Vending

Hammered by coronavirus, Coca-Cola Q2 revenue falls 28%

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July 21, 2020

Revenues for the Coca-Cola Co. declined 28% from $9.9 billion in June 2019 to $7.2 billion for the 2020 second quarter ending June 25, causing the company's chairman to call it the toughest quarter in the company's history, according to today's earnings report.

Because of the uncertainty caused by the cornonavirus, company officials declined to give estimates for full-year results and warned that the pandemic is not over as infections continue to increase.

"We've just closed the books on what has arguably been the toughest and most complex quarter in Coca-Cola history," James Quincey, chairman and CEO, said during the earnings call. "And given the global pandemic, of course, this comes as no surprise. From the initial lockdowns and closures of hundreds of thousands of our customer outlets to the gradual reopening and now another round of spikes in various countries, the impacts have been profound."

Earnings per share declined 32% to $0.41, and comparable EPS (non-GAAP) declined 33% to $0.42. Operating margin, which included items impacting comparability, was 27.7% versus 29.9% in the prior year, while comparable operating margin was 30.0% versus 30.3% in the prior year. Operating margin contraction was primarily driven by top-line pressure and currency headwinds,.

"The trajectory of our business trend in the near term is closely linked to the size of our away-from-home business in any given country and the level of lockdowns in the market," Quincey said. "For example, markets like Western Europe which had high levels of restrictions and a meaningful away-from-home exposures and India, which had an intense lockdown, experienced significant impacts. However, many of our Latin American markets with less restrictive measures and a lower away-from-home presence fared better."

"Our underlying performance in any RTD (ready to drink) was positive and benefited from strong share gains in the at-home channel," he said. "However, this was entirely offset by a full point of negative channel mix due to the away-from-home pressure where we have strong shares. And as on-premise begins to revive, we fully expect to return to share growth and we are already seeing sequential improvements in monthly trends."

Quincey also said the company needs to do a better job exiting under performing brands such as Odwalla, which the company previously announced it plans to discontinue.

Revenue performance for the quarter included a 22% decline in concentrate sales and a 4% decline in price/mix. The revenue declines were primarily driven by pressure in away-from-home channels, which represent approximately half of the company's revenues.

The 4% decline in price/mix was driven by negative channel and package mix due to the coronavirus.

Unit case volume declined 16%, as all operating groups experienced coronavirus-related pressure. Category cluster performance was as follows:

• Sparkling soft drinks declined 12%, led by a decline in India, Western Europe and the fountain business in North America due to pressure in away-from-home channels. Trademark Coca-Cola declined 7%. Coca-Cola Zero Sugar declined 4% in the quarter while growing 2% year to date.
• Juice, dairy and plant-based beverages declined 20%, driven by pressure in the Asia Pacific and Europe, Middle East & Africa operating groups.
• Water, enhanced water and sports drinks declined 24%, led by Asia Pacific, primarily due to a decline in lower margin water brands.
• Tea and coffee declined 31%, driven by the impact of the temporary closures of nearly all of the Costa retail stores in Western Europe.

On a regional basis, the earnings decline was highest for Europe, the Middle East and Africa which posted a 27% drop, followed by North America with a 21% decline, Asia Pacific with a 9% drop, while Latin America posted a 6% gain.

Since the company's last earnings update in April, global unit case volume trends have improved sequentially, from a decline of approximately 25% in April to a decline of approximately 10% in June. Unit case volume for July month-to-date was down mid-single digits globally.

The improvement in away-from-home trends during the quarter closely correlated with the easing of lockdowns, and the company expects this correlation to continue in the second half of 2020. While the company believes the second quarter will be the most severely impacted quarter of the year, given the ongoing uncertainty surrounding the coronavirus pandemic and levels of lockdown, the ultimate impact on full year 2020 results is unknown.

As the coronavirus pandemic continues to evolve, there is uncertainty around its ultimate impact; therefore, the company's full year financial and operating results cannot be reasonably estimated at this time.

The company recently announced plans to roll out a new pouring option to meet consumer needs with its latest Coca-Cola Freestyle technology innovation — contactless, mobile pouring using a smartphone. As the coronavirus pandemic continues to reshape consumer behaviors, the contactless Coca-Cola Freestyle solution allows consumers to choose and pour drinks in just a few seconds, without creating an account or downloading an app. The mobile experience is rolling out to Coca-Cola Freestyle dispensers across the United States by the end of the year.

"The pandemic is not behind us," said John Murphy, executive vice president and chief financial officer. "There is still good reason to be cautious as global COVID infections continue to increase with case growth generally shifting from developed to emerging markets."

"While we are seeing sequential improvements, recovery will likely not be linear," Murphy said. "Some markets that were recovering are having a second spike in cases like we're seeing in Iran, Australia, Romania and here in the United States. Depending on the trajectory of recovery in away-from-home, channel and package mix will continue to put pressure on our gross margin."

For an update on how the coronavirus pandemic has affected convenience services, click here.