Can anyone remember the last time that soda king Coca-Cola (NYSE: KO) tripped over the quarterly earnings hurdle Wall Street set up for it? I can, but I have to cheat and check the records on Earnings.com. It's been 18 quarters -- four-and-a-half years -- since Coke last cracked. So will this Motley Fool Inside Value recommendation still be "it" when the 2007 annual results arrive tomorrow morning?

What analysts say:

  • Buy, sell, or waffle? Seventeen analysts drink the Kool-Aid at Coke (to mangle a metaphor), giving the stock 13 buy ratings and four holds.
  • Revenue. On average, they predict 18% sales growth, to $7 billion.
  • Earnings. Yet profits are only expected to grow 6% to $0.55 per share.

What management says:
Big news at Coke this quarter: In December, CEO Neville Isdell announced he will be stepping down on July 1, 2008, ceding his position to current COO Muhtar Kent. With the exception of a six-year stint at Turkey's Efes brewer and Turkish bottler Coca-Cola Icecek, Kent has worked for Coke for the past three decades.

What management does:
For a business that's been in business for more than a dozen decades, you'd think Coke's results would be just a bit more consistent than we've seen lately. Don't get me wrong -- 60%-ish gross margins on syrup are pretty terrific. Same goes for mid-20s operating margins and a 20-ish net. Taking the operating margins as our guide, we see that Coke is currently top of the pops -- earning more pennies per dollar of revenue than Hansen Natural (Nasdaq: HANS), PepsiCo (NYSE: PEP), Cadbury Schweppes (NYSE: CSG), or Jones Soda (Nasdaq: JSDA) -- in that order.

Margins

6/06

9/06

12/06

3/07

6/07

9/07

Gross

65.3%

65.8%

66.1%

65.6%

64.9%

64.2%

Operating

27.2%

27.3%

27%

26.8%

26.4%

26%

Net

21.9%

22.2%

21.1%

21%

20%

19.8%

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
The other big news this quarter was last week's announcement that Coke has taken a 40% interest in Bethesda, Md.-based Honest Tea. Coke's kept mum so far on the terms of its investment. But while we don't know how much it spent (yet), we do know what it got for its money: a tiny, organic bottled tea vendor that counts Whole Foods (Nasdaq: WFMI) among its customers, had $23 million in sales last year, and is growing at a piping-hot clip of 66% per year.

My very back-of-the-envelope guess is that we're looking at a purchase price of perhaps seven times sales (twice what Jones Soda shares fetch, and Jones is growing at half Honest Tea's rate). Call it $65 million, or thereabouts, for a 40% interest in the company. Pocket change for Coke, in other words.

But even if my W.A.G. ("wild donkey guess") is off by a few million, this deal looks good for Coke. Its own shares sell for five times sales, yet Coke has grown at only 9% or 10% per year over the last five years. My guess is that Coke would find it pretty hard to overpay for seven times that pace of growth. Once added to the Atlanta alliance, Honest Tea should turn a profit in short order.

Related Foolishness:

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Fool contributor Rich Smith does not own shares of any company named above. The Motley Fool has a disclosure policy. Whole Foods is a Stock Advisor selection. Jones Soda is a Rule Breakers pick.