In its latest conference call, Coca-Cola
There was certainly strength in the second quarter. Earnings increased from $1.58 billion to $1.72 billion, while earnings per share rose from $0.65 to $0.72. Factoring out one-time benefits of $0.04 per share, Coke's adjusted EPS was $0.68, beating the Street estimate of $0.64.
North American sales, which increased only 1%, were the big disappointment. Overseas sales benefited the company significantly, but despite Coke's global status, it still derives 30% of sales from North America. At roughly 1%, unit volume roughly mirrored sales growth, matching first-quarter performance.
This may perhaps stem from some quarterly "blips," but the implication is that U.S growth within Coke's core franchises might be lagging. Unit case volume growth has been relatively weak in recent quarters and was flat in 2004. This is particularly significant, since unit case volume growth generally corresponds to sales growth, particularly in mature markets.
On the conference call, Coke CEO Neville Isdell pledged to improve North American sales. He's upped marketing and product-development expenditures by $400 million this year, hoping to boost numbers by releasing innovative new products and better promoting existing ones. This has cut into earnings, but it has also led to popular new products such as Coke Zero and a Splenda-enhanced version of Diet Coke.
A particularly bright spot within the recent release: strong unit case growth within Latin American and African markets. It's partly due to the company's ability to continually sell more product at higher prices. This trend should prove favorable if Coke can keep it up.
During the 1980s and 1990s, Coke was a growth company. Now it looks more like a value play. The Motley Fool Inside Value newsletter recommended the company earlier this year.
Coke holds many enticements for value investors. It has the highest-ranked brand in the world, a dividend yield of 2.45%, strong cash flow generation ($3.5 billion this year so far), and stock repurchases ($2 billion in 2005). More importantly, it appears management is serious about bringing back growth. It may take another "transition year" to happen -- but for value investors, that's not a long time to wait.
Fool contributor Tom Taulli does not own shares mentioned in this article.