Trying to wrap my brain around last week's fiscal 2008 earnings report from Coca-Cola (NYSE:KO) feels a little like trying to wrestle a grizzly bear. Trying to simultaneously compare Coke's results with PepsiCo's (NYSE:PEP) release simply adds a second grizzly to the equation. So let me start this out slow, with a few comments on each firm's release:

The pause that refreshes
Coke reported:

  • "Strong worldwide unit case volume with 4 percent growth in the quarter and 5 percent growth for the full year." During the fourth quarter, growth in China and India were particularly strong, and Eastern Europe also contributed double-digit numbers -- North American volume shipped, on the other hand, dropped 3%.
  • Revenue climbed 11% over the course of the year, but entered into a 3% slump in the final quarter.
  • Even so: "Global volume and value share gains continued across key markets and categories."
  • Coke generated $5.6 billion in free cash flow for the full year, up 2% from last year's $5.5 billion. Incidentally, this was slightly lower than the GAAP net profit you'll read about in most headlines, but the gap is narrowing.

That said, I think Coke's spin on the results conceals what's really going on here. Notice how management mentioned the 4% volume growth before the 5%? You'll get a better picture of the dynamics of this recession by switching those two numbers around, like so: Case volume shipped decelerated from 5% for the year to 4% for the quarter. In North America in particular, volume declines accelerated from 1% for the year, to 3% in the final quarter of the year.

Refresh yourself
Pepsi announced:

  • "Worldwide beverage and snacks volume both up 3 percent for the year." The dynamics here resembled those at work on Coke, with volume falling off to 2% growth in the final quarter of the year.
  • Revenue-wise, Pepsi fared better than Coke. Pepsi's full-year revenue growth tracked its archrival almost step-by-step -- up 10%. As with Coke, growth trailed off in Q4 to 3% growth for the quarter.
  • Free cash flow for the year was $4.55 billion, slightly up from last year's $4.5 billion. The gap between Pepsi's GAAP number and its cash profits is significantly wider than we see at Coke, but again, the gap is narrowing.

Coke vs. Pepsi -- frenemies?
As you can see, the recession has slowed both companies in similar ways -- just to different degrees. It's also raised a shared concern: currency exchange rates. At several points in its release, Coke highlighted the effect of a strengthening dollar on its business. "Currency negatively affected comparable operating income by 9 percent in the quarter," the company wrote, adding that it "currently expects currencies to have an estimated 10 to 12 percent negative impact on operating income in the first quarter of 2009."

Pepsi's management is more coy about its prospects, but if you read between the lines, it's saying the same thing: "PepsiCo is confident in the underlying strength of its business and in its ability to generate solid top- and bottom-line performance in 2009 on a constant currency basis [emphasis added]." In other words, Pepsi's results will look just fine ... so long as you ignore one of the biggest factors affecting these results.

Survey says
Regardless of the currency headwinds, investors place great confidence in both these beverage giants. On Motley Fool CAPS, where we keep close tabs on investor sentiment, Coke receives an above-average four-star rating; Pepsi gets the full five-star treatment. Likewise, the companies' multitudinous scions:

  • Coca-Cola FEMSA (NYSE:KOF), Coca-Cola HBC (NYSE:CCH), and Pepsi Bottling Group (NYSE:PBG) all rate five stars in the minds of CAPS members.
  • Coca-Cola Bottling Co. (NASDAQ:COKE) and PepsiAmericas (NYSE:PAS) get four stars.

Considering the strong performance of their parents in the face of a truly vicious economic downturn, I can understand that. Q4 may have come in a bit light, but I consider it no small feat that both Coke and Pepsi managed to generate positive FCF (free cash flow) growth over the course of last year.

Foolish takeaway
There's something to be said for stability in an economy like this one. However, if profit is a function of risk-taking, then investing in "safe" companies like Coke and Pepsi may not be the best way to grow your portfolio. Coke and Pepsi both sell for premium valuations of 18 times FCF, yet neither one is expected to grow any faster than the high single digits long term. In this Fool's view, you probably won't lose a lot of money from owning either Coke or Pepsi. In fact, either or both could add some healthy ballast to your portfolio.

But in the final analysis, at today's prices, I’m not sure I see a potential for reward for either stock.

Not everyone shares that view, though. Find out what the teams at Motley Fool Inside Value and Motley Fool Income Investor think about Coke and Pepsi, respectively, when you claim a free, 30-day trial to either publication -- or both (hey, they're both free, right? That's a good deal in any economy.)

PepsiCo is a Motley Fool Income Investor recommendation. Coca-Cola is a Motley Fool Inside Value selection.

Fool contributor Rich Smith does not own shares of any company named above. The Motley Fool has a disclosure policy.