Coca-Cola reports significant impact on Q2 results, expects better Q3

By Devika Patel

Knoxville, Tenn., April 21 – Coca-Cola Co. has had a decline in sales due to the Covid-19 pandemic and expects a significant impact on its second-quarter results, but the company’s management believes that sales will improve after the second quarter.

“As shelter-at-home and social distancing practices increased rapidly and globally, there has been temporary and profound pressure on our customers and our business,” chairman and chief executive officer James Quincey said on the company’s first quarter ended March 27 earnings conference call on Tuesday.

“The biggest impact has been a sharp decline in the important away-from-home portion of our business, which includes our eating and drinking channels, as well as our on-the-go orientated channels like convenience retail.

“While our exposure varies across markets, away-from-home broadly represents about half of our business, given our strong share positions.

“In some markets, like the U.S., drive-through operations and carry-out helped offset some of the pressure, but most restaurants are operating on limited hours and are seeing overall trips decline sharply,” Quincey said.

The company saw a brief uptick in at-home volumes, but this has since normalized, and at-home sales have even decreased in some markets.

“In the at-home channels, we've seen some early pantry loading, particularly in certain developed markets, at the beginning of many of the lockdown phases,” Quincey said.

“Then, as we get past the initial phase of the lockdown, however, we're seeing levels normalize.

“In other markets, like India, for example, the severity of the distancing measures has negatively impacted at-home as well, simply due to the significant reduction in shopping trips.

“At this stage, it's a little too early to determine exactly what level at-home trends will stay like that,” Quincey said.

The company expects a significant impact on second quarter results.

“Given the net effect of these shifts, we expect a temporary but significant impact on our business in the second quarter, primarily coming from the slowdown in our away-from-home business,” Quincey said.

“For context, if we look at our April month to-date trends, we are seeing volumes down globally approximately 25%, driven by the sharp declines in our away-from-home businesses,” Quincey said.

Management is hoping that things will improve after the second quarter, but Quincey stressed that these are uncertain times.

“Fortunately, based on the latest projections, we do expect the second quarter to be the most severely impacted,” Quincey said.

“With that said, there is still a good deal of uncertainty around the trajectory of the pandemic, as well as the resulting macroeconomic impact.

“Looking ahead, we may not know the exact shape of the recovery, but we are taking actions today to be prepared for the future.

“In times when a crisis is hit, it can be easy to lose sight of the long term, but we will continue to build a more sustainable business in the future.

“We are in a better position today than we were heading into previous periods of challenge,” Quincey said.

The company has a strong balance sheet and liquidity.

“Our capital allocation priorities should be framed against our liquidity position on our balance sheet,” executive vice president and chief financial officer John Murphy said on the call.

“With the actions taken since March, our overall liquidity is strong, and so too is our balance sheet.

“We will, of course, continue to focus on protecting the progress we made on working capital and free cash flow in 2019 and, in this context, our capital allocation priorities remain very much focused on investing wisely to support our business operations and continuing to prioritize our dividend,” Murphy said.

The company is cutting back on M&A activities this year and doesn’t plan to repurchase shares, but will keep its dividend.

“Specifically, with regard to the dividend, we currently have no intentions to change our approach,” Murphy said.

“Regarding M&A, we do not foresee any significant activity going forward this year, nor do we intend to repurchase shares.

“We are also mindful of staying close to the debt range we have previously highlighted.

“We will, of course, review our overall approach to capital allocation as we know more about the length and severity of the crisis,” Murphy said.

Coca-Cola is an Atlanta-based beverage company.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.