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Coca-Cola Investors Brace for Weak Q2 Results

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Beverage giant Coca-Cola will likely announce its second-quarter results on July 21. PepsiCo reported better-than-expected second-quarter results on July 13. Strength in the snack foods business drove PepsiCo’s second-quarter results. However, the company’s beverage business suffered. Restaurant closures and canceled sports, and postponed events impacted away-from-home consumption.

Coca-Cola cautioned in April that the decline in the away-from-home consumption will likely hurt its second-quarter results.

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Pandemic will likely hurt Coca-Cola’s Q2 results

Wall Street expects Coca-Cola’s revenue to decline 28.1 percent YoY (year-over-year) to $7.18 billion in the second quarter. The at-home-consumption of beverages benefited from increased demand amid the COVID-19 pandemic. However, the sales volumes in restaurants and other away-from-home channels may decline. Also, COVID-19 related costs may be a drag on the company’s second-quarter earnings. Analysts expect the company’s second-quarter adjusted EPS to decline about 36.5 percent YoY to $0.40.

In the first quarter, Coca-Cola’s revenue declined by 1.1 percent to $8.60 billion. COVID-19 related disruption and currency headwinds impacted the company’s revenue. The company’s first-quarter adjusted EPS grew 6.3 percent to $0.51 and beat analysts’ forecast of $0.44. Improved margins helped drive the company’s earnings growth.

PepsiCo’s revenue fell 3.1 percent in the second quarter and 0.3 percent on an organic basis. Higher organic volumes of snacks and cereals helped offset the weakness in the company’s beverage business.

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Analysts hopeful about Coca-Cola's post-COVID-19 recovery

Currently, 16 out of 21 analysts recommend a buy for Coca-Cola stock. Five analysts recommend hold, while none of the analysts recommend a sell. Year-to-date, the stock has underperformed PepsiCo and the broader market. As of July 16, Coca-Cola stock has declined 16.6 percent, while PepsiCo has declined 2.04 percent. The S&P 500 has fallen 0.5 percent as of Thursday.

With an average 12-month target price of $52.63, analysts predict an upside of 14 percent in Coca-Cola stock. Unlike several companies that have canceled dividend payments due to the pandemic, Coca-Cola and PepsiCo continue to pay dividends. Earlier this year, Coca-Cola increased its dividend for the 58th consecutive year. The company rewarded its investors with $6.8 billion in dividends last year. As of July 16, Coca-Cola’s dividend yield was 3.6 percent, while PepsiCo’s dividend yield was 3.1 percent.

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Several analysts expect an improvement in Coca-Cola’s prospects when the COVID-19 pandemic gets addressed. The company has been focusing on better beverages to address consumers’ evolving needs. The company introduced several beverages with low or no-sugar options. So far, the company’s revamped Coca-Cola Zero Sugar drink has resonated well with consumers.

The company has also been investing in growth in other categories beyond soda. To boost Coca-Cola's growth in the coffee category, it completed the acquisition of Costa in January 2019. The company has also enhanced its presence in the e-commerce channel. Online sales have surged amid the COVID-19 pandemic.

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