Global Unit Case Volume Declined 4%
Net Revenues Declined 9%; Organic Revenues
(Non-GAAP) Declined 6%
Operating Income Declined 8%; Comparable
Currency Neutral Operating Income (Non-GAAP) Grew 7%
Operating Margin Was 26.6% Versus 26.3% in the
Prior Year; Comparable Operating Margin (Non-GAAP) Was 30.4% Versus
28.1% in the Prior Year
EPS Declined 33% to $0.40; Comparable EPS
(Non-GAAP) Declined 2% to $0.55
The Coca-Cola Company today reported third quarter 2020 results
and updated its progress on several strategic initiatives that are
designed to accelerate a return to growth. The Coca-Cola system
continues to focus on emerging stronger from the pandemic with a
portfolio of the right brands, high-impact marketing, effective
innovation and a highly networked organizational structure.
This press release features multimedia. View
the full release here:
https://www.businesswire.com/news/home/20201022005316/en/
"Throughout this year's crisis, our system has remained focused
on its beverages for life strategy. We are accelerating our
transformation that was already underway, shaping our company to
recover faster than the broader economic recovery," said James
Quincey, chairman and CEO of The Coca-Cola Company. "While many
challenges still lie ahead, our progress in the quarter gives me
confidence we are on the right path."
Highlights
Quarterly Performance
- Revenues: Net revenues declined 9% to $8.7 billion.
Organic revenues (non-GAAP) declined 6%. Revenue performance
included a 4% decline in concentrate sales and a 3% decline in
price/mix. The company reported improvement in trends versus the
prior quarter, with revenue declines versus the prior year driven
by ongoing pressure in away-from-home channels partially offset by
sustained growth in at-home channels.
- Margin: Operating margin, which included items impacting
comparability, was 26.6% versus 26.3% in the prior year, while
comparable operating margin (non-GAAP) was 30.4% versus 28.1% in
the prior year. Operating margin expansion was primarily driven by
effective cost management, partially offset by top-line pressure
and currency headwinds.
- Earnings per share: EPS declined 33% to $0.40, and
comparable EPS (non-GAAP) declined 2% to $0.55.
- 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
continued pressure in away-from-home channels, where the company
has a strong share position.
- Cash flow: Year-to-date cash from operations was $6.2
billion, down 20%. Free cash flow (non-GAAP) was $5.5 billion, down
17%.
Business Environment and Strategic
Actions Update
Since the company's last earnings update in July, global unit
case volume trends have continued to improve. The pace in the third
quarter was more gradual than the second quarter, and the
percentage decline in global unit case volume for October
month-to-date was low single digits. The company is seeing an
elevated level of sales in at-home channels being more than offset
by ongoing pressure in away-from-home channels, which are affected
by the level of lockdown in a particular market.
While the company is pleased with the sequential improvement,
given the uncertainty remaining surrounding the coronavirus
pandemic including a resurgence in various markets, the ultimate
impact on its near-term results is unknown. Importantly, the
company's balance sheet remains strong, and the company is
confident in its liquidity position as it continues to navigate
through the crisis.
The recent strategic actions of portfolio optimization,
disciplined innovation, increased marketing effectiveness and
efficiency, enhanced system collaboration and evolving the
organizational structure have given the company increased
confidence in emerging stronger.
Company Updates
- Building a networked organization designed for growth:
The company is establishing a networked structure that is comprised
of operating units, category teams, Platform Services and the
center. Operating units will be highly interconnected and will sit
under the four existing geographic segments, with a focus on local
execution. Category teams will drive innovation, marketing
efficiency and effectiveness in partnership with operating units.
Platform Services will focus on world-class services and
capabilities globally to the system, while the center will provide
strategy, governance and scale for global initiatives. The
company's new, networked organization will combine the power of
scale with local execution. The changes to the company's structure
will result in a reallocation of some associates along with a
reduction in the number of associates, which is underway through a
combination of voluntary separation programs and involuntary
reductions.
- Shaping a winning growth portfolio: The company
continues to pursue its beverages for life ambition by calibrating
a portfolio with an optimal set of global, regional and local
brands with the strongest potential to grow their consumer bases,
increase frequency and drive system margins. The company expects to
offer a portfolio of approximately 200 master brands, an
approximate 50% reduction from the current number, and phase out
some products, such as ZICO® and TaB®.
- Expanding consumer-centric innovation: The company is
committed to exploring new products in dynamic beverage categories.
In the third quarter, the company launched Topo Chico™ Hard
Seltzer, which blends purified sparkling water, a gluten-free
alcohol base and natural flavors, with minerals added for taste.
Topo Chico™ Hard Seltzer is inspired by Topo Chico® sparkling
mineral water, a 125-year-old brand with a rich heritage. The new
product is currently available in select cities in Latin America.
In the United States, the company entered into an agreement with
Molson Coors Beverage Company to manufacture, market and distribute
the product. This relationship will allow Topo Chico™ Hard Seltzer
to launch with scale in the U.S., which we anticipate will occur in
the first half of 2021.
Operating Review – Three
Months Ended September 25, 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
(4)
(3)
(3)
0
(9)
(6)
(4)
Europe, Middle East & Africa
0
(6)
(1)
0
(7)
(6)
(3)
Latin America
(2)
(1)
(19)
0
(23)
(4)
(4)
North America
(7)
4
0
1
(2)
(3)
(6)
Asia Pacific
(4)
(4)
(1)
0
(9)
(8)
(4)
Global Ventures3
(14)
(7)
2
0
(19)
(20)
(11)
Bottling Investments
(9)
2
(5)
(1)
(12)
(6)
(10)
Operating Income and EPS
Percent Change
Reported Operating Income
Items Impacting Comparability
Currency Impact
Comparable Currency Neutral2
Consolidated
(8)
(7)
(8)
7
Europe, Middle East & Africa
2
(4)
(3)
9
Latin America
(20)
(4)
(28)
12
North America
14
(5)
0
18
Asia Pacific
(5)
1
(2)
(4)
Global Ventures
—4
—
—
—
Bottling Investments
662
617
(25)
69
Percent Change
Reported EPS
Items Impacting Comparability
Currency
Impact
Comparable
Currency
Neutral2
Consolidated EPS
(33)
(31)
(7)
5
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 September 25, 2020 was $31
million. Reported operating income for Global Ventures for the
three months ended September 27, 2019 was $77 million. Therefore,
the percent change is not meaningful.
In addition to the data in the preceding tables, third quarter
operating results included the following:
Consolidated
- Price/mix declined 3% for the quarter driven by negative
channel and package mix due to the impact of the coronavirus
pandemic. Price/mix was also impacted by negative segment mix from
Global Ventures and Bottling Investments. Concentrate sales were in
line with unit case volume. Year-to-date concentrate sales were 2
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 4%, as continued strength in at-home
channels was more than offset by coronavirus-related pressure in
away-from-home channels. Category cluster performance was as
follows:
- Sparkling soft drinks declined 1%, led by a decline in the
fountain business in North America and in Mexico due to pressure in
away-from-home channels. Trademark Coca-Cola grew 1%. Coca-Cola®
Zero Sugar grew 7% in the quarter and 4% year-to-date.
- Juice, dairy and plant-based beverages declined 6% as solid
performance by Simply® and fairlife® in North America was more than
offset by pressure in the Asia Pacific and Latin America operating
groups.
- Water, enhanced water and sports drinks declined 11%, led by a
broad-based decline across operating groups, primarily due to a
decline in lower-margin water brands.
- Tea and coffee declined 15%, primarily driven by
coronavirus-related pressure on Costa® retail stores, along with
some pressure on the doğadan® tea business in Turkey.
- Operating income declined 8%, which included a headwind from
items impacting comparability in addition to a currency headwind.
Comparable currency neutral operating income (non-GAAP) grew 7%,
driven by effective cost management across operating groups,
partially offset by top-line pressure due to the coronavirus.
Europe, Middle East &
Africa
- Price/mix declined 6% 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
3 points ahead of unit case volume, largely due to the timing of
shipments in the Middle East, North Africa and Turkey.
- Unit case volume declined 3%, primarily related to
coronavirus-related pressure in away-from-home channels in Western
Europe and South Africa, partially offset by growth in Western
Africa.
- Operating income grew 2%, impacted by a headwind from
comparability items and a 3-point currency headwind. Comparable
currency neutral operating income (non-GAAP) grew 9% driven by
effective cost management.
- The company gained value share in total NARTD beverages, driven
by a share gain in sparkling soft drinks.
Latin America
- Price/mix declined 1% as pricing in the market was more than
offset by the timing of deductions from revenue. Concentrate sales
ran 2 points ahead of unit case volume, largely due to cycling the
timing of shipments from the prior year in Brazil.
- Unit case volume declined 4%, led by declines in Mexico and
Argentina primarily due to the impact of the coronavirus, partially
offset by solid performance in Brazil.
- Operating income declined 20%, which included a headwind from
items impacting comparability and a 28-point currency headwind.
Comparable currency neutral operating income (non-GAAP) grew 12%,
primarily due to effective cost management across all business
units.
- The company gained value share in total NARTD beverages, driven
by share gains in sparkling soft drinks and the water, enhanced
water and sports drinks category cluster.
North America
- Price/mix grew 4% for the quarter, as solid growth in premium
offerings and pricing in the marketplace was partially offset by
pressure in the fountain business and away-from-home channels.
- Unit case volume declined 6%, as strong growth in sparkling
soft drinks in at-home channels along with continued strength in
AHA®, fairlife® and Topo Chico® was more than offset by pressure in
the fountain business.
- Operating income grew 14%, which included a headwind from items
impacting comparability. Comparable currency neutral operating
income (non-GAAP) grew 18%, driven by pricing and effective cost
management.
- The company lost value share in total NARTD beverages due to
coronavirus-related restrictions in away-from-home channels, where
the company has a strong share position.
Asia Pacific
- Price/mix declined 4%, due to negative channel mix in key
markets, partially offset by positive geographic mix. Concentrate
sales were in line with unit case volume.
- Unit case volume declined 4%, primarily due to
coronavirus-related restrictions in India and Japan. The unit case
volume performance included solid growth in sparkling soft drinks
in China.
- Operating income declined 5%, which included a tailwind from
items impacting comparability and a 2-point currency headwind.
Comparable currency neutral operating income (non-GAAP) declined
4%, driven by top-line pressure due to the coronavirus across most
markets, partially offset by effective cost management.
- The company lost value share in total NARTD beverages,
primarily driven by a share loss in sparkling soft drinks.
Global Ventures
- Net revenues declined 19%, which included a 2-point currency
tailwind. Organic revenues (non-GAAP) declined 20%. The revenue
declines were primarily driven by the coronavirus-related pressure
on the Costa® retail stores, partially offset by strong performance
in Costa® Express machines in the United Kingdom.
- The operating loss was primarily driven by the
coronavirus-related pressure on the Costa® retail stores.
Bottling Investments
- Price/mix grew 2% in the quarter due to trade promotion
optimization in most markets.
- Unit case volume declined 10%, driven by India and South Africa
due to the impact of the coronavirus.
- Operating income growth included a tailwind from items
impacting comparability and a headwind from currency. Comparable
currency neutral operating income (non-GAAP) grew 69%, driven by
effective operating expense management.
Operating Review – Nine Months
Ended September 25, 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
(9)
(2)
(3)
0
(13)
(11)
(7)
Europe, Middle East & Africa
(10)
(5)
(2)
0
(16)
(15)
(7)
Latin America
(6)
4
(13)
0
(15)
(2)
(4)
North America
(8)
2
0
2
(4)
(6)
(7)
Asia Pacific
(10)
(3)
(1)
1
(13)
(13)
(10)
Global Ventures3
(17)
(8)
0
0
(25)
(25)
(15)
Bottling Investments
(16)
1
(4)
(2)
(20)
(15)
(19)
Operating Income and EPS
Percent Change
Reported Operating Income
Items Impacting Comparability
Currency Impact
Comparable Currency Neutral2
Consolidated
(16)
(7)
(5)
(4)
Europe, Middle East & Africa
(11)
(1)
(3)
(7)
Latin America
(10)
(2)
(20)
12
North America
(17)
(17)
0
0
Asia Pacific
(7)
0
(1)
(6)
Global Ventures
—4
—
—
—
Bottling Investments
(43)
(42)
15
(16)
Percent Change
Reported EPS
Items Impacting Comparability
Currency Impact
Comparable Currency Neutral2
Consolidated EPS
(9)
2
(5)
(6)
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 nine months ended September 25, 2020 was $114
million. Reported operating income for Global Ventures for the nine
months ended September 27, 2019 was $216 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 an
approximate 3% currency headwind based on the current rates and
including the impact of hedged positions.
For comparable operating income (non-GAAP), the company expects
an approximate 6% 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%.
Fourth Quarter 2020
Considerations
Comparable net revenues (non-GAAP) are expected to include an
approximate 3% currency headwind based on the current rates and
including the impact of hedged positions.
Comparable operating income (non-GAAP) is expected to include an
approximate 9% currency headwind based on the current rates and
including the impact of hedged positions.
Full Year 2021
Considerations
For comparable net revenues (non-GAAP) and comparable operating
income (non-GAAP), the company expects minimal currency impact
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 third quarter 2020 operating results today,
October 22, 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/20201022005316/en/
Investors and Analysts: Tim
Leveridge, koinvestorrelations@coca-cola.com Media: Scott Leith, sleith@coca-cola.com
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