The Coca-Cola Company reported a 1% drop in net revenue for the first quarter of 2020, with further disruption due to the global coronavirus pandemic expected to continue depressing sales in the months ahead.
The Atlanta-based company saw net revenue fall to $8.6 billion, beating analysts’ estimates of around $8.3 billion.
However, the company warned that the impact of the government-mandated closure of restaurants, bars, movie theaters, concert venues and sporting events over the past month is just beginning to be felt. After initially sticking with its 2020 projections of 5% year-over-year revenue growth at the onset of the pandemic, the company stated in a regulatory filing last month that it no longer expects to hit its target.
The drop in away-from-home sales has seen global volume plunge approximately 25% since the beginning of April, with the company warning of a material impact on second quarter financial results.
“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,” the company said in a statement.
The company noted that it believes the pressure on the business is temporary and that it “remains optimistic” that sequential improvements will arrive in Q3 and Q4, though full-year results still cannot be estimated.
In North America, pricing initiatives and growth in juice, dairy and plant-based beverages helped grow price/mix by 1%. Strong performance by BODYARMOR and smartwater helped push case volume up 3%. Operating income fell 34%. The company grew its value share of total non-alcoholic ready-to-drink beverages during the quarter.
Coke’s consolidated results saw declines in every category with the exception of water, enhanced water and sports drinks, which grew 2%. Despite performing well in North America, volume for juice, dairy and plant-based beverages was down 6%, as was tea and coffee. Operating income declined 2%.
The rolling impact of the coronavirus was reflected in the numbers: Coke’s global unit case volume, excluding China, was up 3% through the end of February, but ended up down 1% for the quarter.
In its report, Coke stated that it did not foresee material disruptions to finished goods production or distribution supply chains. The company is also increasing its investments in e-commerce for retailers and meal delivery services, which includes adopting package sizes suited for shipping and shifting consumer and trade promotions to digital.
“We sincerely thank those who have been working to keep all of us safe through the crisis, particularly those on the front lines in the healthcare community. I also want to recognize our system associates, who are ensuring we can continue to supply beverages around the world,” said Coca-Cola chairman and CEO James Quincey. “The resilience of our people, the equity of our brands and the strength of our bottling partners continue to be competitive advantages in the market,” he added.
In the Q&A portion of the call, Quincey went deeper into the company’s March-April performance, which has followed a similar pattern in different countries as the coronavirus has spread: a mild decline in away-from-home sales followed by a sharp drop as lock-down measures are implemented, offset by an increase in stock-up volumes for home consumption. As the economic impact deepens, consumers will likely change their spending behaviors and possibly de-prioritize certain beverage categories deemed non-essential.
But even as he indicated that e-commerce will be a growing part of Coke’s business, the lack of away-from-home sales is still devastating.
“It’s certainly not the case that e-commerce is offsetting those losses from away-from-home,” Quincey said, according to a transcript of the call. “Even though it’s doubled in sales for beverage, it’s still a very small percentage of the total beverage category.”
Uncertainty about the health of the post-virus global economy is also shaping the company’s priorities, Quincey said, meaning prioritizing affordability and the company’s best known brands.
“Both us and [grocery retailers] will also be driving to a rationalization on focusing on what’s the most effective set of brands and SKUs to push through,” he said. “Will more choice, more innovation come back when the economy reestablishes itself. Yes, I’m sure it will. But in this period it’s going to be a question of focus.”
In response to a question about the health of the company’s supply chain, Quincey acknowledged Coke has had “some issues on timing of ingredients.” However, he noted conditions have improved from several weeks ago and the company’s production facilities are largely running.
The article has been updated from its original version.