Currency Fluctuations And Structural Changes To Drag Down Coca-Cola’s Top Line Again In Q3
The Coca-Cola Company (NYSE:KO) is scheduled to report Q3 results on October 26, and as has been the case through the first half of this year, negative currency translations and structural impacts are expected to drag down top line growth. In fact, Coca-Cola is expected to record its sixth consecutive quarterly decline in revenue. The company expects a 5-7% decline in the top line for the full year, which includes 3% anticipated organic growth, offset by 6-7% net impact of acquisitions, divestitures, and structural items, and 2-3% impact of negative currency translations.
Volume growth contribution of non-carbonated drinks is expected to be higher than for carbonated drinks, which continue to attract lesser number of customers due to continual health and wellness concerns. However, effective pricing, as Coke looks to emphasize on sales of smaller packages, which have a higher price per unit, should help offset some of the decline in volume.
Coca-Cola might have recorded a decline in revenue over the last few quarters, but this is because the company is in transition. Net sales growth has been hurt by 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. 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 effect on the company’s profits.
Coca-Cola has been able to maintain solid margin through the first half of the year boosted by increased pricing, favorable geographic mix, lower commodity costs, and productivity initiatives. The company’s operating margin rose to 23% through June, up almost 200 basis points year-over-year. While Coca-Cola is expected to report another decline in top line in Q3, margin growth is expected to remain solid into the second half of the year.
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