Can Coke's Earnings Keep Up With Pepsi?

Coca-Cola (KO 0.60%) will release its quarterly report on Tuesday, and the stock's poor performance recently has already disappointed investors hoping for faster growth. Even as rival PepsiCo (PEP 0.97%) has done a good job of holding its own in a tough environment for the beverage industry, Coke has lagged behind, and Coca-Cola earnings growth could prove elusive unless the trends the company has faced lately reverse themselves.

For 13 years, Coca-Cola stood atop the global economy as the most valuable brand in the world. Yet the way in which it lost its crown this year is indicative of what Coke investors have seen for a long time, as the company's 2% rise in brand value during 2013 wasn't nearly strong enough to hold back the whopping 28% jump that new No. 1 brand Apple posted over the past year. As investors come to grips with the idea that Coke's growth prospects are slowing down, it's unclear whether the soft-drink giant will accept its fate or fight harder to find new opportunities to increase sales and profits. Let's take an early look at what's been happening with Coca-Cola over the past quarter and what we're likely to see in its report.

Stats on Coca-Cola

Source: Yahoo! Finance.

Will Coke earnings ever pop up again?
Analysts have modestly cut back on their views about Coke earnings going forward, trimming third-quarter estimates by $0.02 per share and cutting next year's projections by triple that amount. The stock has responded poorly to that pessimism, falling about 7% since early July.

Coke was happy to put the second quarter behind it, as revenue during the quarter fell short of what investors had expected to see. North America and Europe were particularly weak areas for sales of the company's namesake soda products, although overall volumes rose 1% during the quarter. Cold and wet weather in many key markets led to poor demand, and even promising areas like China, India, and Brazil only managed flat results or very slightly higher sales.

Coca-Cola's recent performance reflects a longer-term trend that both it and rival PepsiCo have faced in their more-developed markets. For both companies, carbonated soft drinks have lost their growth potential, as concerns about sugary beverages and their impact on obesity rates have led some to make calls to regulate or limit their availability. That has sent both Coke and Pepsi looking for alternatives, with Coke relying largely on its non-carbonated water, juice, and sports drinks for growth. Pepsi has also capitalized on the same trends, but its extensive snack-food lineup gives it even more room to broaden its product scope and cater to more health-conscious customers.

Yet awareness of that trend hasn't helped Coke move forward with a strong strategic plan. Coke's 2020 Vision was intended to provide a road map to growth, but four years in, the beverage giant hasn't made as much headway as investors had hoped to see. Even emerging markets are questioning whether carbonated beverages should go unregulated, with Mexico having considered taxes that could hit both Coke's sales and those of regional bottler Coca-Cola FEMSA (KOF -1.22%), in which Coca-Cola holds a stake of almost 29%. Initiatives aimed at soda syrup and concentrate would be particularly difficult for Coca-Cola as it tries to build up its relationships with Coca-Cola FEMSA and its other bottling partners.

In the Coke earnings report, watch to see whether its emerging market volumes start to climb again. Writing off its prospects in its core North American market is one thing, but without growth from more promising global markets, Coca-Cola will have a hard time keeping up with PepsiCo's broader-based potential to boost sales.

Click here to add Coca-Cola to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.