What to Think of Coke's Latest Trends

Coca-Cola's (NYSE: KO  )  recent earnings report had two main themes: The emerging markets are delivering robust growth and the Western markets are starting to slow down. The first element is most important, as the company's global business had experienced some slowdown prior to this quarter. With double-digit growth in China and solid growth in areas throughout Latin America and Asia, things appear to be back on track and in line with management's goals. The latter element, while it's disheartening to witness a more than 100-year-old Western icon lose some of its fizz, is part of a natural cycle. Investors concerned about the growth prospects for Coca-Cola are looking at the wrong picture. This isn't a global growth play; it's a steady-as-she-goes income generator.

Emerging wins
Developing and emerging markets posted 3% growth in volume, led by 12% in China and mid-single-digit gains in Russia, India, and Brazil. Driving these gains are increased brand penetration and a focus on cold, sparkling drinks.

With successful marketing campaigns, such as the Sochi Olympics, Coke is gaining traction in various parts of the world despite its already massive presence on the global scene. Management noted that the Sochi activation delivered 9% volume growth for Coke in Russia.

North American sparkling beverage volume was flat, though price mix was able to eke out a gain of 2%. Many analysts discussed the trend that a more health-conscious population is leading to less sugary soda consumption -- and it's true. The company will have a hard time switching the trend, too, as it's not a matter of too many calories. Diet soda consumption is on a downward slope, as well. European volume fell 4%.

While it may seem like a fundamental problem -- to have downward pressure on the core product -- it really won't keep Coca-Cola down in the long run.

Plenty to go around
Keep in mind that still beverages account for one-quarter of Coca-Cola's sales today. This is far from a soda pure play. Juice brands such as Simply are posting double-digit growth in North America, while tea brands Honest Tea and Gold Peak are growing double-digits as well.

Even Minute Maid Pulpy, an unattractive sounding product, grew its volume 8% in China.

Coca-Cola's net revenue gain, adjusted for currency differences and excluding structural changes, grew just 2%. Its bottom-line adjusted comparable earnings grew 5%. This is about what investors should expect from the beverage juggernaut. And while shares traded significantly higher, the appeal of Coca-Cola is not necessarily its potential for capital appreciation.

The advantage of owning Coke stock is in owning a world-class management team running a world-class distribution and marketing business -- unparalleled, really. The reward to investors is a company that will slowly and steadily increase its value over decades, and keep investors happy with a comfortable dividend yield in the short term (3.2%, currently). Coke's business will never sink overnight, and investors can be just as informed glancing at the stock every year as they would every month. The West's new love for living longer and healthier lives will not bring down this ultimate anchor stock.

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