It's another tough day on Wall Street, but for Coca Cola (NYSE: KO) it's looking like a very good day, as shares are moving strongly higher after the company reported better than expected third quarter earnings this morning.
For its most recent quarter, the soft drink giant was expected to show earnings per share of 77 cents, but the actual number was a more impressive 81 cents per share (83 cents excluding one time items). The company noted that strong growth in emerging markets really helped boost the quarter.
The quarterly numbers represent a 14% increase from the company's third quarter last year when it reported 71 cents per share. Revenues were up 9.1% during the quarter to $8.39 billion.
While demand within the U.S. has been wavering for the company, strong international performance helped Coke come through with a strong quarter. While the company saw a 2% drop in U.S. sales in the quarter, it put up pretty impressive revenue growth figures in other markets -- 17% in Eurasia and Africa, 10% in Europe and 24% in Latin America.
Newt Gingrich has gone on the record with a solution to the crisis that is the best I have seen so far. Rather than pass a $700 billion bailout, suspend the accounting rules that are causing the liquidity crisis to begin with.
In the past few years, accounting rules changed and these changes are in part causing the current crisis. Specifically, the problem is mark-to-market accounting where all assets are required to be valued at current market prices. If the market is temporarily depressed, it can cause an artificial crisis.
Let me give a silly but simple illustration. If you have 20 one dollar bills in your wallet, we would all agree you have a net worth of $20. Thirsty Bob also has one dollar bill in his wallet and walks into the break room and wants to buy a Coke. Soda in the machine costs 50 cents, but it only takes quarters. Thirsty Bob asks if anyone has change and they all say no. Sam says he has only two quarters and will trade Thirsty Bob -- who is really thirsty -- two quarters for a dollar. Thirsty Bob quickly agrees to take Sam up one his offer in order to get the Coke now. Bob knows that two quarters for a dollar is a bad deal, but he is takes the deal anyway.
This post is one of six articles on beverage-related stocks. Here are five other investment ideas to sip on.
"Coca-Cola (NYSE: KO) is a remarkably profitable franchise," says Stephen Leeb. In The Complete Investor, he looks at its expanding market opportunities and expanding dividend.
" Selling its soft drinks and other products to just about every nation in the world, Coke has operating margins of 26.1% and return on common equity of 30.9%. On top of this, it delivers a dividend yield of 3%, higher than the S&P 500's 2.4%.
"And since the payout ratio is only 52.6%, the company could nearly double the yield with no problem at all. While the yield isn't likely to double overnight, Coke clearly has been moving in the direction of favoring higher dividends. Over the past five years, dividends have grown by 11.4% a year.
"In times of inflation, it is particularly critical to invest in companies that can generate growth in both earnings and dividends and that can handle cost pressures with high-margin products. Coke clearly fits this bill.
"The company has been expanding its reach in noncarbonated drinks like juice, water, and sports drinks such as Powerade and Vitamin Water.
"This latter area is Coke's fastest-growing segment, chalking up 12% volume growth in 2007 vs. just 4% for the company's eponymous Coke soft drinks.
"Clearly Coke has regained its footing with successful new product offerings as well as revitalized sales growth in international markets, which provide the bulk of sales and earnings.
"Looking ahead, the company's focus on new high-growth products indicates that earnings could keep growing in double digits, with fewer fluctuations than for most other U.S. large-cap stocks. This together with the dollar's chronic weakness makes multinational Coke a solid long-term holding for conservative investors."
Steven Halpern's TheStockAdvisors.com offers a daily look at the latest market commentary and favorite stock picks and investment ideas from the nation's leading financial newsletter advisors.
The money manager explains, "Investors should take heart that there are companies they can invest in at very low valuations in emerging markets. And in the particular case of Latin America, many have U.S.-listed ADR's that have plenty of liquidity and are very accessible and cost-effective to buy.
"We think that Mexico is probably the best positioned Latin American country from a risk perspective because, obviously, with 86% exports to the U.S. it's very reliant on the U.S., but it's still seeing very healthy internal growth irrespective of what's going on in the U.S.
"A company that we like there is FEMSA (NYSE: FMX). It produces, markets and distributes Coca-Cola, Dos Equis, Tecate Beer and a lot of other beverages across Latin America. It also operates something that's very comparable to our 7-Eleven stores.
"They're called OXXO convenience stores. Very strong sales and EBITDA growth, despite the presumed slowdown that's been occurring as it relates to the U.S.contagion effect,and valued very attractively at 8 times EBITDA."
Steven Halpern's TheStockAdvisors.com offers a daily look at the latest market commentary and favorite stock picks and investment ideas from the nation's leading financial newsletter advisors.
The Coca-Cola Company (NYSE: KO) is, as Zac Bissonnette recently discussed, in the process of trying to purchase juice-maker China Huiyuan Juice Group. He was a bit skeptical about this deal, wondering if it will truly add value to Coke's operations. I have to admit, when I heard about this $2.5 billion bid, I wasn't overly excited. I thought to myself, will this multibillion-dollar potential transaction be as exciting as the Glaceau purchase (Glaceau, of course, gave Coke access to the wonderful Vitamin Water brand)? Billions here and billions there do add up, and one has to make sure that such acquisitions do not screw too badly with things like share repurchases and dividends.
Now comes word from the DealBook blog over at The New York Times that the transaction has a legal hurdle to go through. It doesn't seem to give odds on the possibility of approval, but it says that this will be the first case presented under a new antitrust law put into effect by China a little over a month ago. Traders have sent shares of China Huiyuan Juice Group lower under speculation that the transaction is not a sure bet.
As a shareholder of Coke, I do have mixed feelings, but I have to say that I understand where management is coming from. Coke wants to grow, and China is definitely a country that big brands in America need to exploit. And juice categories are expanding as consumers step away from carbonated beverages in search of a healthier drink experience. Consider that arch rival PepsiCo, Inc. (NYSE: PEP) is looking at deals around the world all the time. Coke obviously wants to pick its spots carefully and see where it can do a transaction that makes sense before its number-one competitor does the same.
Coca-Cola (NYSE: KO) has offered [subscription required] to acquire Beijing-based China Huiyuan Juice Group Ltd, China's number one 100% juice and nectar company. The deal, which would be the second largest in Coke's history (behind Vitamin Water), would require the approval of Chinese regulators.
Coke says the deal would be accretive to earnings in third year -- but of course there are lies, damn lies, and forward-looking statements. The deal represents a continuation of Coke's efforts to diversify away from the declining soft drink industry and into higher-priced, more natural beverages.
The question is whether Coke will be able to add meaningfully to the value of these brands with its own marketing and distribution power. If Coke is just pumping up its sales by adding brands at high prices, that's probably not a good strategy for long-term shareholder value. Very few companies have been able to create such value through acquisitions, and Coke's shopping spree should be seen as a sign of increasing weakness in the company's current businesses.
Emotionally, it's felt to me like the markets have made their final lows. However, I've said that to myself several times in the last few weeks. Truth is, though, we most likely haven't.
Most of the experts I've listened to or read believe this to be the case because they are waiting for a big charge in the CBOE Volatility Index (VIX). According to this article, we're not even close to a Vix value that would indicate an upward trend is around the corner. As I write this, the Vix stands at around $23.50. Many believe it needs to be something like 50% higher to indicate the towel has been thrown in by traders and investors, thus signaling a potential bottom.
This is tough on the investing psyche. People are looking at stocks like Citigroup (NYSE: C), Disney (NYSE: DIS), Coca-Cola (NYSE: KO), and General Electric (NYSE: GE) and saying to themselves, "How much lower can this go, this has to be a bottom now!" Nope. Volatility is king of this domain, and it will need to spike before institutions and hedge funds believe that it's time to put cash on the sidelines to work. Until this happens, fresh 52-week lows may be the order of the day for a long time.
It was announced today that soft drink giant Coca Cola (NYSE: KO) had settled an almost 8-year-old lawsuit today for $137.5 million. The case originated back in October of 2000, and alleged that the company had artificially boosted its strike price in 1999.
According to the lawsuit, back in late 1999 Coca Cola applied pressure to some of its bottlers to buy unnecessary beverage concentrate. By adding "hundreds of millions of dollars" to the books, the company was allegedly able to report much higher sales volumes to its shareholders and keep its stock price artificially inflated. This practice is typically referred to as "channel surfing".
Despite the fact that the company decided to settle, there was definitely no admission to any wrongdoing. A company representative stated that the decision to go ahead and settle out was merely a move meant to avoid any length and drawn out legal battle, and by no means should be viewed as any admission of guilt in the charges.
Is there anything cooler than Kool-Aid? Kraft (NYSE: KFT) believes there is, my friends. In fact, Kraft thinks a healthier Kool-Aid is pretty darn hip!
According to this AP article, Kraft wants to position the Kool-Aid brand to health-conscious moms as a beverage that is okay for kids to consume. The food company will be adding vitamin E to one of the Kool-Aid varieties, and it has reformulated its sugar-free lineup to improve the taste. There's also a new Kool-Aid product on the market called Burstin' Waters that is supposed to be relatively healthy.
The company actually has been pretty good about trying to make its products not as junky. As the article states, Kraft introduced an initiative a few years back to create a set of nutritional guidelines that would aid the company in making its portfolio more in tune with the current zeitgeist; indeed, moms everywhere seem to be getting sick of putting sugary, fat-inducing foodstuffs into the stomachs of their kids. Of course, I'm sure kids still get away with eating junk at times (it's like an inalienable right of the youth); for the most part, though, consumer choices are shifting, and woe be the consumer-goods entity that does not respond. Just ask Coca-Cola (NYSE: KO) and PepsiCo (NYSE: PEP). Those two have been kicking it into high gear when it comes to alternatives to sugary carbonated sodas. Pepsi and Coke now offer all kinds of waters and enhanced beverages; in Pepsi's case, many of its salty-snack products are decidedly healthier. Coke purchased VitaminWater last year, and has been doing well with it. And with vitamins all the rage, Kraft would be smart to really promote the heck out of that vitamin-E addition.
Because a long, holiday weekend can be a great time to pause and reflect -- to take a step back and look at the bigger picture -- here are some highlights from BloggingStocks a year ago today: May 25, 2007.
According to an article on Reuters, Coca-Cola (NYSE: KO) is feeling the pressures of the flat domestic marketplace. COO Muhtar Kent, who will soon become the CEO, said in comments at a speaking event in Japan that Coke will be evaluating an acquisition strategy to grow the long-term prospects of its beverage business.
Now, this doesn't mean that a large purchase or merger is on the horizon, but it does mean that shareholders can expect, according to Kent, small, targeted asset buys. He did, however, specifically state that the company isn't giving up on organic growth, either, in its quest to expand its presence in beverages and beat back the ongoing threat of enemy number one, PepsiCo (NYSE: PEP).
He better not be giving up on it. Coke's stock recently retreated from its 52-week high of $65.59 to a price, as of noon today, of $56.37. The stock has done well over the last year, and this could be considered a normal consolidation. However, there has been a lot of buzz lately about Coke's domestic weakness.
So here's the deal: soda sales have been on the decline as consumers flock to better-tasting, ostensibly healthier, more "natural" beverages like Vitamin Water, which is owned by Coca Cola (NYSE: KO).
According to Beverage Digest, U.S. soda sales in major retail channels overall declined 3.5% in the first quarter, and convenience-store sales dropped fell 4.2%.
How does the soft drink industry plan to combat the trend? According to the Wall Street Journal(subscription required) , "To win back sales, several Coca-Cola and Pepsi bottlers are conducting pilot tests on a variety of bottle sizes they hope will appeal to consumers put off by the 20-ounce bottle or looking for a cheaper option to cushion the blow of high food and energy prices."
I'll be shocked -- shocked -- if this does anything to boost soda sales. Soda sales are declining for a very good reason: soda is bad for you and people now have great-tasting alternatives. At the risk of being alarmist, I think that soda sales -- at least in the United States -- are in a permanent state of decline. I think Coke knows that: they saw the future and bought Vitamin Water.
This post is part of our Battle of the Brands feature. Let us know which brand you prefer, and check out other Battle of the Brands posts.
Businesswise, it's no real competition between Subway and Quiznos. Subway, the number 1 sub sandwich chain, claims to have more than 29,000 locations in 86 countries, earning more than $11 billion in 2007. Quiznos, on the other hand, has more than 5,000 locations in 20 countries, earning $130 million in 2004, making it a distant number 2. In fact, Subway is the third largest fast-food chain globally after Yum! Brands (NYSE: YUM) (Taco Bell, Pizza Hut, KFC, etc.) with 34,000 locations and McDonald's (NYSE: MCD), with 31,000 locations.
Both Subway and Quiznos are privately owned, franchise fast-food chains. While Quiznos is a limited liability company controlled by chairman Rick Schaden and his family, Subway is a wholly owned subsidiary of Doctor's Associates, Inc., a company founded in 1965 by Fred De Luca and Dr. Peter Buck specifically to oversee the Subway chain of restaurants.
Subway menus vary by store. For instance, its restaurants in Muslim countries serve Halal menu, and Subway has kosher restaurants in New York, Los Angeles, Kansas City, and a suburb of Cleveland. All locations feature submarine sandwiches, ranging from four-inch "mini subs" to its three-foot giant subs. Popular sandwiches include Turkey Breast, Italian BMT, and the Subway Club. All of Quiznos' sandwiches are served toasted, and its best-sellers include the Classic Italian, the Mesquite Chicken with Bacon, the Prime Rib Cheesesteak, the Chicken Carbonara. Last fall Quzinos introduced flatbread "sammies."
I don't think I'll ever own a bottling group over a Coca-Cola (NYSE: KO) or a PepsiCo (NYSE: PEP). The cash-flow and margin scenarios with the sellers of concentrate is a much better long-term story. With that bias stated, let me check out Pepsi Bottling Group's (NYSE: PBG) first-quarter results, which were reported on Wednesday.
Net sales expanded by 7% to $2.7 billion. On a reported basis, earnings per share didn't budge whatsoever -- it was 12 cents this year, and it was 12 cents last year. On an adjusted basis, earnings were 13 cents -- hey, a penny is a penny, I guess. In fact, I see that Briefing.com is reporting that Pepsi Bottling Group beat the Street's outlook by a penny. Talk about symmetry. Operational cash flow was flat, coming in at $20 million, which was a million bucks less than the operational cash flow seen in the previous year's comparable quarter (by the way, I know that the pun "flat" has been used way too many times when talking about a beverage concern). As can be seen, the bottler lost the growth game this time around. It's only the first quarter, though, so we'll have to wait and see how the rest of the year shapes up. Right now, the company expects earnings of $2.30 to $2.38 on an adjusted basis.
Now, I don't hate Pepsi Bottling Group or anything like that (well, except for the fact that it distributes products that compete with my beloved Coca-Cola company, shares of which I own); it's a respectable company linked to a powerful beverage brand, and it has been pretty good on the dividend-increasing front (it recently upped its quarterly payout by over 20%). But I've always been prone to PepsiCo and Coke since they don't have to deal with the capital requirements for distribution; instead, they are the big marketers supporting the bottlers. If you want exposure to sugar water, I figure you may want to check out those two businesses first.
Disclosure: I own shares of Coca-Cola; positions can change at any time.
It's another tough day on Wall Street, but for Coca Cola (NYSE: KO) it's looking like a very good day, as shares are moving strongly higher after the company reported better than expected third quarter earnings this morning.
Emotionally, it's felt to me like the markets have made their final lows. However, I've said that to myself several times in the last few weeks. Truth is, though, we most likely haven't. 
It was announced today that soft drink giant 
So here's the deal: soda sales have been on the decline as consumers flock to better-tasting, ostensibly healthier, more "natural" beverages like Vitamin Water, which is owned by 
This post is part of our 
Before the bell: Wall Street headed higher; automakers, retailers in focus
Waiting for the other shoe to drop: The looming credit crisis
Bet on T&A with J&J (JNJ)
