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Beverage giant Coca-Cola's (NYSE: KO ) first-quarter performance was positive across nearly every major financial metric. So why have shares fallen on results?
We'll get there in a moment. First, let's take a look at these numbers that have failed to impress the market.
Revenue of $7.53 billion reflected a 5% year-over-year increase. Favorable currency movements, however, contributed most of the gain. Earnings-per-share growth looked much better: Up 19%, to $0.69, in GAAP terms, and up 23% when excluding special items in the recent and year-ago quarters.
Operating cash flow reached $1.3 billion -- a more than 50% gain that was aided by currency effects and lower pension contributions.
Also, Coca-Cola grew its global nonalcoholic ready-to-drink beverage value share (company sales as a percentage of industry sales) while holding steady volume share (the industry equivalent of market share). Said differently, Coca-Cola successfully raised prices versus the competition, without taking a hit on the amount of product sold. PepsiCo (NYSE: PEP ) , what say you?
Total company volume, meanwhile, increased 3% in the quarter, with international volume gaining a larger 5%. But I have to call out two salient facts.
One, North American volume sank 2% -- worse than the prior quarter's performance -- indicating that the structural headwinds facing both Coca-Cola and key competitor PepsiCo continue to blow full force.
Now, let's shuffle on over to Exhibit No. 2. Here, we see that total "sparkling" (aka carbonated) volume gained 2% for the quarter, with international sparkling volume, at 3% growth, only slightly ahead. Meanwhile, total "still" volume -- composed of juices, flavored waters, teas, etc. -- jumped 8%, with international markets posting 12% growth.
Essentially, if we take away the two factors that originally gave rise to Coca-Cola's success -- soda products in general, and the U.S. market in particular -- today's Coca-Cola would be a growth powerhouse. That's the sort of irony that doesn't go down smoothly.
And I think that we can start right there in explaining the market's negative reaction.
Furthermore, there's integration risk in Coca-Cola's pending acquisition of Coca-Cola Enterprises' (NYSE: CCE ) North American bottling operations. We're already hearing that this transaction, which isn't even expected to close until Q4, is heading for problems. A representative of the Teamsters union was recently quoted as saying that Coca-Cola's move will "hurt customer relations and provoke a work stoppage ... not only in Southern California but in other key markets as well."
Bartender, make that a rum and Coke.
Look, I understand the investment appeal of Coca-Cola, given its global scope and brand recognition. But investors can take just a half step to the side and find what I consider superior companies. Take Andina and FEMSA (NYSE: FMX ) , for instance, both of which bottle Coca-Cola products but are focused on the fast-growing Latin American market.
Or, if you don't mind being invested in consumer-oriented companies that are tackling structural challenges, why not look to the telecom sector, where you can at least collect a 5-6%-ish dividend yield ? Verizon (NYSE: VZ ) , AT&T (NYSE: T ) , and Vodafone (NYSE: VOD ) all fit that profile.
Coca-Cola may eventually surprise doubters and dramatically turn around U.S. operations. But until then, I see no compelling reason to hold shares, not at today's prices.