As Jonathan Berr discussed, Coca-Cola Co. (NYSE: KO) was able to a offset sluggish domestic economy due to strong international sales. The world's largest soft drink maker reported this morning better-than-expected quarterly earnings as the weak dollar was a major driver for its higher overseas sales.

The company announced its profit during the first-quarter jumped 19% to $1.50 billion, or 64 cents a share, compared with a profit of $1.26 billion, or 54 cents a share a year earlier. Included in the company's earnings figures was a charge of 3 cents per share tied to restructuring charges and asset writedowns. Excluding that, Coca-Cola's earnings would have come at 67 cents a share. Analysts' forecast (which typically exclude one time items) was for 63 cents per share in the quarter.

The company's quarterly revenue saw a rise of 21% to $7.38 billion, up from $6.10 billion a year ago. Analysts, on average, predicted sales of $6.85 billion in the quarter, according to Thomson Financial.

It is tough day for the market as traders express their concerns over a possible recession, surging crude oil prices and persistent weakness for the U.S. dollar. The tumbling dollar hit new lows against the euro and surging gold prices that reached $1000 an ounce made investors set off a major selloff. Coca-Cola Co. (NYSE: KO) is joining the general market anxiety, despite optimistic comments from its CEO.

In a statement to India's Economic Times newspaper, Neville Isdell, the company's Chief Executive, declared he believes that both the tumbling dollar and an expansion in emerging markets will help the company achieve global growth during this year. As key elements, Isdell cited Coca-Cola's plans to spend more money on marketing, offer new products on the market and make some strategic acquisitions.

Isdell's optimistic statement came despite Wednesday's report from industry publication Beverage Digest showing that United States soft drink sales volume slipped 2.3% to 9.92 billion cases last year. The report also unveiled that the weak sales numbers came as a result of consumers' preferences for other drinks such as bottled water and teas.

PepsiCo (NYSE: PEP) reported Q4 and full-year earnings today, and the Street liked what it saw. Personally, I'm a fan of Coca-Cola (NYSE: KO), mainly because I own the stock -- well, that's pretty much the only reason, since I actually prefer Pepsi's soda over Coke's (although I do like Diet Coke best of all). As of this writing, it's up about 5%.

Net revenue grew 17% for the fourth quarter and 12% for all of 2007. That's great double-digit growth, but the bottom line actually declined 29% in the fourth quarter and rose a flat 2% for the full year. That was on a GAAP basis. Excluding various items, net income actually grew 8% in Q4 and 13% in 2007. Full-year operating cash flow jumped 14%, and it was more than enough to cover capital spending and the blue-chip dividend (the latter of which is a key reason why investors put this stock on buy, hold, reinvest, and forget!).

Snack volume -- remember, Pepsi owns the tasty Frito-Lay portfolio and the Quaker brand -- grew 6%, while beverage volume expanded by 4%. Pepsi expects higher operating cash flow for fiscal 2008 -- $7.6 billion versus the $6.9 billion generated in 2007 -- and it is planning to continue share repurchases. Yes, I suppose I'd rather you buy shares in Coke since I own them, but truth be told, investors will probably do well owning either beverage company (I do concede that I envy the Frito-Lay asset).

Disclosure: Steven Mallas owns shares in Coke, and might buy more at any time.

In titling this post, I was going to go with the inevitable pun of "Zero being The Coca-Cola Company (NYSE: KO) Hero" but, unfortunately, The Wall Street Journal beat me to the punch. As consumers move away from soda and toward more healthful premium beverages (such as Vitamin Water, my personal favorite), Coke has had surprising success with Coke Zero, a zero-calorie version of Coke which apparently tastes less like poison than regular Diet Coke. According to Coca Cola Chairman and CEO E. Neville Isdell, the initial success of Zero makes it Coke's most successful new product launch in 20 years.

As a young consumer, I believe that Coke Zero's success is largely a function of slick marketing campaign. They've actually managed to make diet soda cool. The slick ad campaign, which included slick, GQ-esque ads, in addition to funny ads that invited readers to sign up for a class-action lawsuit suing Coke Zero for tasting too much like regular Coke.

As beverages from companies like Jones Soda gain in popularity and cache, the traditional soft drink companies will need to revitalize their images. Coke has done just that with Coke Zero and they will probably continue to experience success.

More Vitamin Water news

Beth Gaston Moon: High school vending machines getting more eclectic
Zac Bissonnette: PepsiCo plans a lower-calorie Gatorade
Jonathan Berr: Coke, Pepsi thirst for profits from bottled water
Zac Bissonnette: Experts doubt Snapple will satisfy Coke
Zac Bissonnette: Will Coca-Cola gulp down Snapple?
Joseph Lazzaro: Coke's catching up in the health drink segment
Zac Bissonnette: Coke swallows Vitaminwater
Zac Bissonnette: Coke wants vitamin water
Sarah Gilbert: Fuze acquisition pits Coke v. Pepsi in ritzy juice war

Anheuser-Busch Cos. (NYSE:BUD) has been busy expanding its products and markets this month.

The company announced that they will add 12 China markets for their premium brand beers Harbin 1900 and Harbin Ice by the end of the year, joining 30 areas already enjoying the brew. The company has also started selling Harbin 1900 in the U.S. The company also imports Tsingtao, the most popular beer in China, in which Anheuser-Busch holds a 27% share. According to a 2004 study by Kirin, China is now the leading consumer of beer in the world, and growing at 14.6% year to year.

Anheuser-Busch has also reached agreement to import the Czech beer Czechvar, brewed by Budejovicky Budvar. The company has contended for years with this brewer for the right to the trademark "Budweiser". The beer, known as Budvar in much of the world, will continue to be sold in the U.S. under the name Czechvar due to this dispute. Curiously, Anheuser-Busch states that this agreement won't impact existing litigation over trademark infringement.

Late last month, the company also announced they will begin selling the first sorghum beer nationally, which they have named Redbridge. The beer is targeted to customers looking for wheat and/or gluten-free products. It was developed with the input of the National Foundation for Celiac Awareness (NFCA).

I'm curious who they will hire as a spokesperson for this brand.

PepsiCo is scheduled to give its Q4 earnings review via live webcast on Thursday February 8, 2007. The PepsiCo website states that "the live webcast will be accessible through PepsiCo's website at http://www.pepsico.com, and will be archived for replay at the same website for a period of 14 days."

Based on estimates which PepsiCo, Inc. (NYSE:PEP) reaffirmed on October 20, 2006 in this press announcement, PepsiCo is expecting EPS of at least $3.31 prior to the effects of a completed tax settlement and a fourth quarter restructuring of manufacturing flow. PepsiCo states that core EPS should be at least $2.98. I'm expecting a penny or two more. The general consensus on investment blogs and message boards is that PepsiCo is doing well and will continue to do so. There's even some dialog about a stock split if PepsiCo reaches and holds $70 a share.

For third quarter 2006 PepsiCo had an impressive gain of 73% in EPS over the previous year but that was due in part to tax effects involved in the repatriation of cash in the year 2005. PepsiCo stated; "Excluding the impact of the prior year tax charge, EPS increased 12%.

An item of very significant interest is the fact that PepsiCo now offers a direct stock purchase plan via The Bank of New York. For as little as $260 you may now open an investment account and purchase PepsiCo shares. After your initial investment you may then add funds in increments as small as $50, and you may even set up your account for automatic monthly deposits. The fees associated with the Pepsico direct share purchase plan are almost non-existent. Review the purchase plan booklet I've linked to. I think you'll be pleased. They, with the assistance of Bank of New York, have made it very easy and inexpensive for you to become a share holder of the company. It's a situation which I myself plan to become involved with.

Playing into my declaration that water is a word for investors to watch for this year, PepsiCo will be pushing a new variation on its Aquafina brand. Aquafina Alive is a vitamin and flavor enhanced water which will be available in three flavor combinations.

Gary E. Sattler intends to take a position in Pepsico this year.

Also check out some other earnings reports that we're following, and let us know what you're expecting.

MOST NOTEWORTHY: The U.S. Beverage Sector topped today's list of upgrades.

• Bernstein upgraded the U.S. Beverage Sector to Marketweight from Underweight because the group is trading closer to fair value.
  
• Bernstein upgraded Anheuser-Busch Cos (NYSE: BUD) to Market Perform from Underperform with a $54 target; the firm expects upside to earnings and valuation support.
  
• Pepsi Bottling Group (NYSE: PBG) was upgraded to Outperform from Market Perform with a $38 target; the firm believes negative earnings revisions from their third-quarter miss are over and 2007 guidance looks conservative.

OTHER UPGRADES:

• UBS upgraded Cooper Companies (NYSE: COO) to Neutral from Reduce to reflect the possibility of a takeout; they feel likely acquirers are Essilor or Alcon (ACL).

• Wachovia upgraded Volcom Inc (NASDAQ: VLCM) to Outperform from Market Perform; the firm's analysis indicate Volcom's brand remains strong, footwear is off to a good start and outerwear is not an area of exposure.

• Lehman Bros. upgraded shares of Vodafone Group ADR (NYSE: VOD) to Overweight from Equal Weight.

• Citigroup upgraded Nintendo ltd ADS (OTC: NTDOY) to Buy from Hold.

Analyst summaries provided by TheFlyOnTheWall.com (subscription required).

MOST NOTEWORTHY: Kraft Foods (KFT) and the US beverage market were today's most notable downgrades.

• Bank of America downgraded Kraft Foods 'A' (NYSE: KFT) to Neutral from Buy to reflect an outlook for higher input cost inflation as well as their caution ahead of the company's new strategic plan in February.

• Bear Stearns downgraded the U.S. beverage market to Market Underweight from Market Overweight, as they believe the defensive trade for the group may be over and sector leadership may be in the form of interest-sensitive stocks. Note that Bear Stearns kept their Outperform ratings on PepsiCo Inc (NYSE: PEP), Coca-Cola Co (NYSE: KO) and Pepsi Bottling Group (NYSE: PBG).

OTHER DOWNGRADES:

• As Credit Suisse believes 2007 will be a year of slowing growth, they remains cautious on regional banks, which is not reflected in the valuations of BB&T Corp (NYSE: BBT) and National City Corp. (NYSE: NCC); both stocks were downgraded to Underperform from Neutral.

• Office Depot (NYSE: ODP) was downgraded to Market Perform from Outperform at William Blair, citing high expectations, less-than-compelling cash flow story and difficult comps.

• Arch Coal (NYSE: ACI) was removed from Morgan Stanley's Focus List, citing concerns of high inventories and the warm weather impact.

Analyst summaries provided by TheFlyOnTheWall.com (subscription required).

Unless The Coca-Cola Company (NYSE:KO) manages a corporate blunder in the next few hours, it will be KO that has won the investor taste test challenge over PepsiCo, Inc. (NYSE:PEP) for the month of October.

KO closed September 29 at $44.68, and was at $46.75 on last look. KO is up from an adjusted closing price at the close of 2005 after dividend of $39.46 and nominally closing at $40.31.