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Why Coca-Cola Isn't Worried About the Coronavirus Impact

By James Brumley – Feb 21, 2020 at 10:47AM

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The beverage company expects the fallout from disease-related shutdowns to be modest, and short-lived.

Beverage giant Coca-Cola (KO -0.95%) expects the coronavirus outbreak to take a small toll on first quarter earnings. But, the company believes it will be able to offset that profit hit over the course of the remainder of 2020. Coca-Cola announced on Friday it anticipates the fallout from the epidemic to reduce unit case volume by two to three points for the quarter ending in March, reducing earnings by one to two cents per share.

Photograph of glass of cola on restaurant table

Image Source: Getty Images.

While the spread of the coronavirus has largely been limited to China, the impact on U.S. companies is still significant. Not only do many U.S.-based organizations rely on the country for supplies and labor, the country itself is an important consumer market. Consumer staples name Procter & Gamble (PG -1.75%) warned this week that current quarter would be "materially impacted on both the top and bottom line" due to the outbreak," noting the company uses 387 different Chinese suppliers that play a role in the production of more than 17,000 products.

But Coca-Cola rival PepsiCo (PEP -0.73%), conversely, isn't particularly worried either. While it did temporarily close all six of its facilities in China, the country only accounts for about 2% of its total revenue. That's in contrast with Coca-Cola, which collected more than 14% of its 2019 revenue from its Asia Pacific market.

Even so, the short-term impact isn't a devastating blow to the company's bottom line. Analysts were modeling per-share earnings of $0.49 for the quarter currently under way before Friday's announcement. The adjusted figure of between $0.47 and $0.48 is still palatable to investors, given how little KO shares moved following the news. For all of 2020, Coca-Cola expects to earn $2.25 per share.

James Brumley has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Stocks Mentioned

The Coca-Cola Company Stock Quote
The Coca-Cola Company
KO
$54.51 (-0.95%) $0.52
The Procter & Gamble Company Stock Quote
The Procter & Gamble Company
PG
$124.27 (-1.75%) $-2.21
Pepsico, Inc. Stock Quote
Pepsico, Inc.
PEP
$161.61 (-0.73%) $-1.19

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