Coca-Cola Company Earnings: What's Next for the Beverage Giant?

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On Tuesday, Coca-Cola (KO 0.31%) will release its quarterly report, and investors have started to have glimmers of hope that the worst might finally be behind the soft drink giant. Without the diversification that rival PepsiCo's snack business provides, Coca-Cola has had to take other steps to bolster its growth, with its strategic investment in Keurig Green Mountain (GMCR.DL) potentially signaling the next chapter in Coca-Cola's long history of success.

For decades, Coca-Cola has grown into a global powerhouse, with a brand that's known and revered around the world. More recently, though, Coca-Cola has seen health trends move against its core carbonated beverage products, with measures like targeted taxes and regulations casting the future of its namesake soft drinks into doubt. Still, Coca-Cola sees avenues for growth in other areas, including tea, water, and other still beverages, and a new opportunity with Keurig Green Mountain could give Coca-Cola the ammunition it needs to stay ahead of PepsiCo. Let's take an early look at what's been happening with Coca-Cola over the past quarter and what we're likely to see in its report.

Stats on Coca-Cola

Source: Yahoo! Finance.

Can Coca-Cola earnings finally beat expectations?
In recent months, investors have stayed rock-solid in their views about Coca-Cola earnings, keeping both second-quarter and full-year estimates unchanged. The stock has bounced off its recent lows, though, climbing 9% since mid-April.

Coca-Cola's first-quarter earnings report showed just how much difficulty the company has had in sustaining its core business. Emerging-market strength helped sustain Coca-Cola's overall volume, with China leading the way with its 12% case growth. Yet weakness in Europe and flat results in North America led to a 1% decline in developed-market volumes, and currency impacts also weighed on results, sending Coca-Cola's overall revenue down 4% and earnings per share falling by 6%. By contrast, although PepsiCo has seen some similar trends in its beverage business, its food segment has helped to provide some lift to its overall results.

But Coca-Cola shareholders have hope that the company will be able to adapt to changing tastes among customers. Noncarbonated drinks such as the company's juice and tea brands are seeing double-digit percentage growth rates even in North America, and if current trends continue to weigh against carbonated beverages, then the importance of that part of Coca-Cola's business will only grow. Currently, still beverages account for just a quarter of Coca-Cola's total revenue, giving the company plenty of room for improvement as it taps the market more effectively.

The big wild card for Coca-Cola investors is what its long-term plans are for Keurig Green Mountain. Already, Coca-Cola has made its initial 10% investment in the company and then boosted its stake subsequently to 16%. Some analysts believe that the Coca-Cola partnership could help Keurig Green Mountain more effectively make use of its intellectual property, as well as providing a way to take further advantage of the Coca-Cola brand to boost sales of related products. Others believe that Coca-Cola will eventually acquire Keurig Green Mountain in full, using its international experience and distribution channels to go up against global competition more quickly. Until the Keurig Cold beverage machine becomes available, though, it's hard to assess the full potential of a Coca-Cola/Keurig combination.

In the Coca-Cola earnings report, watch to see whether unit volumes bounce back in developed markets and whether emerging markets keep leading the way forward. It's unlikely that Coca-Cola management will reveal its grand master plan for Keurig Green Mountain, but if it does, it could create even more excitement over Coca-Cola stock.

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