The Perfect Enemy | China COVID-19 lockdowns drag on Coca-Cola earnings: ‘Momentum reversed’ - Yahoo Finance
May 27, 2022

China COVID-19 lockdowns drag on Coca-Cola earnings: ‘Momentum reversed’ – Yahoo Finance

China COVID-19 lockdowns drag on Coca-Cola earnings: ‘Momentum reversed’  Yahoo Finance

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Coca-Cola earnings showed that China’s fresh COVID-19 lockdowns aren’t only impacting massive name industrial manufacturers such as Apple (AAPL) and Tesla (TSLA).

“In China, a strong start in January, led by an excellent Chinese New Year brand activation with Coke was followed by strict COVID lockdowns, and this resulted in reduced consumer mobility,” Coca-Cola CEO James Quincey told analysts on the company’s first quarter earnings call on Monday. “Momentum reversed in February and March, and led to a decline in unit case volumes during the quarter. We’re moving fast to focus on core SKUs [stock-keeping units] and ensure product availability.”

The effect of China’s lockdowns showed up in Coke’s (KO) performance at its Asia Pacific segment.

Coke’s Asia Pacific segment only saw 4% growth in unit case volume in the first quarter, the worst performance from any of the company’s regions and the only one to show no comparable currency neutral operating income growth in the quarter.

People line up to be tested for Covid-19 coronavirus in Zhongguancun in Beijing on April 26, 2022. (Photo by Jade GAO / AFP) (Photo by JADE GAO/AFP via Getty Images)

“The resurgence of COVID in China and some other geographies around the world is a clear indication that the pandemic is still very much a part of the conversation, and a reminder that the recovery path has been and will continue to be asynchronous,” Coca-Cola CFO John Murphy warned. “Obviously, there are lots of puts and takes at play, and we see a number of potential futures coming at us.”

To offset volume weakness in China and inflationary pressures in key raw materials such as high-fructose corn syrup, Coke pushed through price increases around the world.

The company said its price/mix — a closely-watched measure of pricing power for consumer goods companies — surged 11% in the North America market. Elsewhere, price/mix spiked 19% in Latin America and by 6% each in the Asia Pacific and European segments.

The company reiterated its full-year organic sales growth of 7% to 8% in part reflecting its confidence in higher prices sticking. Earnings are still expected to rise 5% to 6%.

SHENYANG, CHINA - JANUARY 28: Employees work on the production line of Coca-Cola beverages at a factory of COFCO Coca-Cola Beverages Limited on January 28, 2022 in Shenyang, Liaoning Province of China. (Photo by VCG/VCG via Getty Images)SHENYANG, CHINA - JANUARY 28: Employees work on the production line of Coca-Cola beverages at a factory of COFCO Coca-Cola Beverages Limited on January 28, 2022 in Shenyang, Liaoning Province of China. (Photo by VCG/VCG via Getty Images)

Employees work on the production line of Coca-Cola beverages at a factory of COFCO Coca-Cola Beverages Limited on January 28, 2022 in Shenyang, Liaoning Province of China. (Photo by VCG/VCG via Getty Images)

At the same time, operating conditions in China place out-sized risk to Coke’s guidance.

“Clearly China is an important market to us,” Quincey said. “As I said in the [prepared] script, we had a strong start to the year going to Chinese New Year. But the lockdowns — particularly Shanghai – took the steam out of things and we ended the quarter negative. The key factor will be the degree of mobility. And depending on how big that is will make a huge difference to the level of results. I don’t think there’s anything to call from the early days of April, that’s different to what was happening at the back end of March. The lockdowns as you can read in the newspapers are still in full force so to speak in those cities where they’re locking down. And I think that’s going to remain the biggest factor of course. We’re going to focus on what we can control.”

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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