October 26, 2020 BARRON’S 23
years in 2018 and 2019, during which
its organic revenues rose 5% and 6%,
respectively. Reflecting pre-Covid opti-
mism about Quincey and his strategy,
Coke shares peaked at $60 in February.
The progress halted in mid-March.
Second-quarter organic revenue fell
26%, while earnings per share
dropped 33%, to 42 cents a share.
“We started to win share in a grow-
ing industry, and that’s what you saw
in 2018 and 2019,” CEO Quincey says.
“And that’s what I think we can see
growing forward and that will allow
us to break out of the famous $2 a
share in EPS”—he pauses—“infamous
$2 a share in EPS.”
The company saw an improvement
in the third quarter as adjusted earn-
ings fell 2%, to 55 cents a share, from
the year-earlier level, nine cents better
than the consensus estimate, while
volume slid 4%, compared with a 16%
drop in the second quarter. The re-
sults, released on Thursday, cheered
investors. Coke shares rose 2%, and
several analysts raised their price tar-
gets.
Tempering the optimism was Quin-
cey’s comment that the Atlanta-based
company’s critical away-from-home
business “showed signs of stalling” in
September, amid greater Covid-19
restrictions in several markets. Away-
from-home volume was down in the
midteens in the third quarter, against
50% in April. Coke also offered little
guidance on 2021, other than to state
that it aims to “recover faster than the
broader economic recovery.”
Quincey has warned that the recov-
ery could be jagged. The surge in
Covid-19 cases in Europe—an impor-
tant market for Coke—and the U.S.
could slow the company’s recovery. As
those cases have climbed, Coke’s stock
has stagnated.
Still, he says, the third-quarter re-
sults show how “we clearly adapted
to the situation we face with the pan-
demic and how the crisis has altered
the landscape of how we sell and
where consumers can drink our
products.” And he adds, “More im-
portantly, we’ve been trying not just
to adapt but also to improve the busi-
ness through the crisis, so that we
can be even stronger and more capa-
ble of growth post the crisis.”
The longer-term challenge is the
company’s reliance on carbonated soft
drinks, which account for almost 70%
of its global beverage volume.
Consumers increasingly favor a
wider variety of drinks and are focus-
ing more on health. Coke hasn’t been a
great innovator, either, coming late to
trends like flavored seltzer and energy
drinks. It does own a 20% stake in
Monster Beverage(MNST) worth
$9 billion, and its bottlers distribute
Monster Energy drinks.
Coke is trying to catch up, making
room for newer drinks like AHA selt-
zer and Coca-Cola Energy. In the U.S.
next year, it plans to roll out Coca-
Cola With Coffee and Topo Chico
Hard Seltzer, an alcoholic seltzer.
The company has succeeded with
Coca-Cola Zero Sugar, a no-calorie diet
drink that tastes more like regular
Coke than Diet Coke. Coke Zero Sugar
has had double-digit volume growth in
recent years, but it remains a third the
size of Diet Coke in the U.S., according
to Beverage Digest.
“Full sugar may be challenged, but
low- and no-sugar is growing, and
Coke Zero Sugar is a case in point,”
says Lieberman of Barclays.
The company is trying to get in
shape for a rebound. In August, Coke
said that 4,000 employees would be
offered enhanced severance packages
in a program projected to cost $350
million to $550 million.
And Quincey is restructuring
Coke’s global operations to help facili-
tate new-product introductions in its
four regions—North America; Latin
America; Asia Pacific; and Europe,
the Middle East, and Africa—and im-
prove cooperation. That has paid off
Shelf Life
How Coca-Colastacks up against some other consumer giants.
Coca-Cola / KO $50.68 -8% $1.87 $2.09 27.1 24.2 3.2% $217.7
Colgate-Palmolive / CL 79.29 15 2.97 3.15 26.7 25.2 2.2 68.0
PepsiCo/PEP 139.61 2 5.51 6.04 25.3 23.1 2.9 192.9
Procter&Gamble/PG* 141.45 13 5.56 5.95 25.4 23.8 2.2 350.7
Company/Ticker RecentPrice YTDChange 2020EEPS 2021EEPS 2020EP/E 2021EP/E Yield Value(bil)
Dividend Market
E=Estimate; *Estimates are for fiscal years ending in June 2021 and June 2022 Source: FactSet
Thirsty Demand
Soda might prove more
durable than critics think.
2 Billion
The number of servings of Coke
products that consumers drink daily.
Warren Buffett is one of them.
James Quincey,
the CEO, wants
Coca-Cola to be
bolder with beverage
innovations. Coca--
Cola With Coffee and
a hard seltzer are
coming next year.
Melissa Golden/Redux