Coca-Cola Q2 Earnings Preview: Falling Soda Consumption And Currency Translations To Hinder Growth
The Coca-Cola Company (NYSE:KO) is scheduled to announce its Q2 and half-yearly results on July 27, and as the U.S. dollar continues to appreciate against crucial foreign currencies, negative currency translations are expected to drag down the top line and EPS for the company in the quarter. The U.S. alone forms ~20% of the net volume and almost half the net revenue for Coca-Cola, and the continual decline in sugary carbonated soft drinks (CSD) is expected to dent volume sales yet again, especially as a massive 46% of the company’s volume is in its trademark cola drinks.
While overall consumption of CSDs has fallen for eleven consecutive years in the U.S., Coca-Cola and PepsiCo’s U.S. CSD volumes have also declined sequentially. Considering that PepsiCo also reported another decline in CSD volume in Q2, the trend of falling CSD sales is expected to continue. Despite the pressure on volume sales, Coca-Cola is expected to report flat to positive revenue growth in North America, and this is because of effective price and package mix, by emphasizing sales of smaller packages, which carry heftier margins. Why the mini cans and bottles are gaining on the traditional larger-sized bottles and cans is because they effectively address the biggest issue that consumers have with soft drinks — high and unhealthy amounts of sugar concentration.
Currently, 15% of Coca-Cola’s total U.S. CSD volume is in these newer, smaller cans and bottles. These efforts have been driving higher net price realization for Coca-Cola, and this trend is expected to continue into Q2.
While Coca-Cola continues to struggle with the problem of falling soda consumption in North America, its other major problem is the falling value of local currencies against the U.S. dollar. Latin America and Eurasia and Africa formed a combined 45% of Coca-Cola’s net beverage volume in 2015. Given that a considerable portion of Coke’s business rests outside the home market, fluctuations in exchange rates, especially in the past quarter after the U.K. voted to exit the European Union, are expected to dent the company’s earnings in Q2.
Have more questions on Coca-Cola? See the links below.
- Here’s How Favorable Price Mix Is Helping Coca-Cola And PepsiCo Increase Soft Drink Revenue
- Coca-Cola Earnings Review: Carbonates Drag Down Results Yet Again
- Why Do Sodas Form 73% Of The Net Volume For Coca-Cola But Just Over 60% Its Value?
- Contribution Of U.S. Soda Sales In Coca-Cola’s Overall Revenue Could Decline To Less Than 15% By 2020
- Why Coca-Cola’s Dependence On Powerade And Other Brands Is Growing
- What Is Coca-Cola’s Revenue And Gross Profit Breakdown?
- What’s Coca-Cola’s Fundamental Value Based On Expected 2016 Results?
- How Has Coca-Cola’s Revenue And Gross Profit Composition Changed Over 2012-2016E?
- By What Percentage Have Coca-Cola’s Revenues And Gross Profit Grown Over The Last Five Years?
- Where Will Coca-Cola’s Revenue And Gross Profit Growth Come From Over The Next Three Years?
- Should You Pick Coca-Cola Stock At $60 After Q4 Beat?
- Down 10% This Year Is Coca-Cola Stock A Better Pick Over AbbVie?
- What’s Next For Coca-Cola Stock After 4% Gains In A Week Amid Q3 Beat?
- Down 15% This Year Will Coca-Cola Stock Rebound After Its Q3?
- Which Is A Better Beverage Pick – Coca-Cola Stock Or Monster Beverage
- Pricing Actions To Bolster Coca-Cola’s Q2?
Notes:
See More at Trefis | View Interactive Institutional Research (Powered by Trefis)