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Why Coca-Cola Issued a Weak Revenue Outlook for 2019

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Performance in 2018

Coca-Cola’s (KO) revenue declined 6% to $7.06 billion in the fourth quarter of 2018, as the refranchising of the company’s bottling operations dragged down the top line by eight percentage points, while currency headwinds had a five-percentage-point negative impact. Coca-Cola’s refranchising efforts have transformed it into a more agile business with less exposure to capital-intensive bottling operations. Coca-Cola’s fourth-quarter revenue exceeded analysts’ estimate of $7.04 billion.

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Coca-Cola’s revenue declined 10.0% to $31.9 billion in 2018 due to a 16 percentage-point adverse impact of refranchising and one percentage point negative impact of currency fluctuations. The company’s organic revenue (excluding structural changes and currency fluctuations) grew 5% in the fourth quarter as well as in the full-year 2018.

Unimpressive volumes

After growing for three consecutive quarters, Coca-Cola’s unit case volumes were flat on a year-over-year basis in the fourth quarter. Also, after rising in the first three quarters of 2018, the company’s sparkling beverage volumes declined 1% in the fourth quarter as the strength in Central and Eastern Europe and India was offset by adverse economic conditions in certain emerging markets like Argentina and Central America.

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Coca-Cola has been trying to improve the volumes of its sparkling beverages by promoting low-or-no calorie versions and smaller packages. The company’s unit case volumes grew 2% in 2018 driven by a 2% increase in sparkling soft drink volumes. Coca-Cola’s soda volumes in 2018 were driven by the double-digit rise in Coca-Cola Zero Sugar volumes and higher volumes of the low-calorie and no-calorie offerings of Sprite and Fanta.

In the still beverages category, tea and coffee volumes grew 1%, and water, enhanced water, and sports drink volumes grew 3% in 2018. However, juice, dairy, and plant-based beverage volumes fell 1% in 2018.

Revenue outlook

Coca-Cola expects its organic revenue to rise 4% in 2019, reflecting a lower than 5% growth rate in 2018. The company’s portfolio of healthier beverage options, innovations, and revenue management strategies are expected to drive top-line growth. However, an uncertain macro environment, challenging conditions in several emerging markets, and currency headwinds are expected to adversely impact the company’s 2019 revenue growth.

Let’s look at Coca-Cola’s margins in the next part of this series.

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