As the global trade war and shifting trade policies tie some decision makers into knots, Coca-Cola said it expects any impacts on its costs of operation to be “manageable.”
During a first quarter earnings call Tuesday, executives with the Atlanta beverage giant reaffirmed its forecast for the rest of the year, which largely remained unchanged from the previous quarter. This despite President Donald Trump imposing a raft of new import taxes and countries enacting countermeasures on U.S. goods between the two earnings periods.
The company still expects to deliver revenue growth of 5% to 6% by year-end, though it moderated expectations for its full-year profit. It now expects adjusted full-year earnings to grow 7% to 9%, down from its previous prediction of 8% to 10%.
Coca-Cola is not immune to trade dynamics, said Chief Financial Officer John Murphy. It understands the tariffs could impact consumer sentiment and pockets of its cost structure. But it believes it has levers to manage the impact.
Its business model is set up for an environment that can withstand a degree of disturbances, said CEO James Quincey.
Credit: arvin.temkar@ajc.com
Credit: arvin.temkar@ajc.com
As much as Coca-Cola is a global business, much of its operations are local. The beverages sold in each country are mostly produced and distributed domestically. In the U.S., about 860,000 people are employed directly by Coca-Cola or other employers in the supply chain, Quincey added.
“In the moments of geopolitical tension, one of the key strategies is to drive and reinforce the made-in or made-by,” Quincey said. “The fact that it’s a local business, the factory is down the road from you, your neighbors make the product.”
Coca-Cola reported $11.1 billion in net revenue in the first quarter, down by 2% from the same period last year. Net income was $3.3 billion, up 5% year-over-year.
This month, Trump announced a blanket 10% tariff on goods imported into the U.S. and higher duties on aluminum, steel and automobiles. He also announced higher country-specific “reciprocal tariffs” on dozens of top trade partners, though he paused most of the higher levies for 90 days to allow for trade negotiations. Taxes of 145% on most goods from China remain in effect.
The tariffs present complex challenges for companies within the food and beverage industry, from small, independent bottlers to massive, multinational corporations like Coca-Cola. Any increase in costs passed onto the consumer can affect sales.
In its annual report, Coca-Cola said that consumers may be less willing to pay a price differential for our branded products and may increasingly purchase lower-priced offerings, or may forgo some purchases altogether.
Coca-Cola’s exposure to trade is not massive in major countries relative to its cost structure, Quincey said during the earnings call. In the U.S., it could see impacts on the costs of orange juice, which the company imports from Brazil and Mexico, and some of its dispensing equipment.
Additionally, higher duties on aluminum could increase the cost of cans in the U.S. During the company’s fourth quarter earnings call, prior to the aluminum tariffs going into effect, Quincey said the company could put more emphasis on plastic bottles if aluminum cans become more expensive.
During the first quarter, Coca-Cola grew its revenue and profit in North America, but its volume was impacted by weakened consumer sentiment, particularly among Hispanic consumers, along with severe weather and calendar shifts.
Consumer spending still seems robust, Quincey said, but there is an increased number of unknowns as the company moves into the second quarter.
“This underlining of the localness of the production, the distribution and the workforce, plus reinforcing affordability, tends to be the key thing to do, particularly with branded Coca-Cola in these moments,” Quincey said.
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