Before the U.S. stock market on October 27, Eastern Time, Coca-Cola announced its third-quarter earnings report. Coca-Cola's Q3 revenue surged 16% to $10.042 billion, compared to $8.652 billion in the same period last year, beating expectations of $9.75 billion, the report showed.
Despite a "significant increase" in marketing spend compared to last year, net profit increased 11 percent to $2.9 billion and net profit attributable to $2.471 billion, up 42 percent year-over-year. Basic and diluted earnings per share were $0.57, adjusted earnings per share of $0.65, outperforming market expectations of $0.58, compared to $0.40 per share in the year-ago quarter, with global single-box sales up 6 percent.
The data shows that in the past 12 quarters (excluding the third quarter of 2021), Coca-Cola has had 9 quarters of revenue and 11 quarters of profit exceeding expectations.
But stretching the length of time, Coca-Cola's business report card was once sluggish: Since Coca-Cola's annual revenue peaked at $48 billion in 2012, revenue has fallen all the way. In 2017, Coca-Cola revenue fell below $40 billion to $36.212 billion for the first time, net profit fell by more than 80% year-on-year, and in 2018, Coca-Cola revenue fell 10% year-on-year to $34.3 billion.
Revenue in 2020 fell to a record low of $33.014 billion, while announcing layoffs and job cuts, and plans to lay off 4,000 employees in the United States, Canada, Puerto Rico and other places was controversial for a while.
The release of the third quarter financial report has excited many investors. This is the first time since the outbreak of the epidemic that Coca-Cola's sales volume in the third quarter exceeded that of 2019, and both revenue and profit exceeded Wall Street expectations.
As of the close of U.S. stocks on October 28, Coca-Cola shares have risen for three consecutive trading days, closing at $56.04, only $1.52 lower than the 52-week high ($57.56) set on July 21, close to recent stock highs.
<h2>Aiming at Generation Z, the "all categories" layout in China has accelerated</h2>
In the third quarter, while Coca-Cola's share of restaurant-related businesses has not yet recovered to 2019 levels, organic revenue, excluding acquisitions, divestitures and foreign exchange impacts, grew 14 percent, and global single-box sales also rose 6 percent (excluding the impact of currency and price changes), higher than pre-pandemic 2019 sales levels.
Among them, Asia Pacific revenue of $1.374 billion, organic growth rate of 2%, single-carton sales increased by 3% year-on-year, offsetting the decline in price/portfolio caused by growth in emerging markets and developing markets, outpacing developed markets, single-box sales matched the performance of the same period in 2019, mainly driven by China and India.
The "all-category beverage" strategy has achieved remarkable results. Highlights of the third quarter include the launch of Coca-Cola's new zero-sugar formulations in more than 50 countries and accelerated growth over the past three months. Among them, Coca-Cola's sparkling soft drinks division, including carbonated beverages such as the namesake soda, hydration, sports, coffee and tea segments, increased by 6% in the third quarter. Sales in the Nutraceuticals, Juices, Dairy and Plant Beverages businesses increased 12 percent, in part due to strong sales performance in China by Minute Maid Pulpy. Driven by the continued reopening of Costa cafes in the UK, coffee tastings grew by 19%.
In the Chinese market, Coca-Cola has accelerated the pace of the "all-category beverage" strategy, focusing on new consumer goods such as low-grade wine and low-temperature milk, which are loved by Generation Z young people.
In 2017, the 0 sugar 0 calorie sparkling water "Dark Horse" Yuanqi Forest was born, setting off a boom in domestic sparkling water drinks in the past two years. In 2021, traditional giants such as Nongfu Spring and PepsiCo have successively launched sparkling water products in the Chinese market, and Coca-Cola also launched AHHA small universe sparkling water in the Chinese market in April this year.
According to the 2021 White Paper on China's Food Consumption Trends, improved low-grade liquor is more in line with the needs of young people than traditional liquor. Tmall data shows that keyword searches for products such as "micro-drunk" and "fruit wine" have increased by about 70% year-on-year. With Gen Z's trend of drinking low-grade ciders, Coca-Cola launched "Topo-chico" hard soda sparkling wine and Lemon-Dou Japanese lemon sparkling wine in China in June and September this year.
For the alcoholic beverages launched by Coca-Cola in China, Shen Meng, director of Chanson Capital, believes that "sparkling soda wine is an emerging category and has not formed a stable share pattern, and Coca-Cola's entry into the market can promote the development of China's alcoholic beverage market to a certain extent." ”
In September this year, Coca-Cola officially entered China's domestic low-temperature milk market, and launched the "Fresh Philae" brand with Mengniu's joint venture- Keniu Dairy Co., Ltd., which focuses on three products: full-fat white milk, low-fat white milk and chocolate milk. Low-temperature milk is the focus of competition for many domestic dairy companies at present, the shelf life, transportation distance and cold chain infrastructure requirements are very high, the current domestic low-temperature milk market share is only 14%, far lower than the United States, Japan low-temperature milk 99.7%, 99.3% market share.
In fact, as early as 2016, Coca-Cola proposed a strategy of being a "full-category beverage company". In 2017, it acquired topo-chico, a Mexican sparkling water brand born in 1895, announced its entry into the Japanese chu-hi sparkling wine market; in 2018, it acquired Costa Coffee, which has 7,000 retail stores around the world, gaining access to coffee business markets in Europe, Asia Pacific, the Middle East and Africa; and in January 2020, it announced that it would be transferred from joint venture partner Select Milk Producers acquired the remaining 57.5% stake in Fairlife, a well-established dairy brand in the United States.
"The company's strategic transformation has allowed us to effectively respond to changes in the external environment and rise strongly after the epidemic." James Quincy, CEO of Coca-Cola, said, "While the pace of global market recovery is not synchronized, we continue to invest, and strong system synergies and networked organizations are helping our brands and markets unlock greater potential. ”
<h2>Supply chain shortages are just "earthquakes" and "gopher" games</h2>
According to the earnings report, Coca-Cola's revenue growth in Q3 this year was mainly due to the surge in sales volume and price increases offsetting the impact of rising commodities and freight rates.
As COVID-19-related uncertainty wanes, restaurant and cinema spending is gradually recovering, and consumers are back out of their homes, driving Coca-Cola's sales surge in the third quarter. On the other hand, inflation has driven up the cost of raw materials for commodities, resulting in a significant increase in the cost of raw materials such as Coca-Cola's plastic bottles, aluminum can packaging materials and high-fructose pulp, and Coca-Cola announced price increases in April this year, passing on the cost of price increases to consumers to increase profit margins.
This is The second price increase for Coca-Cola after a gap of three years, the last time it rose in 2018, when the company gave the official reason that then-President Trump raised tariffs on the canned raw material aluminum. Other food and beverage giants around the world have also raised prices for products this year. Taking McDonald's as an example, the third quarter earnings report showed that McDonald's net profit was $2.15 billion, up from $1.76 billion in the same period last year, which was also affected by the price increase of orders and menus from major customers in the United States.
However, the current cost pressure faced by food companies is not only from the price increase of raw materials, but also from the supply chain crisis.
Unprecedented supply chain disruption is playing out across industries around the world, with the global auto industry losing about $210 billion to chip shortages this year, and the food and beverage industry has also been affected. The supply chain crisis has led to short supply and price increases in packaging, logistics, energy, etc., which is superimposed with rising commodity prices and food supply shortages, which has led to companies having to offset the rise in costs through price increases.
Like other retail companies, Coca-Cola has suffered from supply shortages amid disruption in the supply chain and rising commodity costs. According to foreign media reports, Coca-Cola's bottling business in the UK and continental Europe is under pressure due to the supply chain crisis caused by the "aluminum can shortage". Covid-19 and Brexit have exacerbated shortages of drivers of large cargo trucks, making it difficult for wholesalers to get goods to stores, creating a range of logistical challenges.
At present, the problem of tight supply of Coca-Cola continues to ferment.
On the one hand, the lifeline of U.S. retailers from Asia is in trouble, with the recent tightening of power supply in China and the resurgence of COVID-19 in countries such as Vietnam and Indonesia. Second, the impact of the supply chain crisis is about to be highlighted in the upcoming US "Black Friday" holiday economy. As sales accelerate and inventories of clothing and accessories retailers decline, U.S. consumers are concerned about selling out and are starting to spend ahead of schedule before the holidays, with supply tightening as the U.S. holiday shopping frenzy approaches.
Burt Flickinger, managing director of strategic resources group at retail consultancy, said at least 20-25 percent of cargo stranded on board was unlikely to be on shelves in time before the Nov. 26 Black Friday holiday shopping season began.
Coca-Cola CEO James Quincy said on an earnings call on Oct. 27, "It's like an earthquake right now, and while the shortage may continue into next year, the importance of supply chain shortages may diminish over time as the situation improves." ”
He expects only sporadic shortages on shelves for some of Coca-Cola's merchandise by 2022 and said Coca-Cola will use its global scale and long-term partnerships to solve problems in its supply chain, but it is unlikely to alleviate all challenges.
James Quincy figuratively likens supply chain issues to a game of gophers, "some of which are persistent and structural, and some of which appear for a quarter and then disappear again." For example, on the third-quarter earnings call, James Quincylie mentioned labor shortages in the third quarter, soaring gas costs in Europe and a fire at a plastics factory in Brazil.
This is not an exception. PepsiCo also recently said that in addition to the shortage of raw materials, labor shortages, airport closures, border restrictions and other irregular logistics challenges have also adversely affected the supply chain.
Judging from the current third-quarter performance data, consumers seem to ignore the impact of price increases and supply chain shortages of global giants food and beverage companies, and also helped Coca-Cola improve profits in the third quarter, surviving this uncertain period.
Does this mean that a company with a strong brand effect like Coca-Cola does not have to worry too much about the negative effects of supply shortages and low customer demand brought about by rising prices? Edward Jones analyst John Boylan noted, "While Coca-Cola is also not completely immune to inflation and more inflation is likely to occur next year, its operational improvements and new product innovations should help at least partially offset the impact of rising costs." ”
<h2>
Marketing expenses doubled, but revenue will be much higher than last year
</h2>
According to the earnings report, the significant increase in marketing and advertising spending will be a major factor that cannot be ignored to promote the comeback of Coca-Cola's performance.
Coca-Cola's chief financial officer, John Murphy, said Coca-Cola's marketing budget this year has nearly doubled compared to a year ago. In particular, in September, Coca-Cola launched an advertising campaign called "Real Magic" for its trademark soda brand, the first time since 2016 to renew the brand concept, and launched a new form of presentation of the classic logo , the "Hug" logo.
Designed on a circular packaging with a three-dimensional logo, "Real Magic" calls on people to unite the positive spirit of uplifting, enjoy and embrace the shining moments of life, and tries to tailor a series of experiences for Generation Z, using passionate scenes such as games, sports and music to attract a new generation of drinkers, tap into the opportunities of Coca-Cola's core business scenes, hoping to bring the new brand concept to the rest of daily work and learning activities, including restaurants, supermarkets, Small shops and other products may appear everywhere.
With the launch of the new brand concept, Coca-Cola launched the "One Coke Away From Each Other, Share Coca-Cola" in the Chinese market on October 8 – an interactive experiential marketing campaign and a commercial of the same name. At the same time, the acquired Costa Coffee will cooperate with bottlers to expand into new markets across platforms and increase brand awareness.
But for a big brand like Coca-Cola, what's the point of spending a lot of money on advertising now?
In the early days of the COVID-19 outbreak, Coca-Cola, like most other companies, slashed costs to save cash. Mara Einstein, a professor of media studies at Queens College, said the first thing to be cut was the marketing budget.
"Intuitively, you think, 'This is the best time for me to take down advertising, it's a way to make sure my profits look good,' and all of that — actually the opposite," she said, "instead, brands, even big brands like Coca-Cola, should invest more in marketing their products." ”
In other words, the rise in marketing spending is showing consumers that Coca-Cola is not sitting still, but rather a reminder to spend and pay attention to more and more updated and improved cross-border products.
Coca-Cola Chairman James Quincy said on a conference call that coca-Cola's marketing revenue in 2021 will be much higher than in 2020 as marketing spending returns to 2019 levels. The fourth quarter is expected to continue to raise consumer-facing marketing spending to similar levels as in 2019, while improving the quality of spending and allocating spend in a more targeted manner.
At the same time, since entering the fourth quarter, the US stock S&P 500 has hit a record high after a brief correction and has broken through the 4500 point mark, and institutions generally believe that the US stock market is still maintaining a high level in the case of peaking. James Quincy expects Coca-Cola's business to maintain good growth momentum this year and has raised its full-year earnings guidance to expect full-year comparable earnings per share to grow 15 to 17 percent, compared to previous expectations of 13 to 15 percent.
(This article was first published on titanium media APP, the author | Liu Dafang, the editor | Tianpeng)