Coke ‘Hates the Feeling’ - Forecast a significant hit to current-quarter results

Coke ‘Hates the Feeling’ - Forecast a significant hit to current-quarter results
  • Coke withdraws annual forecast, volume plunges 25 per cent in April 
  • Revenue beats $8.60B VS $8.282B EST
  • Change in consumers purchase pattern will have a material effect on the current quarter results
  • Away from home demand has plunged sales demand
  • The company is optimistic about the 2nd quarter in 2020

 

Coca-Cola on Tuesday said that the closure of movie theaters, restaurants and stadiums from the coronavirus has caused a plunge in its revenue.

The beverage company’s global volumes have plunged 25% since the start of April. 

“The ultimate impact on the second quarter and full-year 2020 is unknown at this time, as it will depend heavily on the duration of social distancing and shelter-in-place mandates, as well as the substance and pace of macroeconomic recovery,” Coke said. “However, the impact to the second quarter will be material.”

Coke’s comments came as the company reported its first-quarter results, which received a short-term boost from consumers binge stocking on beverages as a result of an impending Lockdown.

Shares of the company rose 1.3% in premarket trading.

Here’s what the company reported:

Coke reported fiscal first-quarter net income of $2.78 billion, or 64 cents per share, up from $1.68 billion, or 39 cents per share, a year earlier.

Excluding asset impairment charges and other items, Coke earned 51 cents per share.

Net sales dropped 1% to $8.60 billion. Organic revenue, which strips out the impact of foreign currency, acquisitions and divestitures, for the quarter was flat. 

Wall Street anticipated earnings per share of 44 cents on revenue of $8.28 billion, based on a survey of analysts by Refinitiv. However, it’s difficult to compare reported earnings to analyst estimates for Coke’s quarter. The impact on the Global economy as a result of the coronavirus pandemic impedes forecast.

Half of the company’s revenue comes from consumers drinking at home

Coke said it started the year with “solid momentum,” after reporting strong results in 2019. Excluding China, the company’s unit case volume was growing by 3% through the end of February, but The shutdown of economies around the world as since taken a toll on its revenue.

Coke saw heightened demand from grocery stores and e-commerce channels for its drinks in some markets in March due to stockpiling. About half of the company’s revenue typically comes from consumers drinking at home.

Enhanced water and sports drinks was the only category to report volume growth by 2%

In Latin America and Europe, the Middle East and Africa, volumes were flat for the quarter as sales took a hit in March due to the virus.

Asia Pacific, where the virus hit first, reported falling volumes of 7%. North America was the sole region to see growing volumes.

Unit case volume of water, enhanced water and sports drinks grew 2% in the quarter, but the segment was the only category to report volume growth as demand in Asia Pacific shrank. 

Sparkling soft drinks’ volume dropped by 2%. Its juice, dairy and plant-based drinks segment and its tea and coffee business both saw volume declines of 6% during the quarter. 

The company said that its full-year financial results cannot be estimated this time, citing the uncertainty around the coronavirus pandemic. The company withdrew its 2020 outlook in March. Coke previously forecast that 2020 organic revenue would grow by 5% and adjusted earnings per share would increase by 7% to $2.25.

Coke also said Tuesday that a stronger dollar will hurt its second-quarter revenue by 4% to 5%. 

 

Will Coke Taste the Feeling again?

The beverage giants' revenue hangs on thin ice as the aftermath of the Pandemic is set to affect consumer behavior for quite a while. It is not surprising that consumer spending and its impact on its revenue is a feeling Cocacola hates to taste.

“We’ve been through challenging times before as a company, and we believe we’re well positioned to manage through and emerge stronger,” said James Quincey, its chairman and CEO, in the company’s press release.