Global Unit Case Volume Declined 16%
Net Revenues Declined 28%; Organic Revenues
(Non-GAAP) Declined 26%
Operating Income Declined 34%; Comparable
Currency Neutral Operating Income (Non-GAAP) Declined 25%
Operating Margin Was 27.7% Versus 29.9% in the
Prior Year; Comparable Operating Margin (Non-GAAP) Was 30.0% Versus
30.3% in the Prior Year
EPS Declined 32% to $0.41; Comparable EPS
(Non-GAAP) Declined 33% to $0.42
The Coca-Cola Company today reported second quarter 2020 results
and provided an update on strategic actions that are positioning
the system to emerge stronger from the ongoing coronavirus
pandemic. The Coca-Cola system remained agile in the second
quarter, with a focus on maintaining a safe environment for
employees while also providing necessary products and services to
consumers, customers and communities during this unprecedented
time.
This press release features multimedia. View
the full release here:
https://www.businesswire.com/news/home/20200721005461/en/
"I'm proud of the people of the Coca-Cola system as we continue
to adjust and accelerate our strategies in this fast-changing
landscape," said James Quincey, chairman and CEO of The Coca-Cola
Company. "We believe the second quarter will prove to be the most
challenging of the year; however, we still have work to do as we
drive our pursuit of 'Beverages for Life' and meet evolving
consumer needs."
Highlights
Quarterly Performance
- Revenues: Net revenues declined 28% to $7.2 billion.
Organic revenues (non-GAAP) declined 26%. Revenue performance
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.
- Margin: Operating margin, which included items impacting
comparability, was 27.7% versus 29.9% in the prior year, while
comparable operating margin (non-GAAP) was 30.0% versus 30.3% in
the prior year. Operating margin contraction was primarily driven
by top-line pressure and currency headwinds, partially offset by
effective cost management.
- Earnings per share: EPS declined 32% to $0.41, and
comparable EPS (non-GAAP) declined 33% to $0.42.
- Market share: The company lost value share in total
nonalcoholic ready-to-drink (NARTD) beverages as an underlying
share gain was more than offset by negative channel mix due to
pressure in away-from-home channels, where the company has a strong
share position.
- Cash flow: Year-to-date cash from operations was $2.8
billion, down 38%. Free cash flow (non-GAAP) was $2.3 billion, down
40%.
Business Environment and
Strategic Actions Update
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. Performance has been driven by improving trends in
away-from-home channels, along with sustained, elevated sales in
at-home channels.
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.
The company's balance sheet remains strong, and the company is
confident in its liquidity position as it continues to navigate
through the crisis.
Despite the high degree of uncertainty, the company is committed
to emerging stronger by gaining share and consumers, maintaining
strong system economics, strengthening its reputation with
stakeholders and positioning the organization to win in the new
reality.
The company is accelerating its strategy to accomplish these
goals. This includes focusing investments against a defined growth
portfolio by prioritizing brands best positioned for consumer reach
and share advantage. The company will also streamline the
innovation pipeline against initiatives that are scalable
regionally or globally as well as maintain a disciplined approach
to local experimentation in order to further strengthen the
company's leader, challenger and explorer framework. The portfolio
will be supported by a refreshed marketing approach, with a
step-change in marketing investment effectiveness and efficiency.
The company will also lead the Coca-Cola system in driving
system-wide efficiencies to support these investments, and will
invest in new capabilities to capitalize on emerging, lasting
shifts in consumer behaviors.
Company Updates
- Refresh the world, make a difference: In the midst of
unprecedented challenges, the company remains grounded in its
purpose. For example, The Coca-Cola Foundation has partnered with
the world’s largest humanitarian network, the International Red
Cross and Red Crescent Movement, to help provide hospitals with
critical medical equipment and supplies; to support community
relief programs; and to fund public coronavirus education and
awareness campaigns. The partnership has supported programs in more
than 60 countries, reaching an estimated 7.5 million people
impacted by the pandemic.
- Driving relevance with loved brands: In the first
original ad during the pandemic for brand Coca-Cola, the company
celebrates the rediscovered joy in sharing a meal with loved ones.
"The Great Meal" features 13 real households in eight countries
preparing and sharing home-cooked meals over an ice-cold Coca-Cola,
bringing to life the comfort and authenticity of the brand's
connection to food. "The Great Meal" kicks off a global campaign
for brand Coca-Cola, "Together Tastes Better," which is rolling out
this month. This modular, digital-first campaign was created for
Coca-Cola teams around the world to tailor and localize for their
markets and platforms. "Together Tastes Better" is the latest
example of how the company is leveraging marketing investments for
the highest impact and largest reach.
- Innovating quickly to address consumer needs: 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.
- Addressing social justice concerns: The company is
taking a multi-faceted approach to social justice, focusing on
listening, leading, investing and advocating. This includes meeting
with stakeholders, employees and other business leaders. The
company has paused social media activity for July to review
policies, including its own, and to hold partners to a higher level
of accountability and transparency. The company has committed to
spend an incremental $500 million with Black-owned suppliers over
the next five years in the United States. In support of social
justice, The Coca-Cola Foundation has contributed $4 million to
several initiatives and, to date, the company has contributed an
additional $1.3 million through brands Coca-Cola and Sprite.
Operating Review – Three
Months Ended June 26, 2020
Revenues
and Volume
Percent Change
Concentrate Sales1
Price/Mix
Currency Impact
Acquisitions, Divestitures and
Structural Changes, Net
Reported Net Revenues
Organic Revenues2
Unit Case Volume
Consolidated
(22)
(4)
(3)
0
(28)
(26)
(16)
Europe, Middle East &
Africa
(26)
(9)
(3)
0
(37)
(35)
(17)
Latin America
(18)
5
(11)
0
(25)
(13)
(9)
North America
(18)
0
0
1
(16)
(18)
(16)
Asia Pacific
(21)
(1)
(1)
0
(23)
(22)
(18)
Global Ventures3
(34)
(17)
(2)
0
(53)
(52)
(31)
Bottling Investments
(33)
3
(5)
(3)
(38)
(30)
(36)
Operating Income and EPS
Percent Change
Reported Operating Income
Items Impacting Comparability
Currency Impact
Comparable Currency Neutral2
Consolidated
(34)
(5)
(4)
(25)
Europe, Middle East &
Africa
(31)
0
(4)
(27)
Latin America
(14)
(2)
(18)
6
North America
(31)
(11)
0
(21)
Asia Pacific
(11)
0
(2)
(9)
Global Ventures
—4
—
—
—
Bottling Investments
(89)
(12)
21
(98)
Percent Change
Reported EPS
Items Impacting Comparability
Currency Impact
Comparable Currency Neutral2
Consolidated EPS
(32)
1
(5)
(28)
Note: Certain rows may not add due to
rounding.
1
For Bottling Investments, this represents
the percent change in net revenues attributable to the increase
(decrease) in unit case volume computed based on total sales
(rather than average daily sales) in each of the corresponding
periods after considering the impact of structural changes.
2
Organic revenues, comparable currency
neutral operating income and comparable currency neutral EPS are
non-GAAP financial measures. Refer to the Reconciliation of GAAP
and Non-GAAP Financial Measures section.
3
Due to the combination of multiple
business models in the Global Ventures segment, the composition of
concentrate sales and price/mix may fluctuate materially on a
periodic basis. Therefore, the company places greater focus on
revenue growth as the best indicator of underlying performance of
the segment.
4
Reported operating loss for Global
Ventures for the three months ended June 26, 2020 was $102 million.
Reported operating income for Global Ventures for the three months
ended June 28, 2019 was $73 million. Therefore, the percent change
is not meaningful.
In addition to the data in the preceding tables, second quarter
operating results included the following:
Consolidated
- Price/mix declined 4% for the quarter driven by negative
channel and package mix due to the impact of the coronavirus.
Price/mix was also impacted by negative segment mix from Global
Ventures and Bottling Investments. Concentrate sales were 6 points
behind unit case volume due to cycling the timing of shipments from
the prior year along with rationalization of stock levels after
safety stock building in the first quarter of the year.
Year-to-date concentrate sales were 3 points behind unit case
volume, impacted by one less day and cycling the timing of certain
shipments from the prior year related to the Brexit bottler
inventory build.
- Unit case volume declined 16%, as all operating groups
experienced coronavirus-related pressure, particularly in
away-from-home channels. 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.
- Operating income declined 34%, which included a headwind from
items impacting comparability in addition to currency headwinds.
Comparable currency neutral operating income (non-GAAP) declined
25%, driven by top-line pressure due to the coronavirus pandemic,
partially offset by effective cost management across operating
groups along with timing of expenses.
Europe, Middle East &
Africa
- Price/mix declined 9% for the quarter driven by negative
channel and package mix in Europe. Price/mix was also impacted by
negative geographic mix due to better performance in emerging and
developing markets versus developed markets. Concentrate sales ran
9 points behind unit case volume, largely due to cycling the timing
of shipments from the prior year along with rationalization of
stock levels after safety stock building in the first quarter.
- Unit case volume declined 17%, primarily related to lockdown
restrictions across the majority of markets.
- Operating income declined 31%, impacted by a 4-point currency
headwind. Comparable currency neutral operating income (non-GAAP)
was down 27% driven by top-line pressure due to the coronavirus,
partially offset by effective cost management along with timing of
expenses.
- The company lost value share in total NARTD beverages largely
driven by negative channel mix due to pressure in away-from-home
channels, where the company has a strong share position.
Latin America
- Price/mix grew 5%, led by price realization and package
initiatives in Mexico. Concentrate sales trailed unit case volume
by 9 points, largely due to cycling the timing of shipments from
the prior year along with rationalization of stock levels after
safety stock building in the first quarter.
- Unit case volume declined 9% led by declines in Argentina,
Mexico and Brazil primarily due to the impact of the
coronavirus.
- Operating income declined 14%, which included a headwind from
items impacting comparability and an 18-point currency headwind.
Comparable currency neutral operating income (non-GAAP) grew 6%,
primarily due to effective cost management across all business
units along with timing of expenses.
- The company gained value share in total NARTD beverages, driven
by share gains in sparkling soft drinks, the juice, dairy and
plant-based beverages category cluster in addition to the water,
enhanced water and sports drinks category cluster.
North America
- Price/mix was even for the quarter as solid growth in the juice
and dairy finished goods businesses was entirely offset by pressure
in the fountain business and away-from-home channels.
- Unit case volume declined 16%, largely driven by pressure in
the fountain business and away-from-home channels. The decline was
partially offset by solid growth in fairlife® and Simply®.
- Operating income declined 31%, which included a headwind from
items impacting comparability. Comparable currency neutral
operating income (non-GAAP) declined 21% driven by top-line
pressure due to the coronavirus.
- The company lost value share in total NARTD beverages due to
coronavirus-related lockdown restrictions in away-from-home
channels, where the company has a strong share position.
Asia Pacific
- Price/mix declined 1% due to negative channel mix in key
markets, partially offset by positive geographic mix. Concentrate
sales ran 3 points behind unit case volume, largely due to
rationalization of stock levels after safety stock building in the
first quarter.
- Unit case volume declined 18%, primarily due to strict
lockdowns in India to help prevent the spread of the coronavirus.
The unit case volume decline was partially offset by positive
performance in China.
- Operating income declined 11%, impacted by a 2-point currency
headwind. Comparable currency neutral operating income (non-GAAP)
declined 9%, driven by top-line pressure due to the coronavirus
across most markets, partially offset by effective cost
management.
- The company gained value share in total NARTD beverages, driven
by a solid share gain in sparkling soft drinks.
Global Ventures
- Net revenues declined 53%, impacted by a 2-point currency
headwind. Organic revenues (non-GAAP) declined 52%. The revenue
declines were primarily driven by the impact of the temporary
closures of nearly all of the Costa retail stores in Western
Europe.
- The operating loss was primarily driven by the impact of the
temporary closures of nearly all of the Costa retail stores in
Western Europe.
Bottling Investments
- Price/mix grew 3% for the quarter due to trade promotion
optimization in most markets as well as positive geographic
mix.
- Unit case volume declined 36% driven by India and South Africa
due to the impact of the coronavirus.
- Operating income declined 89%, which included a headwind from
items impacting comparability and a 21-point currency tailwind.
Comparable currency neutral operating income (non-GAAP) declined
98%, driven by top-line pressure in India and South Africa due to
the coronavirus.
Operating Review – Six Months
Ended June 26, 2020
Revenues
and Volume
Percent Change
Concentrate Sales1
Price/Mix
Currency Impact
Acquisitions, Divestitures and
Structural Changes, Net
Reported Net Revenues
Organic Revenues2
Unit Case Volume
Consolidated
(12)
(2)
(2)
0
(16)
(14)
(9)
Europe, Middle East &
Africa
(15)
(4)
(3)
1
(21)
(19)
(10)
Latin America
(7)
7
(11)
0
(11)
(1)
(5)
North America
(8)
1
0
2
(6)
(8)
(7)
Asia Pacific
(13)
(2)
(1)
1
(15)
(15)
(13)
Global Ventures3
(20)
(8)
(1)
0
(29)
(28)
(17)
Bottling Investments
(19)
1
(3)
(2)
(24)
(19)
(22)
Operating Income and EPS
Percent Change
Reported Operating Income
Items Impacting Comparability
Currency Impact
Comparable Currency Neutral2
Consolidated
(20)
(7)
(4)
(8)
Europe, Middle East &
Africa
(17)
0
(4)
(13)
Latin America
(4)
(1)
(16)
13
North America
(32)
(23)
0
(10)
Asia Pacific
(9)
0
(1)
(7)
Global Ventures
—4
—
—
—
Bottling Investments
(66)
(53)
26
(39)
Percent Change
Reported EPS
Items Impacting Comparability
Currency Impact
Comparable Currency Neutral2
Consolidated EPS
6
22
(4)
(12)
Note: Certain rows may not add due to
rounding.
1
For Bottling Investments, this represents
the percent change in net revenues attributable to the increase
(decrease) in unit case volume computed based on total sales
(rather than average daily sales) in each of the corresponding
periods after considering the impact of structural changes.
2
Organic revenues, comparable currency
neutral operating income and comparable currency neutral EPS are
non-GAAP financial measures. Refer to the Reconciliation of GAAP
and Non-GAAP Financial Measures section.
3
Due to the combination of multiple
business models in the Global Ventures segment, the composition of
concentrate sales and price/mix may fluctuate materially on a
periodic basis. Therefore, the company places greater focus on
revenue growth as the best indicator of underlying performance of
the segment.
4
Reported operating loss for Global
Ventures for the six months ended June 26, 2020 was $83 million.
Reported operating income for Global Ventures for the six months
ended June 28, 2019 was $139 million. Therefore, the percent change
is not meaningful.
Outlook
Full Year 2020
Considerations
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.
For comparable net revenues (non-GAAP), the company expects a 3%
to 4% currency headwind based on the current rates and including
the impact of hedged positions.
For comparable operating income (non-GAAP), the company expects
a high single-digit currency headwind based on the current rates
and including the impact of hedged positions.
The company’s underlying effective tax rate (non-GAAP) is
estimated to be 19.5%.
Third Quarter 2020
Considerations
Comparable net revenues (non-GAAP) are expected to include a 3%
to 4% currency headwind based on the current rates and including
the impact of hedged positions.
Comparable operating income (non-GAAP) is expected to include a
7% to 8% currency headwind based on the current rates and including
the impact of hedged positions.
Notes
- All references to growth rate percentages and share compare the
results of the period to those of the prior year comparable
period.
- All references to volume and volume percentage changes indicate
unit case volume, unless otherwise noted. All volume percentage
changes are computed based on average daily sales, unless otherwise
noted. "Unit case" means a unit of measurement equal to 192 U.S.
fluid ounces of finished beverage (24 eight-ounce servings), with
the exception of unit case equivalents for Costa non-ready-to-drink
beverage products which are primarily measured in number of
transactions. "Unit case volume" means the number of unit cases (or
unit case equivalents) of company beverages directly or indirectly
sold by the company and its bottling partners to customers or
consumers.
- "Concentrate sales" represents the amount of concentrates,
syrups, beverage bases, source waters and powders/minerals (in all
instances expressed in equivalent unit cases) sold by, or used in
finished beverages sold by, the company to its bottling partners or
other customers. For Costa non-ready-to-drink beverage products,
"concentrate sales" represents the amount of coffee beans and
finished beverages (in all instances expressed in equivalent unit
cases) sold by the company to customers or consumers. In the
reconciliation of reported net revenues, "concentrate sales"
represents the percent change in net revenues attributable to the
increase (decrease) in concentrate sales volume for the geographic
operating segments and the Global Ventures operating segment after
considering the impact of structural changes. For the Bottling
Investments operating segment, this represents the percent change
in net revenues attributable to the increase (decrease) in unit
case volume computed based on total sales (rather than average
daily sales) in each of the corresponding periods after considering
the impact of structural changes. The Bottling Investments
operating segment reflects unit case volume growth for consolidated
bottlers only.
- "Price/mix" represents the change in net operating revenues
caused by factors such as price changes, the mix of products and
packages sold, and the mix of channels and geographic territories
where the sales occurred.
- First quarter 2020 financial results were impacted by one less
day as compared to the same period in 2019, and fourth quarter 2020
financial results will be impacted by two additional days as
compared to the same period in 2019. Unit case volume results for
the quarters are not impacted by the variances in days due to the
average daily sales computation referenced above.
Conference Call
The company is hosting a conference call with investors and
analysts to discuss second quarter 2020 operating results today,
July 21, 2020, at 8:30 a.m. ET. The company invites participants to
listen to a live webcast of the conference call on the company’s
website, http://www.coca-colacompany.com, in the "Investors"
section. An audio replay in downloadable digital format and a
transcript of the call will be available on the website within 24
hours following the call. Further, the "Investors" section of the
website includes certain supplemental information and a
reconciliation of non-GAAP financial measures to the company’s
results as reported under GAAP, which may be used during the call
when discussing financial results.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200721005461/en/
Investors and Analysts: Tim
Leveridge, koinvestorrelations@coca-cola.com Media: Scott Leith, sleith@coca-cola.com
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