Net Revenues Declined 1%; Organic Revenues
(Non-GAAP) Were Even
Operating Income Declined 2%; Comparable
Currency Neutral Operating Income (Non-GAAP) Grew 11%
Operating Margin Was 27.7% Versus 28.0% in the
Prior Year; Comparable Operating Margin (Non-GAAP) Was 30.7% Versus
28.2% in the Prior Year
EPS Grew 65% to $0.64; Comparable EPS
(Non-GAAP) Grew 8% to $0.51
The Coca-Cola Company today reported first quarter 2020 results
and provided insight into how the company is navigating through the
ongoing coronavirus pandemic. The Coca-Cola system continues to
work to ensure the safety and support of its employees, consumers,
customers and communities during this challenging time.
This press release features multimedia. View
the full release here:
https://www.businesswire.com/news/home/20200421005411/en/
"We sincerely thank those who have been working to keep all of
us safe through the crisis, particularly those on the front lines
in the healthcare community. I also want to recognize our system
associates, who are ensuring we can continue to supply beverages
around the world," said James Quincey, chairman and CEO of The
Coca-Cola Company. "Our approach to navigating the pandemic is
grounded in our company’s purpose, which ensures that we
continuously strive to make a difference for people in the
communities we serve around the world. We’ve been through
challenging times before as a company, and we believe we're well
positioned to manage through and emerge stronger. The power of the
Coca-Cola system is our greatest strength in times of crisis. The
resilience of our people, the equity of our brands and the strength
of our bottling partners continue to be competitive advantages in
the market."
Highlights
Quarterly Performance
- Revenues: Net revenues declined 1% to $8.6 billion.
Organic revenues (non-GAAP) were even. Revenue performance included
even concentrate sales and even price/mix. The quarter included one
less day, which resulted in an approximate 1-point headwind to
revenue growth.
- Margin: Operating margin, which included items impacting
comparability, was 27.7% versus 28.0% in the prior year, while
comparable operating margin (non-GAAP) was 30.7% versus 28.2% in
the prior year. Solid underlying operating margin (non-GAAP)
expansion was partially offset by currency headwinds.
- Earnings per share: EPS grew 65% to $0.64, and
comparable EPS (non-GAAP) grew 8% to $0.51.
- Market share: The company continued to gain value share
in total nonalcoholic ready-to-drink (NARTD) beverages.
- Cash flow: Cash from operations was $556 million, down
29%. Free cash flow (non-GAAP) was $229 million, down 43%,
primarily driven by the impact of one less day in the quarter,
currency headwinds and cycling the supplier payment term extensions
in the prior year as part of ongoing working capital
initiatives.
Business Environment Update Amid
Coronavirus Pandemic
The company entered 2020 with solid momentum, coming off strong
results in 2019. Through the end of February, the company was
growing volume 3%, excluding China, and was on track to achieve its
previously provided full year 2020 targets.
In March, as the coronavirus pandemic spread globally, countries
meaningfully increased social distancing and shelter-in-place
mandates. In markets around the world, the company subsequently saw
significant changes in consumer purchase patterns, notably
substantial declines in away-from-home channels. In at-home
channels, the company witnessed early pantry loading in certain
markets, followed by more normalized demand levels, along with a
sharp increase in e-commerce. Given that away-from-home channels
represent approximately half of the company’s revenues, the company
expects the net effect of these consumer purchase patterns to have
a significant impact on second quarter results. For context, since
the beginning of April, the company has experienced a volume
decline globally of approximately 25%, with nearly all of that
decline coming in away-from-home channels.
The ultimate impact on the second quarter and full year 2020 is
unknown at this time, as it will depend heavily on the duration of
social distancing and shelter-in-place mandates, as well as the
substance and pace of macroeconomic recovery. However, the impact
to the second quarter will be material.
The company believes the pressure on the business is temporary
and remains optimistic on seeing sequential improvement in the back
half of 2020. The company, along with its bottling partners, is
continuing to adapt quickly to the current environment, with a
focus on mitigating the near-term impact while positioning for
success coming out of the crisis.
Company Updates
- Delivering on key priorities amid the coronavirus
pandemic: The health and safety of Coca-Cola system employees
remains the company's highest priority. Around the world, local
teams continue to follow guidance from authorities. These measures
include additional cleaning and sanitization routines in system
facilities and requiring most office-based employees to work
remotely. After health and safety, business continuity is of utmost
importance. The Coca-Cola system has developed knowledge-sharing
routines and processes, including how to manage potential supply
chain challenges. At this time, the system does not foresee
material disruptions in finished goods production or
distribution.
- Supporting communities around the world: The Coca-Cola
system has made contributions to support relief efforts in markets
impacted across the globe. The system is committed to contributing
more than $100 million and is focused on community relief programs,
medical supplies and equipment during the outbreak phase, as well
as on developing other actions for the recovery phase in markets
hit hardest by the pandemic. The commitments to date include $40
million in charitable grants from The Coca-Cola Foundation.
- Adapting business strategy: The company is moving with
speed to continue to best serve its customers and consumers while
reviewing every aspect of its business and redirecting spending to
areas where it can be the most effective. In partnership with
bottlers and retail customers, the company is working to ensure
adequate inventory levels in key channels, in addition to
prioritizing core brands and key packages. The company is also
increasing investments in e-commerce to support both retailers and
meal delivery services, shifting toward package sizes that are
fit-for-purpose for online sales, and redeploying consumer and
trade promotions toward digital.
- Business & Sustainability Report: In 2019, the
company laid out its vision to craft the brands and choice of
drinks that people love, to refresh them in body and spirit, and to
do so in ways that create a more sustainable business and better
shared future. As the world faces unprecedented challenges, the
company's purpose and vision is more important than ever. On April
22, the company will publish its 2019 Business & Sustainability
Report, reflecting a continued journey toward driving sustainable
business practices.
Operating Review – Three
Months Ended March 27, 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
0
0
(2)
1
(1)
0
(1)
Europe, Middle East & Africa
(1)
0
(3)
1
(3)
(1)
0
Latin America
5
8
(10)
0
4
13
0
North America
3
1
0
2
6
4
3
Asia Pacific
(3)
(4)
(1)
2
(5)
(7)
(7)
Global Ventures3
(3)
1
0
0
(2)
(2)
(2)
Bottling Investments
(4)
(2)
(1)
(1)
(8)
(6)
(5)
Operating Income and EPS
Percent Change
Reported Operating Income
Items Impacting Comparability
Currency Impact
Comparable Currency Neutral2
Consolidated
(2)
(10)
(4)
11
Europe, Middle East & Africa
(2)
0
(3)
1
Latin America
9
0
(12)
21
North America
(34)
(38)
0
4
Asia Pacific
(6)
0
(1)
(5)
Global Ventures
(71)
0
0
(71)
Bottling Investments
(37)
(310)
49
223
Percent Change
Reported EPS
Items Impacting Comparability
Currency Impact
Comparable Currency Neutral2
Consolidated EPS
65
57
(2)
10
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.
In addition to the data in the preceding tables, first quarter
operating results included the following:
Consolidated
- Price/mix growth was even for the quarter primarily due to
unfavorable channel and category mix in key markets impacted by the
coronavirus outbreak. Concentrate sales were 1 point ahead of unit
case volume, largely due to bottler inventory build related to the
uncertain environment, partially offset by the impact of one less
day in the quarter along with cycling the Brexit inventory build in
the prior year.
- The company's unit case volume growth through the end of
February was 3%, excluding China. For the quarter, however, unit
case volume declined 1%, as solid growth in North America was more
than offset by a decline in Asia Pacific due to the impact from the
coronavirus. Category cluster performance was as follows:
- Sparkling soft drinks declined 2% in the quarter led by a
decline in Asia Pacific, primarily due to China. For the quarter,
trademark Coca-Cola grew 1%, led by strong performance for
Coca-Cola® Zero Sugar.
- Juice, dairy and plant-based beverages were down 6%, as solid
performance in the North American portfolio and Chi® in West Africa
was more than offset by a decline in Minute Maid Pulpy® in
China.
- Water, enhanced water and sports drinks grew 2%, led by
Cristal® in Latin America and strong growth in the sports drinks
portfolio in North America, partially offset by a decline in
China.
- Tea and coffee volume declined 6%, driven by broad-based
softness across multiple markets, as well as a decline in the
doğadan® tea business.
- Operating income declined 2%, which included a headwind from
items impacting comparability in addition to currency headwinds.
Comparable currency neutral operating income (non-GAAP) grew 11%,
benefiting from the timing of certain expenses in corporate and
solid operating expense leverage in Latin America.
Europe, Middle East &
Africa
- Price/mix was even for the quarter as solid pricing across most
key markets was offset by negative geographic mix, which includes
the impact of cycling the Brexit inventory build in the prior year.
Concentrate sales ran 1 point behind unit case volume, as bottler
inventory build related to the uncertain environment was more than
offset by the impact of one less day in the quarter, along with
cycling Brexit stocking last year.
- Unit case volume was even as strong growth through February was
offset by the coronavirus-related impacts in March. In terms of
markets, strong growth across Nigeria, Middle East and North Africa
was offset by declines in Western Europe and South Africa.
- Operating income declined 2%, primarily due to a 3-point
currency headwind. Comparable currency neutral operating income
(non-GAAP) grew 1%, primarily due to effective cost
management.
- For the quarter, the company gained value share in total NARTD
beverages in addition to all category clusters, except the water,
enhanced water and sports drinks category cluster, where the
company maintained share.
Latin America
- Price/mix grew 8% for the quarter, led by price realization and
package initiatives in Mexico. Concentrate sales ran 5 points ahead
of unit case volume, as bottler inventory build related to the
uncertain environment was partially offset by the impact of one
less day in the quarter.
- Unit case volume was even, as growth in key Latin Center
markets was offset by declines in Brazil, Mexico and Argentina,
primarily due to the impact from the coronavirus in late March.
Volume growth benefited from acquired brands in Central
America.
- Operating income grew 9%, which included a 12-point currency
headwind. Comparable currency neutral operating income (non-GAAP)
grew 21%, primarily due to solid operating expense leverage across
most business units.
- For the quarter, the company lost value share in total NARTD
beverages, driven by soft performance in Argentina and the water,
enhanced water and sports drinks category cluster in Brazil.
North America
- Price/mix grew 1% for the quarter, driven by pricing
initiatives and solid growth in the juice, dairy and plant-based
beverages category cluster, partially offset by unfavorable
category mix resulting from strong sales in packaged water.
- Unit case volume grew 3%, driven by strong growth in the water,
enhanced water and sports drinks category cluster, including
premium brands BODYARMOR® and smartwater®, along with solid growth
in the juice, dairy and plant-based beverages category cluster.
Growth in trademark Coca-Cola was driven by continued strong growth
in Coca-Cola® Zero Sugar.
- Operating income declined 34%, which included a headwind from
items impacting comparability. Comparable currency neutral
operating income (non-GAAP) grew 4%, benefiting from pricing
initiatives and premium product launches, partially offset by the
timing of expenses.
- For the quarter, the company gained value share in total NARTD
beverages led by strong performance in sparkling soft drinks and
the water, enhanced water and sports drinks category cluster.
Asia Pacific
- Price/mix declined 4% for the quarter due to unfavorable
channel and category mix in key markets. Concentrate sales ran 4
points ahead of unit case volume, as bottler inventory build
related to the uncertain environment was partially offset by the
impact of one less day in the quarter.
- Unit case volume declined 7%, as strong growth in January was
more than offset by a decline in China in February and across all
key markets in March, due to the impact from the coronavirus.
- Operating income declined 6%. Comparable currency neutral
operating income (non-GAAP) declined 5%, driven by unfavorable
channel and category mix, partially offset by lower selling,
general and administrative expenses.
- For the quarter, the company gained value share in total NARTD
beverages, in addition to all category clusters.
Global Ventures
- Reported and organic revenues (non-GAAP) both declined 2%,
primarily driven by the impact from Costa retail store closures
across China and the United Kingdom to help prevent the spread of
the coronavirus.
- Operating income and comparable currency neutral operating
income (non-GAAP) both declined 71%, primarily driven by the impact
from Costa retail store closures across China and the United
Kingdom to help prevent the spread of the coronavirus.
Bottling Investments
- Price/mix declined 2% for the quarter, largely driven by the
company's bottling operations in Africa.
- Unit case volume declined 5% driven by India, due to the impact
from the coronavirus.
- Operating income declined 37%, which included items impacting
comparability. Comparable currency neutral operating income
(non-GAAP) growth was driven by strong underlying operating expense
leverage, primarily in the company's bottling operations in
Africa.
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
mid single-digit 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%.
Second Quarter 2020
Considerations
Comparable net revenues (non-GAAP) are expected to include a 4%
to 5% currency headwind based on the current rates and including
the impact of hedged positions.
Comparable operating income (non-GAAP) is expected to include a
5% to 6% 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 first quarter 2020 operating results today,
April 21, 2020, at 7:30 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/20200421005411/en/
Investors and Analysts: Tim
Leveridge, koinvestorrelations@coca-cola.com Media: Scott Leith, sleith@coca-cola.com
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