Coca-Cola Earnings: "Constructively Discontent and Resolutely Focused"

The world's largest soda maker and owner of one of history's most iconic brands, Coca-Cola (NYSE: KO  ) released earnings today, which left investors feeling..."Eh." Management apparently felt the same way, as CEO Muhtar Kent said the company was "constructively discontent and resolutely focused on further advancing our growth trajectory." 

Though volume sales were encouraging and the company essentially met expectations, Coke remains an expensive stock with currency headwinds and structural charges holding down results.

The 2 big numbers
There are probably no two metrics Wall Street focuses on more than revenue -- how much money the company brought in -- and earnings -- how much of that money it got to keep. Coke reported revenue that came in slightly lower than expectations, and earnings that were slightly ahead of what was expected.

 

Earnings per Share

Revenue

Expected

$0.53

$12.10 B

Actual

$0.54

$12.03 B

Surprise?

1.9%

 (0.6%)

Source: E*Trade, SEC filings.

When it comes to Coke, the third most important metric in terms of the company's long-term viability is volume growth. This is a measure of how much actual Coke, Diet Coke, Fanta -- and all of the other brands that fall under the Coca-Cola umbrella -- was sold during the quarter. Taken as a whole, the company's total volume was up 2% compared to last year.

Here's a look at how those geographic regions contributed to the overall revenue pie, and how much volume growth each region experienced during the third quarter.

Source: SEC filings, corporate and bottling divisions not included.

Digging into the details
Beyond these more obvious numbers, there are a couple of important notes that investors should be aware of. First and foremost, overall revenue was affected by some variables that don't necessarily reflect the long-term strength of Coke's business.

Operating income would have looked much better had structural charges related to bottling investments in Brazil and the Philippines not been included. Currency fluctuations also had a drag on the company's operating income. As a whole, Coke's consolidated worldwide operating income was down 12% from last year, but once these currency fluctuations are ironed out, the company's operating income would have shown 7% growth. 

The other important thing to remember is that Coke is more than a one-trick pony. Though sales of carbonated beverages (sodas and energy drinks) stabilized last quarter after falling earlier in the year, it is the company's brand of teas that showed impressive growth. Combining Coke's Gold Peak, Honest Tea, and Fuze brands, this section of the company grew sales by the double digits in North America. 

Is it a buy?
There are certainly some investors who think Coke is a buy right now. The company's stock is down 11% since mid-May, and it currently offers a very attractive 3% dividend yield. At the same time, North America still represents more than half of the company's revenue, and growth opportunities aren't as plentiful as they once were. This makes the stock's price-to-earnings ratio of 18, and price-to-free cash flow ratio of 21 seem a bit high.

I currently own shares of Coke, but will soon be selling them.  This has little to do with the stock, and everything to do with the negative consequences of consuming lots of Coke.  

The company is a stalwart dividend payer in my retirement portfolio, and I'm in search of a company to replace it.  With this in mind, I've already read up on the absolute best of the best when it comes to rock-solid dividend stocks.  Our top Motley Fool analysts have drawn up a list of nine dividend paying candidates in this free report that fit the bill. To discover the identities of these companies before the rest of the market catches on, you can download this valuable free report by simply clicking here now.


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