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Coca-Cola Beats Q1 Estimates, Warns about COVID-19’s Q2 Impact


Apr. 21 2020, Updated 1:00 p.m. ET

Coca-Cola (NYSE:KO) reported better-than-expected results for the first quarter. However, the company expects COVID-19 to have a significant impact on its second-quarter performance. Closing restaurants and canceling major events hurt the company’s sales. Social distancing measures impacted the consumption of Coca-Cola’s beverages in public channels.

Meanwhile, Coca-Cola experienced strong sales in at-home channels in the initial phases of the lockdowns in certain developed markets. Consumers stocked up on food, beverages, and other essentials when the lockdowns started. Also, Coca-Cola’s sales from e-commerce channels increased significantly amid the pandemic.

However, since the beginning of April, the company’s volumes have declined by about 25%. According to Coca-Cola, the lower volume is mainly felt in away-from-home channels. Generally, half of the company’s revenue comes from away-from-home channels.

Coca-Cola stock has fallen by 1.6% as of 11:49 AM ET today. As of April 20, Coca-Cola and PepsiCo (NASDAQ:PEP) stocks have fallen by 15.9% and 1.6% year-to-date.

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Coca-Cola’s Q1 earnings

Coca-Cola’s first-quarter revenue declined by 1.1% YoY (year-over-year) to $8.60 billion. Analysts expected revenue of $8.28 billion. Currency headwinds had an unfavorable impact of 2% on the top line. Excluding the impact of acquisitions and divestitures and currency headwinds, the organic revenue was flat YoY. The company’s overall unit-case volume declined 1% YoY in the first quarter.

Coca-Cola’s first-quarter adjusted EPS rose 6.3% to $0.51. The adjusted EPS beat analysts’ estimate of $0.44. An expansion in the adjusted gross and operating margins drove the improvement in the company’s earnings. The adjusted gross margin improved to 61.6% in the first quarter of 2020 from 60.8% in the first quarter of 2019. The adjusted operating margin rose by about 250 basis points YoY to 30.7%.

Volumes in the first quarter

North America was the only segment that delivered higher unit case volumes in the first quarter. However, lower volumes from the Asia-Pacific region more than offset the growth in North American volumes. Notably, North America unit case volumes grew 3%. North American volumes gained from the strength in the water, enhanced water, and sports drinks category. The unit case volumes in the region also saw a rise in the juice, dairy, and plant-based beverage volumes as well as strong growth in Coca-Cola Zero Sugar. The unit case volumes in the Europe, Middle East & Africa region and Latin America were even YoY.

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The worldwide water, enhanced water, and sports drinks category’s unit case volumes rose 2%. This was the only beverage category that experienced overall volume growth in the first quarter. The company attributed the growth to the demand for the Cristal brand in Latin America and the sports drinks portfolio in North America.

The volumes of Coca-Cola’s sparkling soft drinks category fell 2% globally. The decline mainly reflects the impact of COVID-19 on the company’s China business. Volumes of the juice, dairy, and plant-based beverages category fell by 6%. The category benefited from higher volumes in the North American region. Meanwhile, the company’s Chi portfolio in West Africa also performed well. However, the COVID-19 crisis in China dragged down the category’s overall volumes.

Meanwhile, the tea and coffee category’s volumes fell 6% in the quarter due to weakness in several markets.

Coca-Cola’s outlook

Coca-Cola withdrew its 2020 guidance on March 20 due to the uncertainty associated with the coronavirus pandemic. Earlier, the company expected organic revenue growth of 5% in 2020. Coca-Cola also predicted an adjusted EPS growth of 7%. The company didn’t provide any specific revenue and EPS guidance today due to difficulty in estimating the impact of COVID-19.

Coca-Cola expects currency headwinds to have a mid-single-digit impact on its 2020 revenue and a high single-digit impact on its adjusted operating income. The company has a presence in over 200 countries, which increases its exposure to foreign currency fluctuations.

The company expects the current crisis to have a material impact on its second-quarter results. However, Coca-Cola expects a sequential improvement in its business in the second half of the year.

Coca-Cola is trying to adapt to the changes arising due to the pandemic. The company will invest in its digital capabilities to address the online demand for at-home consumption of its beverages. Coca-Cola has experienced double-digit growth in its e-commerce channels in many countries amid the pandemic.

PepsiCo will likely announce its first-quarter results on April 28. Wall Street expects the company’s first-quarter revenue to grow 2.0% YoY to $13.1 billion. Analysts expect PepsiCo’s adjusted EPS to grow over 6% YoY to $1.03 in the first quarter.

Procter & Gamble (NYSE:PG) is another consumer staples company that beat Wall Street’s earnings expectations. The company saw higher demand for some of its products due to customers stockpiling essentials. To learn more, read Procter & Gamble Delivers Mixed Q3 Results amid COVID-19.


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