Coca-Cola (NYSE:KO) is set to report fourth-quarter earnings Tuesday morning in what could be a terrific quarterly report. Within the last few days, PepsiCo (NYSE:PEP) and Dr Pepper Snapple Group unveiled declining carbonated soft drink volumes in a sign that the industry's woes continued into the fourth quarter. However, Coca-Cola's unit volume outperformed that of its rivals through the first three quarters of 2013, setting it up for what could be another quarter of market share gains.
PepsiCo and Dr Pepper Snapple disappoint, Coca-Cola Enterprises excites
As part of its fourth-quarter earnings release, PepsiCo announced that its Americas beverage volume declined 2% in the quarter and 3% for the full year. Dr Pepper Snapple revealed similar results: Beverage volume declined 2% in the fourth quarter and 2% for the full year.
One might think that Coca-Cola's volume would decline in line with its peers, but there is reason to believe Coca-Cola will do better. Through the first three quarters of 2013, Coca-Cola's North American beverage volume was flat and actually increased in the third quarter. By comparison, PepsiCo's Americas volume declined 4% through the first three quarters and Dr Pepper Snapple's volume declined 2%. This suggests that Coca-Cola is picking up volume share while PepsiCo and Dr Pepper Snapple focus advertising on other product categories. As a result, Coca-Cola may have performed better than its peers in the fourth quarter.
Another sign that the fourth quarter may have been a good one for Coca-Cola is the report of its largest European bottler, Coca-Cola Enterprises. Coca-Cola Enterprises announced strong fourth-quarter results, led by increases in volume and pricing. Economic woes in the European Union create a difficult operating environment. Coca-Cola's European case volume is down 2% through the first three quarters; PepsiCo's European beverage volume was down 0.5% through three quarters and declined another 1% in the fourth quarter. Any improvement would be a boon to Coca-Cola, which derives nearly 28% of its operating income from Europe.
Keep an eye out for these two things
Investors should look for updates on two key items on Tuesday: beverage volume and discussion of the Green Mountain Coffee Roasters deal. Look for Coca-Cola's North American beverage volume growth to exceed that of PepsiCo, which declined 2% in the quarter. PepsiCo has struggled to maintain volume as it shifts its focus to Mountain Dew Kickstart and its Good-for-You brands. Also look for better numbers coming out of Europe, possibly an increase in beverage volume quarter over quarter, reflecting Coca-Cola Enterprise's gains.
The other thing to observe is management's comments on the Green Mountain deal. So far, few details are known about Coca-Cola's deal to license its brands and flavors for Keurig Cold and to acquire a 10% stake in the at-home brewing company.
Of particular interest is whether or not the deal precludes Pepsi from joining the Keurig Cold platform. On the quarterly conference call Thursday, PepsiCo CEO Indra Nooyi said that "GMCR is one option" for entering the at-home carbonation market. On Green Mountain's quarterly call, CEO Brian Kelley refused to say whether or not the company could add Pepsi to the platform. Coca-Cola CEO Muhtar Kent will probably address the issue on the conference call, but there is no telling how forthcoming he will be.
If Coca-Cola has any say in the decision, it will likely push to keep PepsiCo from joining the system. If at-home carbonation becomes a huge market, Keurig Cold is in position to capture a large share of it. Having its main rival participating in a large part of a growing channel could offset any potential gain Coca-Cola would get as a 10% owner of Green Mountain. Therefore, any hint that Coca-Cola has a say in the matter should increase investors' optimism about Coca-Cola's future.
Coca-Cola has so far outperformed its main rivals in the United States. Doing so again in the fourth quarter should affirm investors' belief that it is on relatively solid footing. Moreover, any hints that PepsiCo may be excluded from the Keurig Cold platform should give Coca-Cola a small boost in the market's eyes. Watch for beverage volume and Green Mountain comments when Coca-Cola reports fourth-quarter results Tuesday morning.