Coca-Cola’s Structural Changes Dent Q2 Results
The Coca-Cola Company (NYSE:KO) reported its Q2 and half-yearly results on July 27, and as expected, negative currency translations and continual slowdown in the demand for sugary carbonated soft drinks (CSD) hindered top line growth. Organic revenue rose 3% year-over-year in Q2 on 3 percentage points of positive price and package mix, but currency pulled down the top line by 3 percentage points. However, net sales declined 5% year-over-year primarily on structural changes, including the impact of the refranchised territories in North America, the deconsolidation of Coke’s German bottling operations as a result of the formation of Coca-Cola European Partners, and the impact of the brand transfer agreement related to the transaction with Monster last year.
Coca-Cola is moving away from a capital-intensive organization with its intended refranchising plans for North America, China, and structural changes in Europe and Africa. The company is looking to refranchise two-thirds of its bottling territories in North America by the end of 2017, and a substantial portion of the remaining territories no later than 2020, in a bid to move away from the capital intensive and low-margin business of distribution. All this in hopes to improve operating performance. Coca-Cola has completed the Coca-Cola European Partners and Coca-Cola Beverages Africa transactions, announced the transfer of certain territories in the United States to Arca Continental, and UNITED venture. The company expects organic revenue to grow 3% in 2016 but structural changes are expected to impact the net revenue by six to seven percentage points.
- 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?
Coca-Cola might have missed revenue estimates, but this has been primarily due to structural changes, which are a one-time event. The company is in transition. A bottling business comes with four to five times more revenue per drink sold and the accompanying cost. Thus, any impact on the sales of the bottler is going to have a magnified impact on overall sales for Coca-Cola and much less on the company’s profits. This, however, doesn’t mean that the company’s core performance isn’t strong.
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?
Notes:
See More at Trefis | View Interactive Institutional Research (Powered by Trefis)