It’s been a little over a year since writing about Coca-Cola’s (KO) earnings quality and since then, after the calendar 2025 year, it appears not much has changed for the Atlanta carbonated soft drink giant.
Recently, Coke has run up into the low $80’s in terms of it’s share price, a lot of the move beginning with the bounce off $67.50 in early January ’26, probably in response to the weakening technology and large-cap growth trade that began late in Q4 ’25 and continued after the start of 2026.
The stock is at a new all-time-high, which sits well with investors no doubt, but the fundamental analysis of Coke rates about a C+, if that.
To cut to the chase, hare’s an updated look at Coke’s net income to cash-flow over the last 5 years:
(Please expand the above spreadsheet)
Both the cash-flow and free-cash-flow have continued to deteriorate relative to net income.
There has been little improvement.
Coke is dealing with a couple of internal issues which might be having an impact on the balance sheet including a rather sizable dollar dispute with the IRS that dates all the way back to 2007 – 2009 and puts Coke at risk for $6 billion in back taxes. Another issue although the risk is far smaller in dollars, is a “brand” issue from Fairlife, which is now a billion brand for Coke documenting animal abuse and deceptive marketing.
Here’s what’s a little puzzling:
Coke’s operating margin:
- 4-qtr avg: 31.1%
- 12-qtr avg: 30%
- 20-qtr avg: 29.4%
- 40-qtr avg: 28.6%
Coke’s operating margin has improved modestly over the last 5 – 10 years (post the botting subsidiary spinoff), but free-cash-flow has not.
Free-cash-flow:
- 4-qtr avg: $1.2 bl
- 12-qtr avg: $1.58 bl
- 20-qtr avg: $2.0 bl
- 40-qtr avg: $1.7 bl
All of the quarterly averages start with the Q4 ’25 financial results, and work backward.
What’s interesting is that the credit rating agencies – particularly Moody’s and Standard & Poors – assign the Coca-Cola senior unsecured debt an A1 / A+ credit rating so the rating agencies seem to remain comfortable with Coke.
Summary / conclusion: When discussing Coke’s operating margins and free-cash-flow, the spinoff of the bottling operation in the middle of last decade which started around 2014 – 2015, was supposed to improve Coke’s margins, make the Coke brand less “asset-intensive” and presumably improve free-cash-flow and none of those improvements have yet to really happen.
It was also interesting to hear Greg Abel, Berkshire’s new CEO relacing the legendary Warren Buffett, talk this weekend with Berkshire’s Q1 ’26 earnings release, about Coke-Cola as one of the Berkshire Holdings, 4 “untouchable” stocks.
Coke has not bought material amounts of shares (share repurchases) and by that is meant $1 billion or more per quarter, since 2018. It appears that after 2018 the share repurchase sizes diminished in both size and frequency.
This blog doesn’t own shares of Coke – all of it was sold within the last few years – and replaced with Walmart (WMT).
This post wasn’t meant to be a hit piece given the quality of the brand, but something doesn’t seem right. If I showed or posted the identical spreadsheet analysis above, for Walmart or Tesla, readers would be see 200% cash-flow coverage and healthy free-cash-flow coverage of net income, on stocks with even higher PE multiples.
Coke has 32 “billion $ brands” per Morningstar, but the company seems to innovate at a snail’s pace, and move like you’d expect the US government to move, even though Coke is a $349 billion brand in the private sector.
None of this is advice or a recommendation but only an opinion. Past performance is no guarantee of future results. All detail included above is from modeling of specific stocks, using earnings releases and 10-Q’s. None of the information above may be updated, and if updated may not be done in a timely fashion.
Thanks for reading.