Despite a 5 percent increase in organic sales in the fourth quarter, The Coca-Cola Company’s poor 2019 outlook resulted in the company’s largest single day drop in stock price since 2008 following its Q4 and full year earnings report.
In the report, released before the market open this morning, Coke predicted a disappointing 4 percent organic revenue growth in 2019. CEO James Quincey blamed the muted full-year projection — which is one point lower than in 2018 — on global volatility including currency headwinds and rising tax rates. Earnings per share (EPS) are estimated to range from plus 1 percent to minus 1 percent. Following the report, Coke’s stock price opened the day with a 7 percent drop, ultimately declining 8.38 percent (4.17 points) by the end of the day to a value of $45.59 per share.
“Looking ahead, we’re seeing the impact of some increasing uncertainty and volatility in global macroeconomic conditions,” Quincey told investors. “Consumers are under more pressure as we head into the New Year. However, demand for our categories remained healthy and our business is built to perform even if the tailwinds behind us moderate somewhat. Ultimately we will focus on what we can control taking steps to manage the business as we become a total beverage company.”
Net revenues declined 6 percent to $7.1 billion in the fourth quarter and were down 10 percent to $31.9 billion for the full year, a result of fluctuating currency rates and costs associated with Coke’s refranchising of its company-owned bottlers, which it completed last year.
Despite the net loss, Coke’s growth rates outperformed expectations. Operating income grew 21 percent for the quarter and 14 percent for the full year. Rebrands for Diet Coke and Coke Zero Sugar also led to strong performances; Diet Coke saw a 3 percent increase in retail value growth after years in decline and Coke Zero Sugar reported double-digit volume growth. Wells Fargo Securities analyst Bonnie Herzog said the company’s “ability to deliver a strong topline” suggests its “refranchising [and] portfolio transformation are paying off.”
Sparkling soft drinks grew 2 percent overall for the year and declined 1 percent for Q4. Juices, dairy, and plant-based beverages declined 1 percent for the year and 2 percent for the quarter. Water, enhanced water, and sports drinks grew 3 percent for the year and 1 percent in the quarter. Tea and coffee grew 1 percent for the year and 3 percent in the quarter.
Speaking to investors on the call, Quincey noted portfolio expansions in 2018 will help Coke to compete in the shifting beverage marketplace, highlighting the company’s decision last year to take a minority stake in sports drink brand BodyArmor, as well as its $5.1 billion purchase of international cafe chain Costa Coffee. He noted the acquisition gives Coke “the ability to scale within the $500 billion global hot beverage category” and also “strengthen our ready-to-drink portfolio. He later clarified that the company is exploring the potential for Costa-branded RTD products.
Responding to a question from Herzog during the conference call, Quincey said Coke expects to continue growing in non-CSD categories in the U.S., including in iced tea, where brands like Gold Peak and Fuze Tea are expected to see “more balanced growth.” In water and hydration, the company plans to focus on the “more premium” parts of the category with brands such as Smartwater, Topo Chico, and BodyArmor.
Quincey credited brands such as Fuze Tea with driving growth in non-CSD categories, noting that Coke’s broader portfolio will help the company deliver in 2019 despite lowered expectations.
“Further lifting, shifting and scaling entrée brands like Fuze Tea, Smartwater and [U.K. based smoothie brand] Innocent across markets, reformulating products to reduce sugar levels, rolling out revenue growth initiatives across additional territories to improve performance within our sparkling soft drink portfolio, connecting costs across many of our business units build a leading global coffee business and leveraging digitization to build a business for the future,” Quincey said. “Therefore, we feel confident that we can deliver against our 2019 guidance.”