Shares in iconic US beverage-maker Coca Cola are trading a little lower pre-market on Thursday. The company’s stock price has undergone a more than 12% correction from the high posted in December with shares falling from high 54s to current lows around mid 49s. Price has now broken back below the rising trend line from 2020 lows, suggesting the risk of a continuation lower for KO shares.
Earnings Beat, Revenues Miss
The sell-off this week comes in response to the latest earnings release from the company. While headline earnings per share were higher than expected in the fourth quarter at $0.47 versus the $0.42 forecast, revenues were lower than forecast.
Net sales fell by 5% to $8.6 billion, undershooting expectations for $8.63 in revenues. The company cited the ongoing disruption caused by the pandemic as the reason for the weaker than expected performance.
As a result of the pandemic, KO noted that it had stepped up its efforts to streamline its portfolio and restructure its workforce, recording a $15 million charge from these efforts.
However, KO did also note a $4 saving from discontinuing the Odwalla juice brand. In terms of workforce restructuring, KO noted that 11% of jobs had been cut globally, with severance payouts expected to settle in the $350 – $550 million region.
Looking at the breakdown of the earnings release, unit case volumes were down 3% year on year with all four beverage sections of the company recording declines. Geographically, Latin America was the only market to see growth over the period.
In terms of the current quarter, KO noted that the intensification of the second wave of the virus had acted as a headwind to demand. In February so far, global volumes have fallen by mid-single digits.
Cautiously Optimistic Outlook
Looking ahead, however, KO noted optimism around the vaccination effort though noted that uncertainty remains in the outlook.
KO CEO James Quincey said:
“It is still early days in the vaccination process and we’d expect to see further improvements in our business as vaccination become more widely available over the coming months.
It’s clear that the pace and availability of vaccines will look different around the world and therefore we’ll likely see some level of asynchronous recovery depending both on vaccine distribution and other macroeconomic factors.”
“While we’re confident we will see recovery this year and expect to deliver 2021 earnings that are at or above 2019 levels, we’ve provided a wider range than usual to account for lingering uncertainty in the near term as well as the potential for the acceleration to be asynchronous in nature.”
Coca Cola Breaks Trend Line
Coca-Cola shares are now trading back below the rising trend line from 2020 lows. Price is currently stalling just ahead of the 47.46 level support. While this level holds, the bullish trend from 2020 lows remains intact. However, a break below this level opens the way for a deeper move down towards the 43.28 level next.