Global beverage giant Coca-Cola
For the third quarter, total case volume ticked up 2%. Pretty good for a recession, you might think, but that figure is down from 5% growth in the year-ago period. I can understand a slump in year-over-year performance, since the brunt of the financial crisis hadn't yet hit consumers this time last year, but I find it particularly troubling that this modest increase represents half the previous quarter's gain. Meanwhile, competitor PepsiCo
Coke's financial results were less disconcerting. Earnings per share of $0.81 were flat year over year, but down 1% on a comparable basis (which excludes special items). Net income, meanwhile, squeaked out the tiniest gain, rising to $1.896 billion from $1.89 billion a year earlier. Unfavorable currency rates drove a 4% decline in revenue -- to $8.04 billion -- partially offset by stronger concentrate sales and improved pricing and product mix.
The most positive metric? Margins were up in the core business, as well as in the company's bottling investments. The latter group includes Coca-Cola Enterprises
Those who've been following my coverage of the nonalcoholic-beverage industry know that I tend to favor Coca-Cola for its large international footprint. Basically, that means the company has an advantage over the likes of Hansen Natural
But those crucial international results let me down this time around. Sure, case volume rose 4%, but that's an annual and a sequential decline. Encouragingly, Chinese and Indian consumers stepped up their thirst for Coca-Cola's products from the prior quarter, but I was looking for a broad-based gain across all markets.
For my bullish thesis on Coca-Cola to pan out, management needs to crank out international growth while at least stabilizing North American volumes. Instead, the third quarter saw weaker international results, while North American volumes worsened from a 1% slip in the second quarter to a 4% rout this time.
I'm not giving up on the company because of a single quarter, but until results turn up, investors may want to consider icing their plans to buy stock.
That's good sense more than it is running scared. Based on price-to-operating-cash-flow, Coca-Cola shares trade a bit higher than PepsiCo's stock, and at a rich premium to Dr Pepper Snapple and Nestle (OTC BB: NSRGY). Moreover, using the PEG ratio, Coca-Cola's peer-premium ranges from roughly 33% to upward of 60%.
If the market gets jittery, or if another quarter disappoints, there appears to be ample downside risk.
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