23 October 2020

Investors Cheer Coca-Cola’s Fizzy Q3 Results

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What’s happening: Shares of Coca-Cola Co edged higher on Thursday after the world's largest soda maker reported third-quarter sales and profits ahead of expectations.

What happened: The sale of soft drinks at public places generally accounts for around 50% of Coca-Cola’s revenues. The closure of many places resulted in an approximately 50% decline in "away-from-home" sales in April, focusing the company to cut about 4,000 jobs in North America.

With the partial reopening of restaurants and theaters, investors are bullish about a gradual recovery in Coca-Cola’s sales.

How were the results: The beverage giant reported a decline in sales and profits for the third quarter, although both metrics exceeded estimates.

  • Revenues contracted to $8.65 billion, from $9.51 billion in the same quarter last year, but surpassed market expectations of $8.36 billion.
  • Net income declined to $1.74 billion, or 40 cents per share, from $2.59 billion, or 60 cents per share, in the year-ago quarter.
  • Adjusted earnings came in at 55 cents per share, handily exceeding the consensus view of 46 cents per share.

Why it matters: More consumers bought drinks from convenience stores and online, which supported the company’s performance. Rival PepsiCo also survived the lockdown due to higher sales at grocery stores.

Coca-Cola continued to revamp its business, which included reducing the number of brands in its portfolio by 50%. The company has already announced the discontinuation of brands like Zico coconut water, Odwalla juices, and Tab diet soda.

Coca-Cola witnessed some recovery in away-from-home sales during the latest quarter, with governments of various countries easing restrictions.

The recent resurgence of infections raises some concern, however, around the reimposition of lockdowns, which might stall the rebound for the beverage giant.

“We don’t expect to return to the peak levels of global lockdown, but we are prepared for setbacks due to the local spikes in cases and targeted restrictions and closures,” CEO James Quincey said during the earnings call.

Coca-Cola did not issue detailed projections due to coronavirus-related uncertainty.

How shares responded: Shares of Coca-Cola gained 1.4% to close at $50.68 on Thursday following the release of quarterly results. The stock has lost over 8% since the start of the year, although it has gained around 5% in the past three months.

What to watch: Investors will keep an eye on rising covid-19 cases in Europe and some regions in the US. Markets will also monitor the partial and gradual reopening of theaters and other entertainment spots and how this impacts the company’s sales in the winter.

The Markets Today

     

US stocks will be in focus today, ahead of PMI data from the country.

Context: Wall Street closed higher on Thursday with rising hopes of a fresh covid-19 relief package being announced. House Speaker Nancy Pelosi said that some progress had been made on the deal.

Details: Stocks ended a volatile session on a higher note on Thursday, with rising covid-19 cases in Europe and the US weighing on investor sentiment. The Presidential elections and the next round of stimulus also added uncertainty in the market.

While suggesting progress in stimulus negotiations, House Speaker Nancy Pelosi cautioned that the Congress could take time to clear a bill.

Meanwhile, President Donald Trump and Democratic contender Joe Biden faced off for the final round of debate on Thursday night.

Amid all this uncertainty, there was some positive news on the economic data front. Weekly jobless claims declined to 787,000 during the latest week, versus expectations of 860,000. The figure is the lowest since March. Existing home sales also rose for the fourth successive month, up 9.4% in September.

Investors also welcomed AT&T’s upbeat sales for the third quarter, sending its stock around 6% higher on Thursday. Shares of Xilinx also gained about 2% after the company posted better-than-expected quarterly results.

The Dow Jones index gained around 153 points to settle at 28,363.66 on Thursday, while the S&P 500 rose 0.52% to 3,453.49 and the Nasdaq 100 added 0.19%, to close at 11,506.01.

What to watch: Investors await PMI reports from the US. The IHS Markit US services PMI is expected to remain unchanged versus September’s final reading of 54.6. However, the manufacturing PMI is projected to rise slightly to 53.4 in October, versus last month’s reading of 53.2.

Investors also continue to keep a close eye on ongoing stimulus talks and covid-19 numbers.

Other Markets: European trading indices closed mostly lower on Thursday, with the German DAX 30 index and French 40 down by 0.12% and 0.05%, respectively. However, the FTSE 100 edged higher by 0.16%.

Support & Resistances
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Futures at 0400 (GMT)

What else to watch today

     

France’s manufacturing and services PMI, Germany’s manufacturing and services PMI, Eurozone’s manufacturing and services PMI, UK’s manufacturing and services PMI, Mexico’s retail sales, Brazil's current account and foreign direct investment as well as the US Baker Hughes crude oil rigs.

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