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After reading Coca-Cola's (NYSE: KO ) quarterly results, I was ready for a drink. And not something that Coca-Cola makes.
The company hemmed and hawed over its gains in market share until it finally revealed its earnings, but only after it had nattered on about one-time charges, currency fluctuations, and "quarter comparability." Of course, it's not unusual for companies to exclude certain expenses or revenue when comparing quarters. And lots of folks, including PepsiCo (NYSE: PEP ) and global stalwarts such as Kraft Foods (NYSE: KFT ) , are feeling the pain from the strengthening dollar.
But marketing these results as "comparable currency neutral" numbers must have come from the same folks who came up with New Coke: It just isn't the real thing.
Here's the bottom line: Net revenue declined by 9%. Yet Coca-Cola's quarterly earnings per share were up 44% -- but only if you include the massive charges the company took last year. If you don't adjust for those charges, then Coke's earnings slipped 9%. Confused yet? Maybe it's time for that drink.
Worldwide case volume improved by 4% for the quarter, with growth driven by India, China, Latin America, and other Pacific-based operations (not surprisingly, North American volume dropped by 1%). Coca-Cola is looking to deliver $250 million in productivity gains by the end of the year and $500 million within two years, improving the overall bottom line in spite of revenue declines.
Even with 33% volume growth in India, Coca-Cola saw an overall volume growth of only 7% in Eurasia/Africa and what would have been a 9% increase in operating income if currency had been left out of the equation. Russian volume actually dropped by 9%.
One bright spot is that Coca-Cola's volume grew 14% in China, as the company continues to expand its base in products such as Sprite and Minute Maid.
Coca-Cola's North American revenue makes up only about 26% of the company's business, so it makes sense that the dollar's strength would hurt results substantially. Coca-Cola estimates that currency impacts generated a 14% decline on operating income in the quarter. For the third and fourth quarters, the company predicts a 12%-14% and low-single-digit negative impact, respectively.
However, this isn't the first quarter that Coca-Cola's earnings have taken a fall as the U.S. dollar strengthened. Coca-Cola and other global companies are paying the piper now for what could be considered previously inflated earnings due to a weak dollar. The more the dollar appreciates, the more it will hurt global concerns such as Caterpillar (NYSE: CAT ) and Cisco (Nasdaq: CSCO ) .
But it's not like they didn't see it coming. Heinz (NYSE: HNZ ) is one international consumer-products company that has used currency hedging to mitigate fluctuation risks, which Coca-Cola states it does intend to continue pursuing.
Coca-Cola's balance sheet certainly has room for improvement. In the past six months, inventory was up by 13.5% and long-term debt jumped by more than 80%, to $5 billion. Coca-Cola's 3.3% dividend is reliable, but at a price-to-earnings ratio (P/E) of 20, this stock isn't palatable, especially when investment growth is based on real numbers, not just some knockoff version of success.
It may be time for the real thing, but no smile.