Walk Through Three Legendary US Businesses- Coca-Cola, Dow Inc, IBM

Summary

• Several American companies have battled the COVID 19 market turmoil and business disruption with potency and exceeded market expectations.
• Despite a natural slowdown of revenues, legendary businesses like Coca-Cola, Dow Inc, IBM remain to be in the investor radar.
• While global economic indicators and end-markets have begun to show improvement, there are significant addressable market opportunities that may support unique competitive advantages of these companies.

In a dismal year of businesses, a handful of US companies have truly outshone, rising to the challenge imposed by the coronavirus pandemic. Contemporary American businesses have demonstrated exceptional ways to address humanitarian and business needs during the ongoing testing times.

For instance, Amazon has been ruling the business space, catering to needs during lockdowns. Consequently, Jeff Bezos today is the world’s richest man as surging markets recently made him the world’s first USD 200 billion man! Likewise, American drug store chain/ health care juggernaut CVS Health has leapt three spots on this year's Fortune 500 list. The Company got a USD 62 billion revenue boost due to its USD 69 billion acquisition of Aetna.

In this backdrop, let us look at three legendary US businesses:

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The Coca-Cola Company

The Coca-Cola Company reported second-quarter FY 2020 results recently. It also provided an update on strategic actions the company has taken.

The company has been impacted due to the coronavirus pandemic but remains well-positioned to emerge stronger. The Company reported a decline in its global unit case volume by 16 per cent along with net revenue falling 28 per cent. Organic Non-GAAP revenue fell 26 per cent. Coca-Cola stated that it remains focused on maintaining a safe environment for employees while meeting the consumers' needs by providing necessary products and services.

Operating income declined 34 per cent; comparable currency and neutral operating income (Non- GAAP) also dropped 25 per cent. Despite the fall in numbers, the company stated it delivered its products and service to customers and communities even during unprecedented times.

• Operating margin Was 27.7 per cent versus 29.9 per cent in the prior year.
• Comparable operating margin (Non-GAAP) was 30.0 per cent versus 30.3 per cent in the prior year.
• EPS declined 32 per cent to US$0.41; comparable EPS (Non-GAAP) fell 33 per cent to US$0.42.

Source: Coca-Cola second-quarter FY 2020 results

Coca-Cola sales to restaurants are crashing as the food and beverage industry is massively impacted because of the coronavirus pandemic. Besides, the hospitality industry is bracing to face a long haul which could impact Coca-Cola's businesses.

Though its sales eventually improved after COVID-19 related restrictions were eased, the iconic American beverage brand has recently announced that it may cut ~ 4,000 jobs in North America. The company plans on reorganising after a rough second quarter due to the health crisis. It may even cut down 9 business units from its existing 17 units and offer severance packages to the employees losing work. The total severance package is between USD 350 million and USD 550 million.

Also read: Coca-Cola “Held The Stage Again” with Strong Quarterly Results

International Business Machines Corporation (IBM)

IBM recently announced its second-quarter 2020 earnings results. The pandemic has hit the tech giant, as it reported a revenue drop of 5.4 per cent in the second quarter as consumers chose to save money instead of spending it amid an uncertain future. The Company reported it's earning per share to be down by 31 per cent on an adjusted basis.

Shares too seem to be far less expensive than the larger market. On 4 September 2020, the stock was down 1.7 per cent at settled at USD 122.3.

CEO Arvind Krishna opines that the company is committed to building an enduring hybrid cloud platform with its growing ecosystem of partners. The forum will serve as a powerful catalyst for innovation. IBM is shifting from its legendary business of developing hardware and software and moving to fast-growing areas of cloud computing, artificial intelligence, and data analytics.

A recent survey of global consumers conducted by IBM Institute for Business Value IBV explains that people are concerned about the impact of COVID-19 pandemic on their lives. Over 14,500 people from Brazil, China, Germany, India, Mexico, Spain, the United Kingdom and the United States are making changes in how they work, shop or live. These new habits may not change drastically even after the vaccine is available for COVID-19 virus.

Also read: International Business Machine Corp reports 3.4% decline in Q1 FY20 revenue

Dow Inc.

This international chemical giant recently announced its association with Connel to use their expertise and local connection to facilitate supply of premium hand sanitiser in Myanmar.

In its second quarter 2020 results, Dow Inc reported net sales to be USD 8.4 billion, down 24 per cent versus the year-ago period. Equity losses were USD 95 million versus equity losses of USD 15 million. Dividend returns to shareholders totaled USD 516 million in the quarter.

The Company has recently declared quarterly dividend of 70 cents per share, which marks the 436th consecutive dividend paid by it/ its affiliates since 1912.

As outlook, the Company plans to upsize its 2020 operating expense reduction target from USD 350 million to USD 500 million via additional structural cost interventions.

Also read: Excessive use of hand sanitisers can be bad for health

Despite poor performance owing to the pandemic, stocks of these legendary companies remain to be vigilantly gauged by investors who are waiting to see if these companies successfully come out of the pandemic and what future holds.