Coca-Cola Sees Coronavirus Impact to Be ‘Material’ in Q2; Slashes 2020 Guidance

Coca-Cola Co. (KO) warned on Tuesday that the coronavirus-related acceleration of global social distancing regulations along with lockdown orders are poised to have a “material impact” on its second-quarter results.

Since the start of April, the beverage maker’s global volume has dropped 25%, it said. In addition, in view of the uncertainty of the development of the coronavirus pandemic, the company decided to withdraw its full-year financial guidance.

“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,” Coca-Cola said in a statement. “However, the impact to the second quarter will be material.”

Coca-Cola also reported first-quarter results with earnings per share on a non-GAAP basis amounting to 51 cents and above analysts’ estimates of about 44 cents. Revenue dropped 1% to $8.6 billion beating analysts’ estimates of about $8.3 billion.

Until the end of February, Coca-Cola said that it still saw volume growth of 3%, excluding China, and was on track to achieve its previously provided full-year 2020 targets. However, in March as more and more countries implemented social distancing and shelter-in-place mandates in response to the fast spread of the coronavirus pandemic, the beverage company experienced substantial declines as restaurants, movie theatres and other out-of-home channels were shut down. Offsetting the change in consumer behavior, Coca-Cola saw increased demand in home supplies along with a sharp increase in e-commerce.

To meet the demand, the company is increasing investments in e-commerce to support both retailers and meal delivery services, shifting toward package sizes that are fit for online sales, and redeploying consumer and trade promotions toward digital ones. At this point, Coca-Cola said it did not expect material disruptions in goods production or distribution.

Wall Street analysts Keven Grundy at Jefferies and Dara Mohsenian at Morgan Stanley, who view Coca-Cola stock as a Hold, today raised their price targets from $46 to $48 and $49 respectively. Shares fell 3.2% to $46.53 on Monday in U.S. trading.

However, the rest of the analyst community has a Moderate Buy consensus rating on the company’s stock based on 13 Buys and 5 Holds. The $56 average price target is more aggressive than Jefferies and Morgan Stanley as it implies 20% upside potential in the coming year. 

Coco-Cola updated investors that cash from operations declined 29% to $556 million. Free cash flow on a non-GAAP basis fell 43% to $229 million, due to the impact of one less day in the quarter, currency headwinds and other factors.

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