Coca-Cola Rises After Reporting In-Line Quarter; RBC Sticks To Buy Call

Coca-Cola (KO) has reported a relatively in-line quarter with Q2 Non-GAAP EPS of $0.42 beating Street consensus by $0.01, and GAAP EPS of $0.41 falling in-line with consensus expectations. Shares are currently rising 2.4% in Tuesday’s trading.

Net revenues declined 28% to $7.2 billion, missing Street expectations by $60M. 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.

Top-line weakness, however, was offset by effective cost management, which enabled operating margin of 30.3% (vs consensus of 26.9%) and EPS delivery of $0.42.

“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” said James Quincey, CEO of The Coca-Cola Company.

Management again opted out of providing concrete guidance for the full year, but gave a generally cautiously optimistic take on the environment. They shared that global unit case volume trends improved from -25% in April to -10% in June (July month-to-date down LSD).

But 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.

Meanwhile EMEA organic growth (-35%) came in significantly worse than consensus expectations (-23%), driven by negative channel/packaging mix in Europe, but Latin America as a whole met expectations with its organic sales figure. According to management Latin America unit case volume declines of 9% were driven by Argentina, Mexico, and Brazil – primarily due to the impact of the coronavirus.

“Results were very much in line with our channel work” commented RBC Capital analyst Nik Modi following the print. “Trends should continue to improve with the reopening of cities/states/countries, but rising case counts and differing opinions on back-to-school will likely put pressure on the name through year-end” he added. The analyst has a buy rating on the stock and $55 price target (16% upside potential).

Overall KO stock has plunged 15% year-to-date, and analysts have a Moderate Buy consensus on the beverages giant. That’s with a $53 average analyst price target (12% upside potential). (See KO stock analysis on TipRanks).

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