Actions of Coca-Cola Consolidated (NASDAQ: COQUE) – the largest bottler of products in The Coca-Cola Company as well as a bottler of other beverages – soared more than $1,000 this morning after the company reported financial results for the first quarter of 2024 and announced a major plan to buy back shares. As of 10:20 a.m. ET on Monday, shares of Coca-Cola Consolidated were up nearly 16%.
A massive share buyback plan
As far as growth goes, Coca-Cola Consolidated doesn’t really have any. Its first-quarter volume fell less than 1% year over year. And with slightly higher prices, net sales rose 1%.
Regarding profitability, there was an improvement in the company’s first quarter. That’s it Operating margin it was 13.1% in the same period last year, but improved to 13.5% in the first quarter. That’s good, but hardly worthy of a huge 16% jump for the stock.
The real surprise today was Coca-Cola Consolidated’s announcement of a plan to repurchase up to US$3.1 billion of its shares. To give you an idea, the company had a market value of US$8 billion before the announcement. Therefore, their buyback plan represented almost 40% of the company, which is unheard of.
Buying back so many shares would greatly increase earnings per share (EPS). And that’s why stocks have risen, even though the growth is quite modest.
Should the company make this move?
Coca-Cola Consolidated doesn’t have $3.1 billion lying around, but management says now is the right time to take on debt to reward shareholders.
In 2023, the company had more cash than debt for the first time in 40 years – a point that management was keen to highlight. Many companies, including Litter, increased shareholder value by taking on debt. But for Coca-Cola Consolidated, it appears that taking on debt is a change from what management was prioritizing in recent years.
That said, given its size, the company may have difficulty finding growth paths, as evidenced by the quarter’s results. Therefore, growing EPS will also be difficult, and EPS growth generally drives stock performance. With this in mind, reducing the number of shares may be the company’s best option for increasing earnings per share at this time, so the move is understandable.
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Jon Quast has no position in any of the stocks mentioned. The Motley Fool holds positions on and recommends Apple. The motley fool has a disclosure policy.
Why Consolidated Coca-Cola Stock Soared More Than $1,000 Per Share Today was originally published by The Motley Fool
