The Coca-Cola Company (NYSE:KO), the largest beverage producer in the world and the company behind more than 500 brands, has underperformed the overall market by a wide margin over the last 52 weeks and declining demand for soda in the United States has been a primary reason for this.

The company has been combating this trend with innovative new products and more offerings in categories beyond carbonated soft drinks, but this has not led to the sales growth that investors would like to see. It has scheduled its second-quarter earnings for release on July 22, so with this in mind, let's take a look at its most recently quarterly report and the expectations for the upcoming release, and then check in on its largest competitor, PepsiCo (NASDAQ:PEP), to determine whether the tides are about to turn for Coca-Cola.

Source: Wikimedia Commons.

Nailing down the negative growth estimates
On April 15, Coca-Cola released its first-quarter report to kick off fiscal 2014's earnings season, and the results fulfilled analysts' expectations. Here's a breakdown:

Earnings per share $0.44 $0.44
Revenue $10.58 billion $10.56 billion

Source: Estimize.

Earnings per share decreased 4.3% and revenue decreased 4.2% year over year, as revenue dipped 1.9% in North America and 9.5% in Latin America. Even though revenue was weak, global unit volume was solid with a 2% overall increase, led by 7% growth in the Asia-Pacific region and 2% growth in the Eurasia and Africa region.

Source: Coca-Cola.

Gross profit decreased 3.2% to $6.49 billion and operating profit decreased 1.3% to $2.38 billion, but the margins showed strength, with the gross margin expanding 60 basis points to 61.4% and the operating margin expanding 70 basis points to 22.5%.

Coca-Cola's margins expanded because of a 5.6% decrease in cost of goods sold and a 4.6% decrease in selling, general, and administrative expenses achieved during the quarter, so hopefully the company can keep this trend going.

Coca-Cola's first-quarter cash from operations increased 123% to $1.1 billion, primarily due to reduced pension contributions and efficient capital management, and this, paired with the $10.41 billion in cash and cash equivalents it had to begin the quarter, enabled it to repurchase approximately $713 million worth of its common stock and retire $514 million in long-term debt.

Also, the company increased its quarterly dividend by 8.9% to $0.305 per share in February, which it paid out to shareholders on April 1. It is clear that Coca-Cola is still fully dedicated to maximizing shareholder value.

In summary, it was a good quarter for Coca-Cola and the market responded by sending its shares 3.74% higher on the day of the release. The shares have continued rising in the weeks since, so let's look at the expectations for the second quarter and see whether Coca-Cola can sustain the rally...

Source: Coca-Cola.

Expectations and what to watch for
Coca-Cola's second-quarter results are due out before the market opens on July 22, and the current expectations call for little to no growth. Here's an overview:

Earnings per share $0.63 $0.63
Revenue $12.83 billion $12.75 billion

Source: Estimize.

The estimates above call for earnings per share to remain unchanged and revenue to increase 0.6% year over year, which would be a major improvement from the negative growth shown in the first quarter. Key metrics aside, here are three other things that investors will want to watch for in the report:

  1. Third-quarter outlook: It will be important for Coca-Cola to provide an outlook on the third quarter that is within or above analysts' expectations; currently, the consensus estimates call for earnings per share of $0.54 and revenue of $12.38 billion, which would result in year-over-year growth of 1.9% and 2.9%, respectively. 
  2. Margins: Keep an eye on Coca-Cola's gross margin and operating margin and make sure the company continues to show improvement on them. With revenue growth slowing, it will be crucial for Coca-Cola to reduce expenses by as much as possible to keep its profitability stable.
  3. Share repurchases: Watch for the total amount of shares repurchased during the quarter and make sure Coca-Cola is on pace to reach its goal of repurchasing $2.5 billion-$3.0 billion of shares by the end of the fiscal year. Share repurchases will play a key role in Coca-Cola's long-term earnings-per-share growth. After it spent $714 million on repurchases in the first quarter, the company is on pace to reach its goal, so it would be ideal for it to repurchase another $675 million-$775 million of shares in the second quarter.
If Coca-Cola can meet or exceed earnings per share and revenue expectations and satisfy the three elements above, and I think it will, the stock will likely push to new 52-week highs. With this said, I believe Coca-Cola represents a great long-term buying opportunity today because it trades at a favorable forward valuation, and its 2.9% dividend, which has been raised for 52 consecutive years, and the company's share repurchase plans will provide additional returns to shareholders going forward.

PepsiCo's earnings due out the following day

Source: PepsiCo.

PepsiCo, the company behind brands such as Pepsi, Mountain Dew, Gatorade, Aquafina, Lay's, and Quaker Oats, has scheduled its earnings results for release the day after Coca-Cola, on July 23. Investors interested in PepsiCo will want to watch Coca-Cola's release closely, because it will provide deep insight into the condition of the beverage industry, where a large portion of PepsiCo's revenues come from. Here are what analysts currently expect PepsiCo to accomplish in its second quarter:

Earnings per share $1.23 $1.31
Revenue $16.88 billion $16.81 billion

Source: Estimize.

Source: PepsiCo.

These estimates call for PepsiCo's earnings per share to decrease 6.1% and revenue to increase 0.4% compared to the same period a year ago. Like Coca-Cola, it will also be important for PepsiCo to provide satisfactory guidance for the third quarter, and the current expectations call for $1.32 in earnings per share and $17.31 billion in revenue.

All in all, PepsiCo represents a great investment opportunity in itself due to its powerhouse mix of brands and its juicy 2.9% dividend, so investors who are interested should take a deeper look at it and pay close attention to Coca-Cola's earnings release on July 22, because it will provide substantial information pertaining to the beverage side of its business.

The Foolish bottom line
Coca-Cola is one of the most recognizable and respected brands in the world, but it has performed poorly on the financial front for several quarters due to slowed soda consumption in the United States. However, the can meet the current expectations, so I believe this will be the start to another rally in its shares. Foolish investors might want to consider initiating positions in the coming days and adding to them on any weakness going into or following the report, so price appreciation and Coca-Cola's healthy 2.9% dividend can provide them with rich returns over the next several years.