Whatâs Going On Here?Coca-Cola and Danone reported first-quarter updates on Tuesday that suggested coronavirus-intoxicated consumer staples customers are kicking their usual shopping habits. What Does This Mean?Coca-Cola told investors back in February that coronavirus would knock maybe one or two cents off its annual earnings per share. But by March, it had withdrawn its profit forecast altogether. That was probably a wise move: half of Cokeâs revenue comes from the âaway from homeâ channels â restaurants, bars, and so on â that have been nixed by global stay-at-home orders, slashing the amount of product itâs sold so far this month by 25%.
Thatâs not dissimilar to Danone: the French manufacturer of Actimel and Evian grew revenue last quarter thanks to consumersâ stockpiling of essentials, but a subsequent drop-off in shopping patterns led the firm to abandon its earnings forecast too. Why Should I Care?The bigger picture: Swings and roundabouts.
Procter & Gambleâs investors saw how swings in the value of currencies can impact earnings in its update on Friday, and Coca-Colaâs experienced it for themselves on Tuesday. The drinks company said a strong US dollar â which decreases the value of money earned abroad â lowered last quarterâs revenue by 2% and would lower this quarterâs by up to 6% more than it wouldâve if currencies were stable. Danone, meanwhile, got off lightly: currency swings only trimmed its revenue by 0.9% last quarter, and this one probably wonât be much different.
For markets: Boring is good.
Coke and Danoneâs share prices didnât move much after either update, probably because there were no big surprises for investors. A companyâs better off admitting it doesnât know whatâll happen next than overpromising and underdelivering, which tends to cause its stock to fall dramatically. In fact, investors simply got what they shouldâve been expecting from Danone and Cokeâs âdefensiveâ shares: theyâll likely have bought them up knowing that, even in the midst of a recession, people need to keep themselves fed and watered. | 