-known 
brands, as well as its geographic diversification, which we believe will 
continue to translate into very strong profitability and cash flow. Our modest 
financial risk profile incorporates our belief that Coke's financial policies 
are conservative and liquidity is strong. Coke's key credit measures are near 
the indicative ratio ranges for a modest financial risk profile, which 
includes total debt to EBITDA in the range of 1.5x-2.0x and funds from 
operations (FFO) to total debt 45%-60%. The rating also incorporates a degree 
of implied support from Coke to some of its bottlers.

Strong brand awareness continues to contribute to Coke's roughly 42% leading 
share in the mature U.S. carbonated soft drink (CSD) market, an estimated 
worldwide CSD market share of about 53%, and the No. 1 share position in the 
U.S. nonalcoholic liquid refreshment beverage category (according to Beverage 
Digest). The company's excellent business profile is supported by 15 
billion-dollar brands, including the Coca-Cola brand, the world's most 
valuable global brand according to Interbrand. Coke also benefits from its 
strong geographical diversification, with beverage products bearing its 
trademarks sold in more than 200 countries. Net sales generated outside of the 
U.S. were about 60% in 2011, down from about 74% in 2009, preceding its 2010 
acquisition of CCE's North American bottling operations. 

Our opinion of Coke's modest financial risk profile incorporates a degree of 
implied support from Coke to some of its bottlers, including Coca-Cola Amatil 
Ltd., Coca-Cola Bottling Co. Consolidated, Coca-Cola Enterprises Inc. fka 
International CCE Inc., Coca-Cola Femsa S.A.B. de C.V., and Coca-Cola Hellenic 
Bottling Co. S.A. Our ratings on Coke also reflect our belief that following 
the 2010 acquisition of CCE's North American bottling operations, Coke has and 
will continue to benefit from manufacturing and distribution efficiencies 
primarily in the U.S., which has experienced changes in consumer tastes to 
noncarbonated beverages and an evolving retail environment. 

Coke's net revenues during the 2012 first half increased 4% as compared to the 
comparable period in 2011. Higher volume, favorable price, product and 
geographic mix, and structural changes drove the increase, and were only 
partially offset by negative foreign currency exchange fluctuations. Volume 
increased in all of the company's operating segments except Europe, where a 
combination of very unseasonable weather and ongoing macroeconomic uncertainty 
across the region had an impact on volume. Weakness in France, Italy, and 
Great Britain more than offset growth in Germany and Spain. Adjusted EBITDA 
margin remained very high, at about 31%, but was somewhat pressured by 
fluctuations in foreign currency exchange rates, some channel and package mix 
shift, as well as the inclusion of acquired lower margin bottling operations 
in the U.S. in December 2011 and in Vietnam, Cambodia, and Guatemala in 2012.

Coke's credit measures (including our standard adjustments, the addition of 
$1.5 billion of debt representing potential bottler support and related 
interest, and offset by a portion of Coke's sizable surplus cash balances) 
have remained strong on a reported basis following the 2010 CCE bottler 
acquisition. We estimate for the 12 months ended June 29, 2012, Coke's total 
debt to EBITDA ratio was about 2x and its FFO to total debt ratio was about 
45% (adjusting for the company's voluntary pension contribution). More 
importantly, we expect both ratios will remain near current levels, even 
though we believe weak global macroeconomic conditions will continue to 
somewhat pressure future nonalcoholic beverage demand and pricing, and that 
foreign currency exchange rates will continue to unfavorably affect the 
company's financial performance. We also expect Coke will manage its future 
acquisition and share repurchase activities, if necessary, in a manner that 
will preserve its modest financial profile. Year to date through June 29, 
2012, Coke repurchased a net $1.6 billion of shares and expects net 
repurchases to be in the $2.5 billion to $3.0 billion range in 2012.

In 2012 our base-case forecast assumptions include:
     -- A low-single-digit revenue increase driven primarily by international 
growth; 
     -- Fluctuations in foreign currency exchange rates and the inclusion of 
lower-margin owned bottling operations will continue somewhat pressuring 
adjusted EBITDA margin; 
     -- About 25% tax rate; and
     -- Capital expenditures will be about $3.1 billion.

In addition, we expect short-term debt balances will grow in tandem with cash, 
short-term investments, and marketable securities absent tax reform in the 
U.S. in the near-to-intermediate term. We have not incorporated divestitures 
of bottling operations into our forecast.

Liquidity
We believe Coke's liquidity will remain "strong" for the next 18 to 24 months. 
This is based on the following assumptions: 
     -- Coke's sizeable and growing cash balances, about $9.3 billion of total 
cash and cash equivalents, in addition to approximately $7.6 billion in 
short-term investments and marketable securities as of June 29, 2012;
     -- Our belief that the company's relatively stable cash flow 
characteristics will continue, whereas Coke has generated average annual 
discretionary cash flow (after dividends and capital expenditures) of about 
$2.6 billion during the past three years;
     -- Access to about $6.4 billion in committed lines of credit for general 
corporate purposes and commercial paper (CP) backup--Coke's significant 
surplus cash balances are also available to support its sizable CP borrowings;
     -- We expect liquidity sources to continue to exceed uses by 1.5x or more;
     -- Even if EBITDA declines by 30%, we expect liquidity sources to 
continue exceeding uses;
     -- With its ample cash balance and access to the commercial paper market, 
Coke could absorb, without refinancing, high-impact, low-probability events; 
and 
     -- We believe Coke has well-established and solid banking relationships 
and a generally high standing in the credit markets.

As a result, we believe near-term debt maturities of about $1.5 billion will 
be manageable.

Outlook
The stable outlook reflects our expectation that Coke will maintain a 
conservative financial policy, continue to generate significant free cash 
flow, and maintain credit measures that are at or near current levels. 
Specifically, we anticipate that total debt to EBITDA will be 2x or below and 
FFO to total debt will be above 40%. We expect that Coke's modest financial 
risk profile will continue to be supported by its strong liquidity.

Although not expected in the near-term, we could consider a lower rating if 
FFO to total debt were to drop and be sustained significantly below 40%. We 
estimate this could occur if Coke were to make very large debt-financed 
acquisitions. Sales or margin erosion could also impair the company's 
financial measures, but we view this as a remote scenario given the company's 
consistently high profitability.

We could consider an upward rating action if Coke was able to sustain credit 
measures closer to the stronger end of the range of indicative ratios for a 
modest financial risk profile. We do not view this as a possibility in the 
next few years because we believe the company's financial measures will likely 
improve only gradually from current levels, given weak global macroeconomic 
conditions.

Related Criteria And Research
     -- Methodology And Assumptions: Liquidity Descriptors For Global 
Corporate Issuers, Sept. 28, 2011 
     -- Key Credit Factors: Criteria For Rating The Global Branded Nondurable 
Consumer Products Industry, April 28, 2011 
     -- Credit FAQ: How Standard & Poor's Applies Its Criteria/Methodology To 
Its Ratings On Coke and Coke's Bottlers, Nov. 5, 2010 
     -- Business Risk/Financial Risk Matrix Expanded, May 27, 2009 
     -- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008 
     -- Net Debt Adjustments Reflect Asset Quality, Strategic Intent, Feb. 22, 
2007

Ratings List
Upgraded
                                        To                 From
The Coca-Cola Co.
 Corporate Credit Rating                AA-/Stable/A-1+    A+/Positive/A-1
 Senior Unsecured                       AA-                A+
 Commercial Paper                       A-1+               A-1

Coca-Cola Enterprises Inc.
 Corporate Credit Rating                AA-/Stable/--      A+/Positive/--
 Senior Unsecured                       AA-                A+

Atlantic Industries
 Commercial Paper                       A-1+               A-1

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