Shares of Coca-Cola (NYSE:KO), one of Warren Buffett's favorite long-term stocks, have dropped significantly -- by 3.9% to around $37.40 per share -- due to disappointing fourth quarter and full-year earnings results. Meanwhile, shares of peers PepsiCo (NASDAQ:PEP) and Dr Pepper Snapple Group (NYSE:DPS) have risen by 0.2% and 0.4%, respectively. Coca-Cola's recent drop has wiped out 12-month gains. Should we consider this as an opportunity to buy into Coca-Cola? Let's take a closer look and find out.

Negative currency impact pressures Coca-Cola's earnings
Coca-Cola earned $0.38 per share in the fourth quarter, 7% lower than year-ago EPS of $0.41. Its Q4 net operating revenue dropped by 4% year over year from $11.4 billion to only $11 billion. For the full year, Coca-Cola generated $1.90 per share, 3% lower than last year's EPS.

In 2013, the decline in operating income came mainly from a negative currency impact. Coca-Cola reported that excluding the currency impact and structural changes, its operating income actually increased by 6%. Coca-Cola delivered 2% growth in unit case volume, driven mainly by emerging markets such as Eurasia and Africa, the Pacific, and Latin America. The main drag on both unit-case volume and operating income for the full year was bottling investments. The comparable currency-neutral EPS jumped by 8% in 2013, in-line with the company's long-term target.

Looking forward, the company will keep working aggressively toward its 2020 vision to double its system revenue. With the recent partnership with Green Mountain Coffee Roasters, Coca-Cola could leverage the Keurig maker's new technology and innovation capabilities to establish a new platform and distribution channels, creating a new fast-growth revenue stream for the company.

PepsiCo and Dr Pepper Snapple offer sweet cash return yields
What might also make investors excited are consistent cash returns to shareholders via both dividends and share buybacks. In 2013, Coca-Cola returned as much as $8.5 billion in cash to shareholders, yielding a decent 5.1% cash return to investors. 

Both PepsiCo and Dr Pepper Snapple are also committed to returning cash to shareholders. In the past 10 years, PepsiCo has returned more than $60 billion in cash to shareholders. It will also raise expected shareholder cash returns with a $5 billion share-repurchase target. In 2014, the total cash return will grow by 35% to a total of $8.7 billion. With a total market capitalization of $119.9 billion, an $8.7 billion cash return yields as much as 7.3% to shareholders.

Dr Pepper Snapple also reduced its share count significantly. Since 2010, the company has spent a total of $2.4 billion to repurchase 62.5 million shares. In 2013, around $702 million in cash was returned to shareholders, including $400 million in share repurchases and a $302 million in dividend payments. Thus, Dr Pepper Snapple enjoyed a 6.9% cash return yield in 2013.

Is Coca-Cola a good stock now?
Coca-Cola is the most expensive among the three, at nearly 17 times its forward earnings. The forward earnings valuations of both PepsiCo and Dr Pepper Snapple are lower at 16 and 14, respectively. However, with a leading global position in the soft-drink business, progress toward its 2020 Vision, and the recent long-term partnership with Green Mountain, Coca-Cola could post decent gains in the long run. Moreover, Coca-Cola is well-suited for income investors with its ongoing and consistent cash returns via both share repurchases and dividends.


This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.