Motley Fool Inside Value recommendation Coca-Cola (NYSE:KO) is finally showing some life where it really counts. After falling short of its 3% to 4% annual volume growth target (it was 2% last quarter), volume in the third quarter increased 5%. Better yet, operating income increased 9.7% before charges, and net income jumped almost 9.9%.

Some will note that Coke is still not growing beverage sales as fast as rival PepsiCo (NYSE:PEP) is. But investors have been looking for new life at Coke since CEO Neville Isdell took over in June 2004 -- and there is good news.

Carbonated drink volume grew only 2% -- down 1% from the second quarter -- but the company maintained its market share. Non-carbonated drinks excluding water rose 13%, and water was up an impressive 21% (both are 2% higher than last quarter). Coca-Cola increased market share in sport drinks, juices, and juice drinks.

While the company has already used $1.6 billion to buy back shares this year, it has also cut total debt by almost $3 billion. At the end of 2004, Coca-Cola had a net debt (debt minus cash) of $410 million. Now there is net cash of $862 million. If that doesn't convince you that Coca-Cola is a cash cow, nothing will.

Investors would be wise to note that Coca-Cola's revenues and per-share earnings marginally beat analyst projections this quarter. After a period of what I'd call disappointing results, Coke may finally have reached the point where it meets and exceeds Wall Street expectations as growth in non-carbonated drinks and water, combined with relative pricing stability, enabled it to post strong results for the third quarter.

Is Coca-Cola at the point where 9% to 10% annual earnings growth is possible? This observer thinks so, though the next few quarters should be telling. And, because analysts are looking for 8.1% annually over the next five years, there is earnings surprise potential here -- the stuff of outperformance.

Coca-Cola stock was trading for more than $60 a share five years ago. In mid-afternoon trading, the stock is changing hands at $42.29 a share and yielding a tempting 2.7%. Given the improved balance sheet, I'd say this stock warrants consideration.

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Fool contributor W.D. Crotty owns shares in PepsiCo. Click here to see The Motley Fool's disclosure policy.