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Coca-Cola's “$10 Billion” Investment Announcement Is Smaller Than It Sounds. Here's the Math.
Key Points
Coca-Cola isn't planning to spend an additional $10 billion through 2030.
It's primarily reiterating its existing systemwide spending plans.
Coca-Cola (NYSE:KO) recently made headlines by announcing plans to invest $10 billion in U.S. infrastructure by 2030. However, the headline number is systemwide spending, including its bottling partners.
Here's a quick look at Coca-Cola's investment spending plans.
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Firming up its current plans, not necessarily adding to them
Coca-Cola currently plans to invest $2.2 billion in capital expenditures this year. That's up slightly from the $2.1 billion in spend last year. If it maintained that spending rate for the five-year plan period, that's $11 billion in capex. Meanwhile, total systemwide capex was around $8 billion last year. That would put total systemwide capex at around $40 billion over the next five years if it maintained last year's spending rate.
The company provided a bit more detail on its $10 billion planned U.S. infrastructure investment in a press release. Coca-Cola stated that it includes new or expanded production, distribution, and office facilities, with most of those projects previously announced. In other words, this is primarily money the company was already planning to spend; it just firmed up where it will invest this capital over the next five years.
This means the company should continue to generate strong, growing free cash flow over the next five years. It's on track to produce $12.4 billion in free cash flow after capital spending this year. That easily covers its dividend, which totaled $8.8 billion last year (73% of its $12 billion in free cash flow). The excess free cash flow is enabling Coca-Cola to strength its already rock-solid balance sheet.
Coca-Cola isn't planning to spend an additional $10 billion over the next few years. While its capital spending is growing, most of this investment is already planned or at the bottler level. That means it should maintain its financial strength as it continues to increase its dividend, a streak it has maintained for 64 consecutive years. The beverage giant remains a solid investment for those seeking steady dividend growth.
Matt DiLallo has positions in Coca-Cola. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.