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Pity the short-seller? How about "pity the press-release writer in a strong-dollar world"?
Admittedly, it's not as snappy a title as my column from last week, but this week's twin news releases out of Coca-Cola (NYSE: KO ) and PepsiCo (NYSE: PEP ) have me "feeling the pain" of the poor PR hacks tasked with trying to spin mediocre quarterly results into public relations gold.
From Pepsi: "The company delivered 6 percent constant currency net revenue growth. ... [and] constant currency core EPS grew 8 percent. ... Reported EPS grew 3 percent and reported net revenue declined 1 percent."
Meanwhile, Coke had this to offer: "Currency neutral comparable operating income growth exceeded the Company's long-term currency neutral profit target. ... The Company reported first quarter 2009 earnings per share of $0.58. ... Reported earnings per share for the first quarter of 2008 were $0.64."
If you were a strong enough swimmer to survive the sea of qualifiers, in the end you were treated to the news that Pepsi's earnings growth came to the hardly bubbly sum of 3%; meanwhile, some 10% of Coke's earnings evaporated over the past year. Little wonder then that Coke stock is selling for 4% cheaper than before it released the obfuscated figures, while you can sneak a sip of Pepsi for 8% less than last week.
Are these drops justified?
Actually, probably, yes
Whether you focus on "constant currency" figures, or real-world results in which currency values fluctuate over time, Pepsi showed a 1% decline in both volume of product shipped, and revenues derived from these shipments. (These anemic results may explain why the firm wants to re-establish control over its distribution chain by bidding for Pepsi Americas (NYSE: PAS ) and Pepsi Bottling Group (NYSE: PBG ) .) For its part, Coke claims to have "gained volume and value share in nonalcoholic ready-to-drink beverages for the seventh consecutive quarter."
(Note the nonstandard term "value share" -- a term I defy you to find in any dictionary known to man -- as opposed to "market share." And give credit to the PR hacks for inventiveness, if not for clarity. Anybody this skilled in thinking up new ways to speak without telling you anything ought to be in politics.)
Fortunately, however, tables are less subject to spinning. What we find from Coke's summary-of-results tables is that the company did indeed increase shipments by volume (up 2% worldwide). But this increase came at a steep cost -- revenues slid 3%, suggesting that whether you're talking about gaining market share, "value share," or time shares, Coke appears to have increased its share while earning less for its product -- and indeed, gross profit slid 4%.
Spinners aren't winners
Personally, I find it helpful as an investor to deprive corporate PR departments of their spin-ability by discounting the verbiage in their reports, and focusing on just these very tables. And for consistency's sake, I focus on one table in particular: The appropriately named "cash flow statement."
And what we find here is, if anything, even less encouraging than what we found in the tables describing product shipments. Specifically, we see that in large part because of a need to inject cash to carbonate its flat pension fund, Pepsi in the first quarter of 2009 ran cash-flow negative to the tune of $266 million. (After deducting capital expenditures from this already negative result, free cash flow came to negative $564 million.)
Coke's results were better in comparison, but still pretty weak tea. Cash from operations declined 22% year over year, and after accounting for capital expenditures left the firm with just $694 million in first-quarter free cash flow -- about a 21% decline.
Practice spin control and suppress the craving to look on the bright side of things. The world's not a constant currency place, and the more the U.S. dollar appreciates, the rougher things are going to be for major international business-doers like Pepsi and Coke -- and Caterpillar (NYSE: CAT ) , Cisco (Nasdaq: CSCO ) , and General Motors (NYSE: GM ) , for that matter.
Anyone who does substantial business abroad is going to feel the margins pinch, and no matter how much they crave it weren't so, it is.
Not everyone's as down on the pop stars, though. Find out what the teams at Motley Fool Inside Value and Motley Fool Income Investor think about Coke and Pepsi, when you claim a free, 30-day trial to either publication -- or both (hey, they're both free, right?)