Sweet Is Sour for Andina

When is a 14% increase in revenue not worth a hooting celebration? How about when it brings only a 3% increase in net income?

Can you say rising costs? I knew you could. Now, say it in Spanish, because we're discussing the situation at Chile's big Coca-Cola bottler, Andina Bottling (NYSE: AKO-A) -- otherwise known as Embotelladora Andina S.A., in Santiago.

This is not an unknown phenomenon. It recently put a damper on the results of Mexico's Coke-hawker FEMSA (NYSE: FMX). For the past year or so, foreign bottlers have been stealing the hearts of interested beverage investors. The excitement seems to have swung back to the big U.S. producers these days -- witness the enthusiasm for Coca-Cola (NYSE: KO) and PepsiCo (NYSE: PEP). But don't write off the little foreign guys without digging a bit deeper.

Before we get to the bad, let's review the good. Case volume rose 6.3%, with the biggest increase coming in Andina's Argentina biz, which moved 9.9% more product. Even Andina's laggard geographic region for the quarter, Brazil, saw a 4.6% increase.

Alas, higher sweetener costs helped nip cost of goods sold, and increased fuel prices pushed up SG&A. Even so, operating margin came through at 18%, and operating income rose 14.8%. A variety of non-operating items, including financing charges and price-level restatements (part of Chilean GAAP), cost the firm 2 billion pesos in the current-year quarter, versus only 124 million in 2006. That explains the slower growth in net income. The final tally for U.S. ADS holders was 175.7 pesos per ADS, or about $0.33 per share. (Currency converted via the handy calculator at Motley Fool Global Gains.)

And this also explains why I think this company is a good one to watch for the long run. Costs ebb and flow in this business and smooth out over the long term. So as long as Andina is seeing good, steady growth in case volumes, especially in the volatile territories like Argentina, that's sweet news.

At the time of publication, Seth Jayson had shares of FEMSA but no positions in any other company mentioned. See his latest blog commentary here. View his stock holdings and Fool profile here. Coca-Cola is a Motley Fool Inside Value recommendation. Fool rules are here.