21 April 2020

Coca-Cola May Refresh Market Sentiment With Q1 Print

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What’s happening: Coca-Cola is scheduled to report its first-quarter results before the opening bell on Tuesday, April 21.

What happened: The beverage giant was confident of facing only a modest blow from the coronavirus pandemic in February, but the situation quickly changed the following month. Coca-Cola had to withdraw its financial outlook in March when social distancing measures slumped the demand for company’s products in the US and Europe.

China is Coca-Cola’s third-biggest market in the world in terms of unit volume and the company faced massive supply-related issues in January and February. With the Chinese market now gradually opening up, market sentiment is turning positive again for the company’s business in the region

  • The consensus revenue estimate stands at $8.49 billion, representing 5.9% year-over-year growth.
  • The company is expected to report earnings of 44 cents per share, a 8.3% decline from the same quarter last year.

Why it matters: The COVID-19 pandemic, which originated in China, created chaos in the country during the first couple of months of the year. This mayhem resulted in massive disruptions to Coca Cola’s supply chain, as virus-containment restrictions led to closures of restaurants and the termination of various sporting events. All these measures are expected to impact the company’s revenues in the latest quarter.

Organic revenue climbed 7% last quarter, with the company reporting sales growth in all regions, except the US. The results this quarter will reflect the impact of social distancing measures in the US. On the other hand, the Georgia-based company may witness a rise in sales with people stockpiling their favorite beverages for drinking at home.

The company has been focusing on brand innovation and product launches in the recent period, and the efforts are expected to support the latest quarter results. Coca Cola’s focus on acquisitions to maintain its strong brand image has also been commendable.

The company has a strong distribution network worldwide, but the coronavirus pandemic has made it expensive to maintain the same with sales volume declining. The timing of the rebound is still unclear, forcing the company to issue $5 billion in new bonds in late March.

How the shares have performed so far: Investors have been a little skeptical heading into Coca Cola’s quarterly earnings, sending the stock down by 3.2% yesterday. The beverage giant’s shares have slipped 0.9% over the past five trading session. Despite the recent pressure, the stock has gained around 21% over the month.

What to watch: Investors are keen on news of the Chinese economy reopening, followed by other countries relaxing restrictions, given a slowdown in COVID-19 cases. China is likely to be the main contributor to the company’s results in the current quarter, with most parts of the country returning to normalcy. Investors also await management comments on the impact of coronavirus on the company’s business.

The Markets Today

     

US markets will be in focus today, with stocks closing lower in the previous session after recording gains for two consecutive weeks.

Context: Stocks closed lower on Monday, with the crash in oil futures overshadowing optimism around the country’s plans to ease lockdown restrictions. Investors were also expecting a further stimulus plan for small businesses from the government.

Details: Crude oil prices plummeted on Monday, with the WTI crude for May delivery tumbling more than 300% to settle in negative territory for the first time in its history. The May contract, which expires today, settled at -$37.63 per barrel on the NYMEX (New York Mercantile Exchange).

Investors shrugged off positive news of coronavirus infections peaking in various parts of the world, and countries reopening their economies. The delay in funding by the US government for small businesses also hurt market sentiment.

The Dow dipped 592 points to close at 23,650 on Monday, while the S&P 500 fell 1.8% to 2,823. The Nasdaq 100 fell 1.2% to end at 8,560.73, after trading in positive territory for most of the session.

Shares of tech behemoth IBM slipped more than 3% in after-hours trading after the company reported downbeat quarterly sales. Halliburton reported upbeat earnings for its first quarter.

What to watch: Investors will be monitoring daily coronavirus numbers. The number of positive COVID-19 cases in the US has surpassed 787,900 with around 42,360 deaths. The total number of positive coronavirus cases globally is now close to 2.5 million, with 170,390 fatalities.

US stocks are expected to continue the downward momentum today, with stock futures pointing towards a lower start. Markets await the release of earnings reports from various major companies and data on existing home sales today. Sales of existing homes, which rose 6.5% in March, are expected to fall 9% in April, at an annualized rate of 5.3 million.

Other Markets: European indices were trading lower at 9:00am GMT, with the FTSE 100, German 30 and French 40 down by 1.7%, 1.8% and 1.8%, respectively.

Support & Resistances
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market snapshot

     

Futures at 0400 (GMT)

News shaping
the markets today

     

What else to watch today

     

Canada’s retail sales and the US Redbook index.

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