Coca-Cola’s revenues decline as the business environment proves challenging

USA The Coca-Cola Company has reported a 1% decline in net revenues during the first quarter 2020 to US$8.6 billion, becoming the latest multinational to suffer from the economic challenges resulting from the Covid-19 pandemic.

The company reported an even price/mix growth for the quarter primarily due to unfavorable channel and category mix in key markets impacted by the coronavirus outbreak while its unit case volume declined 1%, as solid growth in North America was more than offset by a decline in Asia Pacific.

Coca-Cola’s sparkling soft drinks declined 2% in the three months ended March 27, 2020, led by a decline in Asia Pacific, primarily due to China while trademark Coca-Cola grew 1%, led by strong performance for Coca-Cola Zero Sugar.

The company further saw a 6% decline in its juice, dairy and plant-based beverages, as solid performance in the North American portfolio and Chi in West Africa was more than offset by a decline in Minute Maid Pulpy in China.

However, its water, enhanced water and sports drinks portfolio grew by 2%, led by Cristal in Latin America and strong growth in the sports drinks portfolio in North America, partially offset by a decline in China.

In the tea and coffee segment, volumes declined 6%, which the company said was driven by broad-based softness across multiple markets, as well as a decline in the doğadan tea business.

In terms of market, the company only reported a growth in operating income in Latin America, which registered a 9% growth. Coca-Cola’s operating income during the quarter declined 34% in North America, 2% in Europe, Middle East and Africa and 6% in Asia Pacific.

The company’s overall operating income for the three months period dipped 2%. However, the soft drinks giant continued to gain value share in total nonalcoholic ready-to-drink (NARTD) beverages.

Challenging business environment

In March, as the coronavirus pandemic spread globally, countries meaningfully increased social distancing and shelter-in-place mandates. The company said that it subsequently saw significant changes in consumer purchase patterns, notably substantial declines in away-from-home channels.

In at-home channels, which represent approximately half of the company’s revenues, Coca-Cola witnessed early pantry loading in certain markets, followed by more normalized demand levels, along with a sharp increase in e-commerce.

The Atlanta-based beverage giant company now expects the net effect of these consumer purchase patterns to have a significant impact on second quarter results.

Since the beginning of April, the company said that it has experienced a volume decline globally of approximately 25%, with nearly all the decline coming in away-from-home channels.

Going forward, Coca-Cola says that 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 containment measures as well as the substance and pace of macroeconomic recovery.

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However, the company noted that it expects material the impact in the second quarter. Coca-Cola believes the pressure on the business is temporary and remains optimistic on seeing sequential improvement in the back half of 2020.

James Quincey, chairman and CEO of The Coca-Cola Company commented; “We’ve been through challenging times before as a company, and we believe we’re well positioned to manage through and emerge stronger.

“The power of the Coca-Cola system is our greatest strength in times of crisis. 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.”

Supporting communities around the world

The Coca-Cola system has made contributions to support relief efforts in markets impacted by the Covid-19 pandemic across the globe.

The system said that it is committed to contributing more than US$100 million and is focused on community relief programs, medical supplies and equipment during the outbreak phase, as well as on developing other actions for the recovery phase in markets hit hardest by the pandemic.

The commitments to date include US$40 million in charitable grants from The Coca-Cola Foundation.

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