Coca-Cola (NYSE: KO), the arch rival of PepsiCo (NYSE: PEP), is set to report Q4 numbers on Thursday, February 12. Coke is estimated to earn 61 cents per share, a growth of about 5%. Is it doable? More importantly, will Coke be able to beat projections? I'd say it might, considering that the two major bottlers out there, Pepsi Bottling Group (NYSE: PBG) and Coca-Cola Enterprises (NYSE: CCE), both beat on their respective bottom lines this week. Pepsi Bottling trounced expectations by 5 cents, and Coke's bottler did better by 3 cents.
Not that the quarter will have been a cake walk. There will be issues with currency translations and the global slowdown. Even though Coke sells products that are theoretically defensive against a recession, I imagine that guidance will be conservative, and I would bet that growth in case volume, a very important metric for beverage companies, will be down. I'll hope for the best, but I'm bracing myself for that outcome.
As a Coke shareholder, I'm actually very interested in the cash flows. I hope they're high, since Coke is a staunch dividend payer. The dividend is one of the reasons why I'm a long-term holder of the shares. I'm hoping we see a decent increase, so I'll be looking for any comment or clues from management about what they may do regarding the next dividend increase, which should be announced soon, maybe even this week. Companies are being conservative these days when it comes to cash, so I hope Coke doesn't decide to be cheap about the dividend.
Investors also need to hear about how Vitaminwater is doing. I want to hear better details about long-term plans for the brand and how management assesses its success at this point (then again, what are they going to say besides everything is doing fine, right?). I don't think Coke has fully exploited Vitaminwater.
And then there's the weakness in the domestic marketplace. Coke still has to address growth problems in North America. I doubt management will give any specifics on marketing plans, but I do agree with one recent decision: Coke has chosen to drop the "Classic" qualifier from its flagship brand. It's about time! It just doesn't make sense anymore to have such an antiquated term next to the famous beverage.
So, I think Coke may beat on Thursday, but would I set up an earnings trade ahead of the news? I'll tell you, if we were dealing with a more rational equities market, I would have strongly considered it given the performance of Coca-Cola Enterprises today. However, we are not in a market anywhere near the concept of rationality. There's just too much uncertainty out there. Ergo, I wouldn't trade Coke.
But I am looking for good news from the beverage maker. Since I'm a long-term shareholder, I don't need to trade the stock anyway, I can benefit just from holding. Of course, it's been pretty painful to hold Coke shares as of late. Right now, shares are near a 52-week low. I'm hoping to see a huge pop in the stock on the earnings, and I hope the next dividend announcement brings a bubbly increase in the payout.
Disclosure: I own Coke; positions can change without notice.