26 Jul 2020 Coca-Cola’s Covid-created quarterly sales slump
Coca-Cola has suffered its biggest drop in quarterly sales in at least 25 years, in stark contrast to a resilient performance from rival PepsiCo and raising questions about the beverage company’s defensive qualities. [A challenge to say this headline quickly! Ed]
The US multinational has said it would remove “zombie” brands as part of efforts to protect its bottom line after bars, restaurants and other venues closed that slashed second-quarter sales by 28% year-on-year to $ 7.2-billion.
Coca-Cola’s sharp turnaround in fortunes contrasts with its results during the global financial crisis and its aftermath, when the company demonstrated that it can outperform in times of recession.
The revenues of Coca-Cola, whose main shareholder is Warren Buffett’s Berkshire Hathaway, rose 11% in 2008 and fell just 3% in 2009.
James Quincey, MD since 2017 who also became chairman of the company in 2019, said he expected demand to pick up in the coming months, despite a resurgence of coronavirus cases in the US and In other countries. Volumes around the world went from a 25% drop in April to a 10% drop in June, the company said.
There were “promising signs that the most difficult times are indeed behind us in much of the world,” Quincey said, adding that “there is still a lot of work to be done.”
He said Coca-Cola, which recently announced it would be abandoning its Odwalla juice business, was planning to further reduce its product line. Of its 400 “big brands”, more than half were confined to a single country and progressed more slowly than the group average.
Quincey also said the Atlanta-based company would look to become more efficient at innovation, with too many new products struggling to develop.
Takeover plans helped send Coca-Cola shares up 3.3% as trading began in New York. They are down 13% this year, while those of PepsiCo are unchanged.
Despite demand for its in-home products, Coca-Cola has suffered from the closure of out-of-home sites through which it normally generates about half of its annual revenue. These include cinemas and stadiums.
As Coca-Cola has grown beyond its eponymous drink and other brands, such as Fanta and Sprite, and into energy drinks and other drinks, it has avoided food.
Quincey struck a £3.9-billion deal to acquire UK chain Costa Coffee in 2018, whose cafes were closed for much of the second quarter.
Coca-Cola’s weak performance follows stronger numbers from rival PepsiCo, which was supported by its snack business. PepsiCo organic sales were flat in the quarter year-over-year.
Organic revenues fell sharply in each of Coca-Cola’s six main divisions in the three months to June 26, dropping net profit by a third from same period last year to $1.76-billion.
The Europe, Middle East and Africa activity was particularly affected, down 26%. Organic revenues in North America fell 18 percent. Areas with less restrictive lockdowns performed better, Quincey noted.
Financial Times: Read more here