Coca-Cola Earnings: What to Watch

Coca-Cola‘s (NYSE:KO) business was hit extra hard during the COVID-19 pandemic as people avoided restaurants, sporting events, and most other gathering places. Its focus on these point-of-sale drinks translated into sharp volume drops for fiscal 2020 even as peers like PepsiCo (NASDAQ:PEP) grew thanks to booming demand at supermarkets and warehouse retailers.

The flip side of that weakness is that Coke may be gearing up for a sparkly rebound as the virus threat recedes over the next few months. Its upcoming fiscal 2021 first-quarter earnings report, set for release on Monday, April 19, won’t contain much evidence of that recovery. But CEO James Quincey and his team still might have some encouraging words for investors about Coke’s latest demand trends.

Let’s take a closer look.

A young woman drinking a soda outside.

Image source: Getty Images.

Sensitive to the virus

Coke’s growth rate has been sensitive to the level of virus outbreaks in a given market. Its fourth-quarter growth rebound, for example, stalled in December when COVID-19 cases surged across the U.S. and Europe. The resulting drop in consumer mobility pushed case volume down 3% while PepsiCo’s volume increased 5%.

Thankfully, the following few months brought plunging case volumes in many parts of the world, and so Coke might have better news to report on Tuesday. Most investors who follow the stock are expecting flat sales in Q1 compared to an 11% slump in 2020 and a 5% drop in the prior quarter.

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Profits and cash flow

Coke has done a great job focusing on what it can control through the pandemic, for example by slashing its cost burden. Executives found room to cut expenses in the supply chain, in marketing, and in production and packaging, leading to rising profitability even as peer PepsiCo’s margins fall. Coke should have more good news to report on this score on Tuesday.

Cash flow should be similarly positive, putting Coke in a great position to ramp up investments in marketing as soon as consumer mobility trends start picking back up.

Looking ahead

Heading into this report, Coke’s fiscal 2021 forecast calls for a wide range of potential growth and earnings results. Management said the first quarter would be the hardest of the year, but that the scale of the recovery that follows would depend on big variables like the pace of vaccine distribution.

The outlook should be less cloudy in mid-April than it was for Coke’s prior forecast in late February. Parts of Europe are reopening (although some have returned to temporary lockdowns), and many regions of the U.S. have seen relaxed social distancing since December.

As a result, look for the company to get more specific, and perhaps more optimistic, about its past outlook calling for sales growth in the high single-digit percentages following an 11% slump in 2020. Management said back in February that Coke was positioning itself to come out of the crisis targeting faster growth and higher margins than it had before COVID-19 disrupted its global business.

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Coke likely won’t promise a specific timetable on that rebound on Monday. But encouraging consumer demand trends over the last few weeks could convince management to be more optimistic about the second half of 2021 in its updated outlook. That tone might help the stock start recovering from its recent slump.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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