Please ensure Javascript is enabled for purposes of website accessibility

Why Coca-Cola Stock Fell 5% This Morning

By Rich Smith – Apr 21, 2020 at 1:25PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Earnings beat estimates, but Coke has no idea if they will again in Q2.

What happened

Shares of soda pop giant The Coca-Cola Company (KO -1.61%) fell nearly 5% in early trading Tuesday before rebounding to make back about half of the losses. As of 1 p.m. EDT, Coke shares remain down 2.8%.

Why? Earnings -- or rather, what Coke said as part of its earnings report.  

Slightly crumpled Coke can

Image source: Getty Images.

So what

Coke reported its fiscal first-quarter 2020 earnings results this morning, and while the news wasn't all good, it was mostly good.

Sales for the fiscal first quarter of the year declined 1% to $8.6 billion, but that was better than the $8.3 billion that analysts had forecast (Coke scored a sales "beat").

Earnings per share increased 65% year over year to $0.64. Pro forma profit for the quarter was a bit less than that -- $0.51 per share -- but even so, this was much better than the $0.44 pro forma profit that Wall Street had predicted, and thus Coca-Cola "beat" on earnings as well.

Now what

If that were all that Coca-Cola had to report today, chances are that Coke stock would be up right now. Unfortunately for shareholders, Coke management continued talking past the headline numbers.

Getting more granular, Coca-Cola noted, for example, that despite net profit growing, its operating profit margin in the first quarter declined 30 basis points to 27.7%. Operating cash flow was also down (29%) for the first three months of the year, and free cash flow declined a staggering 43%, to just $229 million. Coke explained that "currency headwinds and cycling the supplier payment term extensions in the prior year" were part of the problem here, as well as Coke having "one less day in the quarter" to generate cash.

Topping it all off, Coke proceeded to warn that "significant changes in consumer purchase patterns, notably substantial declines in away-from-home channels" have resulted in a 25% global "volume decline" in Coke products shipped since the beginning of April, and will result in "a significant impact on second quarter results." Coke was unable to estimate "the ultimate impact on the second quarter" or on "full year 2020," and thus did not give firm guidance for either.

Investors seem to be taking this as a sort of earnings warning, and selling off Coke stock in response.

Rich Smith 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.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

The Coca-Cola Company Stock Quote
The Coca-Cola Company
$56.06 (-1.61%) $0.92

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/29/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.