In announcing its Q4 and full-year 2020 earnings yesterday, The Coca-Cola Company voiced optimism that its business remains healthy and poised for growth despite sales declines and a lingering unresolved tax issue with the Internal Revenue Service.
Net revenues declined 5% to $8.6 billion during the quarter and organic revenues fell 3%, driven by a 3% decline in price/mix. Net income during the quarter fell from $2.04 billion in 2019 to $1.46 billion in 2020. Operating income was up 8% for the quarter and down 11% for the full year.
Over the past year and in particular since the outbreak of the pandemic, Coke has worked to reduce its overall costs, including an 11% net reduction in employees as part of a corporate restructuring. The company also reshuffled its brand portfolio by discontinuing numerous brands — recording a $4 million benefit from discontinuing premium juice line Odwalla — as well as completing its acquisition of dairy maker Fairlife.
“In 2020, employees from across The Coca-Cola Company and its bottling system worked tirelessly to learn and adapt amidst a global crisis,” said Coca-Cola chairman and CEO James Quincey in a press release. “The progress we made in 2020, including the actions taken to accelerate the transformation of our company, gives us confidence in returning to growth in the year ahead. While near-term uncertainty remains, we are well-positioned to emerge stronger from the crisis, driven by our purpose and our beverages for life ambition.”
In North America, Coke’s unit case volume declined by 7%, as a spike in coronavirus infection rates (and of related restrictions imposed by multiple states) continued to depress the away-from-home segment.
Sales of sparkling soft drinks fell 1% during the quarter and 4% for the full year. Coke’s trademark line, however, continued to be as resilient as ever during the quarter, delivering 1% volume growth overall, with 3% growth for its zero sugar SKUs. Sparkling water brands AHA and Topo Chico, as well as dairy line Fairlife and Powerade Zero, were name-checked as strong performers during the call.
Coca-Cola’s juice, dairy and plant-based beverages fell 2% during the quarter and 9% for the year, with Minute Maid’s drop in its fountain business offsetting positive performances from brands Simply and Fairlife. The coronavirus impacted away-from-home sales at Costa Coffee retail stores, which helped push tea and coffee towards a 15% drop in the quarter and 17% decline for the full year.
A “broad-based decline across operating groups” in water, enhanced water and sports drinks sparked a 9% drop in the segment in Q4 and 11% for the full year. Tea and coffee declined 15% for the quarter and 17% for the year, primarily driven by coronavirus-related pressure on Costa retail stores.
Commenting on the company’s 2021 innovation pipeline, Quincey said that it has been “shaped and coordinated for scale and impact,” including a new formulation and design for Coke Zero Sugar. The beverage giant is “still pursuing intelligent local experimentation,” such as adding functional benefits to local hydration brands, as well as packaging initiatives like its first 100% rPET bottle for smartwater.
But 2021 will also see the company take a second look at Coca-Cola Energy, which saw a splashy launch at the beginning of 2020 but faced headwinds from the pandemic. Quincey said the repeat rates have been “interesting” and confirmed the original hypothesis that there is space for the company to bring new consumers into the energy category. “We’ve got reasons to think that we should double-down again in 2021,” he said.
Outside of the U.S., Coke reported encouraging news regarding the initial debut of Topo Chico Hard Seltzer in select Latin American and European markets. While cautioning that the product is still in an early test phase, Quincey noted that “repeat rates and a rate of sale look encouraging.” He underlined that, unlike in those markets, the product will go through Molson Coors’ rather than Coke’s bottling system in the U.S. due to regulations on alcohol distribution, and as such will not be competing with other operational priorities.
The company also voiced confidence that its dispute with the IRS over an approximately $12 billion tax bill does not threaten the company’s overall financial health. While it continues to contest the agency’s figures, CFO John Murphy acknowledged that its success was not assured and that the company will “have ample flexibility between our cash generation and balance sheet, to manage the range of outcomes.”
The speed and breadth of COVID-19 vaccination efforts will be a key factor in determining Coke’s rate or recovery, Quincey noted. However, the company did share projections for organic revenue growth in the “high single digits” for the full year 2021.
“It’s clear that the pace and availability of vaccines will look different around the world, and therefore we’ll likely see some level of asynchronous recovery, depending both on vaccine distribution and other macroeconomic factors,” he said. “Amidst this backdrop, we will ensure that the system remains flexible to adjust the near term uncertainties, while at the same time, continuing to push forward on initiatives we have championed to emerge stronger.”