Coca-Cola Co. is seeing its sales squeezed by the coronavirus lockdown, with customers unable to grab a beverage at places like movie theaters, office soda machines or convenience stores as they head out for a day’s activity.
Coca-Cola KO, -2.47% has enjoyed the pantry-loading bump that many companies selling food and beverages for the home have experienced. The company reported an earnings and sales beat for the first quarter.
But April month-to-date volume trends have slumped 25% around the world, said James Quincey, Coca-Cola’s chief executive, who described the impact of the social distancing measures as “profound.”
“The biggest impact has been a sharp decline in the important away-from-home portion of our business, which includes our eating and drinking channel as well as our on-the-go-oriented channels such as convenience retail,” he said, according to a FactSet transcript.
“While our exposure varies across markets, away-from-home broadly represents about half of our business given our strong share positions. In some markets, like the U.S., drive-thru operations and carryout offset some of the pressure, but most restaurants are operating on limited hours and are seeing overall trips decline sharply.”
To combat this, Coca-Cola is reconsidering certain promotions, innovation projects and other areas of the business to adjust to the new consumer behavior. The company is also focused on e-commerce, where the company is seeing more household necessities being delivered.
Coca-Cola shares were down 2.6% on Tuesday, and have fallen 4.4% over the last year. The Dow Jones Industrial Average DJIA, -2.67% has fallen 13.3% over the past 12 months.
Coca-Cola’s revenue will suffer from shortcomings online, said Ryan Giannotto, director of research at GraniteShares, which offers the GraniteShares XOUT U.S. Large Cap ETF XOUT, -3.32%. GraniteShares excludes Coca-Cola for this reason as well as “lackluster management and poor capital reinvestment,” he said.
XOUT is down 10.5% for the year to date while the Dow Jones Industrial Average is down 19.3% for the period.
“The challenge ahead for Coca-Cola is that (so) much of its revenue is hard-linked to the physical economy (i.e. movie theaters, restaurants and workplaces) that its sales volumes have proven particularly vulnerable to the global shutdown,” Giannotto said.
“The 25% April volume contraction underscores this reality that companies without a realistic outlet to the digital economy will disproportionately struggle this quarter, and likely on a forward-looking basis.”
Coca-Cola remains a top pick for CFRA, however, despite that steep decline in April volume.
“With its 3.5% dividend yield and high single-digit long-term earnings per share growth goal, we view Coca-Cola as a stock capable of low double-digit total return potential and see little risk to Coca-Cola’s dividend, noting its streak of 58 years of dividend hikes and liquidity boost from a $5 billion long-term debt offering in March.”
CFRA rates Coca-Cola stock strong buy with a $55 price target, which it lowered from $60.
Originally Published on MarketWatch
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