The Impact of COVID-19 Lockdowns on Coca-Cola’s Q2 Earnings

Coca-Cola Co. (NYSE: KO | KO Price Prediction) reported second-quarter 2020 results before markets opened Tuesday. The soft-drink maker posted adjusted diluted earnings per share (EPS) of $0.42 on revenues of $7.2 billion. In the same period a year ago, the company reported EPS of $0.63 on revenues of $10 billion. Second-quarter results also compare to consensus estimates for EPS of $0.40 and $7.18 billion in revenues.

The adjusted operating margin was down slightly year over year from 30.3% to 30.0%, which the company attributed to “top-line pressure and currency headwinds.”

Monthly global unit case volume declined by 10% in June, compared to a 25% drop in April. The company said that sales have been driven by “improving trends in away-from-home channels.”

As lockdowns were lifted, sales picked up, and Coca-Cola expects that correlation to continue in the second half of the year. However, global case volume to date for July is down by mid-single digits, presumably due to the cautious response of consumers and the reimposition of lockdowns in some areas.

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The company acknowledges that the impact on financial results of the COVID-19 pandemic is “unknown” but that a solid balance sheet will allow the company “to navigate through the crisis.”

Chair and CEO James Quincey said that the company believes that “the second quarter will prove to be the most challenging of the year.”

Cash from operations for the first half of the year tumbled 38% year over year to $2.8 billion, while free cash flow fell by 40% to $2.3 billion.

Coca-Cola offered no financial guidance but noted it expected a 3% to 4% currency headwind to affect comparable adjusted net revenue for the full year. Operating income faces a “high single-digit currency headwind” for the year. The expected currency effect in the third quarter is a negative 3% to 4%, and the negative impact on operating income is expected to be 7% to 8%.

Analysts have consensus estimates for third-quarter EPS of $0.47 and revenue of $8.12 billion. For the full year, they were looking for EPS of $1.83 and revenue of $32.6 billion.

Shares traded up about 1.0% in Tuesday’s premarket session, at $46.52 in a 52-week range of $36.27 to $60.13. The consensus 12-month price target is $52.63. Coca-Cola pays a 3.56% dividend yield ($1.64 annualized).

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