K.O. reports impressive top-line recovery in June & July
Coca-Cola reported Q2 EPS of $.40, two cents above consensus expectations yesterday. Volumes were down 16%, and organic revenue declined 26%. Management sees Q2 as the low (I would sure hope so). April global case volumes declined 25%, June dropped 10%, and July was only down MSD%. North America organic revenue declined 18%, EMEA declined 35%, Latin America declined 13%, and the Asia Pacific declined 22%. Gross margins contracted 290bps driven by the finished goods and foodservice businesses. Expense control, especially in marketing, limited the operating margin fell to 220bps. Management is still not guiding in 2020 but noted that Fx would be a more significant headwind in Q3 with revenue headwinds of 3-4% and operating income headwinds of 7-8%.
Shares finished yesterday up 2% as investors were pleased with the pace of sequential improvement. That pace would seem to flatten out in Q3 with dining capacity still limited in most key countries, significant events canceled, people working from home, and indoor businesses like movie theaters still closed. Shares are trading at 26x consensus 2020 EPS estimates and 22x EV/EBITDA, which limits upside in our view, especially if the top-line improvement stalls.
U.K. grocery sales decelerate 430bps but remain elevated (NOMD)
U.K. grocery sales grew 16.9% for the past 12 weeks ended July 12. Over the most recent four-week period, grocery sales increased by 14.6%, decelerating from 18.9% in the previous four-week period. Traffic was still 15% lower during the past four weeks, while the average basket was 35% higher. Off-premise alcohol sales were up 41% in the more recent month despite restaurants and pubs re-opening. According to Nielsen, online grocery now accounts for 14% of spend in the U.K. Grocery inflation for the most recent month was 4.0% compared to 3.6% for the 12 weeks. The U.K. is Nomad Foods' largest market at 31% of sales.
Albertsons, Kroger, and Stop & Shop reach pension agreement with the UFCW.
Albertsons, Kroger, and Stop & Shop have each entered into separate tentative agreements with UFCW local unions to withdraw from the Union's pension fund (National Fund). The grocers will withdraw from the National Fund and establish a Variable Annuity Pension Plan. Albertsons will pay $286M to the National Fund, which is the withdrawal liability. Albertsons will make the payments over the next three years. Kroger will pay the National Fund $962M while Stop & Shop will pay $649M. Going forward, Albertsons make employer contributions at the same rate as it did previously, and all of its employees will be in the new plan.
The agreement needs to be ratified by the membership of each Union and from the other grocers receiving ratification of their withdrawal. The National Plan's liabilities are obligations of the plan itself, so they aren't recorded as liabilities on the balance sheet of the companies. If approved, the companies will reduce the volatility of future contributions and minimize exposure to other company contributors. We previously highlighted the significant liabilities for Albertsons and Kroger from their Multi-Employer Pension Plans (MEPP) in our grocery presentation. The grocers are using a healthy sales environment to fix their long term potential liabilities. Kroger has made several similar deals in recent years, while Albertsons now as a public company wants to remove an overhang. Kroger will hold a call later this morning to discuss the deal in further detail.
