Coca-Cola (NYSE: KO), the main thorn in PepsiCo's (NYSE: PEP) side, will report earnings for the second quarter on Tuesday July 21. Don't expect any profit growth, however. According to Earnings.com, Coke made $1.01 per share in the year-ago period. Analysts believe that the beverage maker will only deliver 89 cents per share tomorrow. That's a pretty steep drop.
But those who own Coke very often hold Coke for the long term, so any earnings release is looked at in a specific context: so long as nothing seems too out of the ordinary with the numbers, the original thesis for buying will be considered intact, and no action will be necessary. In fact, if the market wants to sell Coke off for one reason or another, then it can mean that a buying opportunity has been gifted to those who are indeed keeping shares for a while.
Still, there are things that long-term investors want to see. I'm a long-term shareholder myself, and I always want to see growth in operational cash flow. That's the first metric any shareholder should look at since Coke's dividend has been so great over the years. As long as the cash flow is healthy, I can put up with a lot of volatility in the stock.
I've said this before, and I'll say it again: Coke's management has to figure out once and for all a better strategy for growing the core carbonated brands. Buying Vitamin Water is great, and promoting juices is a must, but I'd like to believe I can count on Coke to improve the sales trends of the flagship brand. I have a feeling we won't hear much about this tomorrow. Probably the same old stuff. This leads into another thing I'll be watching for: does Coke believe that more acquisitions are necessary to generate economic value? If so, how will that affect cash flow and dividend growth?
It's possible Coke will beat tomorrow, but I'm just not distracted by that issue. Traders obviously are, but I don't think Coke is the best earnings trade out there myself. I just want to see a company that is still financially healthy and on its way to another dividend increase next year. I'm confident the data will support both counts.
Disclosure: I own Coke; positions can change without notice.
Reid Hoffman: LinkedIn will go public (at some point)
Retailers can't wait for Black Friday, open Thursday
Tiffany's serves up solid quarterly earnings
