Global beverage giant
Coca-Cola (NYSE: KO) continues to grow, but
the advance is slowing. Considering that Coke's shares trade
at a substantial premium to those of its peers, investors
should be doubly cautious.
For the third quarter, total case volume ticked up 2%.
Pretty good for a recession, you might think, but that figure
is down from 5% growth in the year-ago period. I can
understand a slump in year-over-year performance, since the
brunt of the financial crisis hadn't yet hit consumers this
time last year, but I find it particularly troubling that
this modest increase represents half the
previous quarter's gain. Meanwhile, competitor
PepsiCo (NYSE: PEP) was able to
boost beverage volumefrom the second quarter to the
third.
Coke's financial results were less disconcerting. Earnings
per share of $0.81 were flat year over year, but down 1% on a
comparable basis (which excludes special items). Net income,
meanwhile, squeaked out the tiniest gain, rising to $1.896
billion from $1.89 billion a year earlier. Unfavorable
currency rates drove a 4% decline in revenue -- to $8.04
billion -- partially offset by stronger concentrate sales and
improved pricing and product mix.
The most positive metric? Margins were up in the core
business, as well as in the company's bottling investments.
The latter group includes
Coca-Cola Enterprises (NYSE: CCE) and
Coca-Cola Hellenic (NYSE: CCH). Also,
management is on track to deliver $500 million in
productivity savings by the end of 2011, with much of that
amount to be realized in 2009.
Those who've been following my coverage of the
nonalcoholic-beverage industry know that I tend to favor
Coca-Cola for its
large international footprint. Basically, that means the
company has an advantage over the likes of
Hansen Natural (Nasdaq: HANS) and
Dr Pepper Snapple (NYSE: DPS) when it comes
to declining North American soda consumption and a potential
U.S. soda tax.
But those crucial international results let me down this
time around. Sure, case volume rose 4%, but that's an annual
anda sequential decline. Encouragingly, Chinese and
Indian consumers stepped up their thirst for Coca-Cola's
products from the prior quarter, but I was looking for a
broad-based gain across all markets.
For my bullish thesis on Coca-Cola to pan out, management
needs to crank out international growth while at least
stabilizing North American volumes. Instead, the third
quarter saw weaker international results, while North
American volumes worsened from a 1% slip in the second
quarter to a 4% rout this time.
I'm not giving up on the company because of a single
quarter, but until results turn up, investors may want to
consider icing their plans to buy stock. Continued... |