Foolish Forecast: Coca-Cola on Tap

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Can anyone remember the last time soda king Coca-Cola (NYSE: KO) tripped over the quarterly earnings hurdle Wall Street had set up for it? Reviewing the record on Earnings.com, it appears the company has never missed an estimate. Sure, the record there only goes back to 2002 -- but that still makes for six straight years of meeting or beating expectations.

But enough about the past. Will this Motley Fool Inside Value recommendation still be "it" when it reports Q1 2008 results on Wednesday?

What analysts say:

• Buy, sell, or waffle? Sixteen analysts drink the Kool-Aid at Coke (to mangle a metaphor), giving the stock 13 buy ratings, two holds, and a sell. The Motley Fool CAPS community gives four out of five stars to the company.
• Revenue. On average, they predict 12% sales growth to $6.8 billion.
• Earnings. Profits are predicted to rise 11% to $0.62 per share.

What management says:
Coke is entering 2008 on the back of a strong 2007. The company posted 6% growth in total volume of product shipped last year, with carbonated beverages underperforming slightly, growing just 4%, and non-carbonated beverages outperforming at 12%. Price increases, improved product mix, and beneficial currency exchange rates from foreign sales all helped to push revenue up 20%. Unfortunately, the cost of goods sold rose even faster, depressing gross margins on those sales.

Company President Muhtar Kent credited emerging markets as the main driver of top-line growth. And the acquisitions of glaceau, Fuze, and Jugos del Valle have proven successful and should help boost revenue in the "still", or non-carbonated beverage, segment.

What management does:
Despite its slumping profit margins, Coke continues to hold the lead over rivals Hansen Natural (Nasdaq: HANS), PepsiCo (NYSE: PEP), Cadbury Schweppes (NYSE: CSG), or Jones Soda (Nasdaq: JSDA) -- in that order -- on both operating and net profitability.

Margins	9/06	12/06	3/07	6/07	9/07	12/07
Gross	65.8%	66.1%	65.6%	64.9%	64.2%	64%
Operating	27.3%	27%	26.8%	26.4%	26%	26.1%
Net	22.2%	21.1%	21%	20%	19.8%	20.7%

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
Two items that Kent cited for boosting results last year, however, would seem to pose some potential problems as the U.S. heads into recession. Namely, the company's twin strategies of raising prices on its products and trying to sell more higher-priced beverages (the improvement in "product-mix" of which Coke spoke). As U.S. consumers find their pocketbooks increasingly pinched, it seems logical that they might rebel at the higher prices, switching to cheaper brands or cutting back on purchases in response.

Mind you, in this Fool's view, a more expensive can of Coke, or an even pricier bottle of Fuze, is an affordable "luxury" for most consumers in any economic environment. No one's going to stop buying soft drinks entirely because of an economic slowdown -- but cut back on their buying? Yeah, I could see that happening.

Related Foolishness:

• Coca-Cola's Weak Brew
• Duel Revisited: Coca-Cola Bubbles Up
• Concentrated Results at Coca-Cola