Coca-Cola is leaving investors thirsty
Its latest results show why a continuing dependence on soda is unhealthy and why PepsiCo may be a better bet now.
The world’s largest soda company Tuesday reported mediocre quarterly results. Net income fell 4% to $2.68 billion, or 59 cents a share, versus $2.79 billion, or 61 cents a share, a year earlier. Excluding one-time items, profit was 63 cents, in-line with analysts' expectations. Revenue plunged 2.6% to $12.7 billion, lagging analysts' forecasts of $13 billion, marking its fifth straight drop-off.Although CEO Muhtar Kent blamed "unusually poor weather conditions" for the company's lackluster performance, Bloomberg Businessweek noted that U.S. temperatures between March and June were "thoroughly average." As for Europe, another large market, AccuWeather expects temperatures to be normal this summer throughout most of the continent.
What's hurting Coca-Cola is soda, not the weather. Medical research has tied soda drinking to an array of health problems, ranging from obesity to diabetes. Diet soda is also undergoing scrutiny as some experts argue that it can lead to medical problems and doesn't help people lose weight.
The beverage industry disputes these finding and has waged successful battles against government efforts to institute soda taxes to help defray the medical costs associated with obesity. Over the long run, however, the soda makers may lose the war.
Global sales volume gained a mere 1% in the second quarter, far below the 3.3% increase analysts had expected, Bloomberg says. This is just the latest indication of the softening soda market, and things may not improve anytime soon.
Coca-Cola, like rival PepsiCo (PEP), has expanded beyond carbonated beverages to faster-growing markets such as energy and sports drinks. But as Businessweek noted, Coke remains dependent on soda for about 70% of its sales in the U.S. and 75% globally. Low- and zero-calorie beverages account for about 41% of its portfolio, which underscores its reliance on full-calorie offerings.
Coca-Cola trades at a price-to-earnings multiple of about 21.5, a five-year high and about the same as PepsiCo. Analysts have an average 52-week price target on the stock of $46.21, about 14% higher than where it recently traded. PepsiCo's potential upside is about 6%.
And even though Coca-Cola has won the cola war for years, PepsiCo may have the edge in the future because of its holdings in the food business such as Frito-Lay. That will give it greater flexibility to weather the storm sweeping away soda sales.
Jonathan Berr owns a small position in Coca-Cola. Follow him on Twitter @jdberr.
I can't vouch for the rest of the United States, but in the Seattle area Coke has definitely been watered down from years ago & is a big reason why I've switched to alternatives. I used to LOVE Coke & it was extra syrupy but now the distinctive flavor is barely there. From an article I remember reading awhile back, Coke years ago had indepedent bottlers, then they bought them up & controlled the bottling process (and I believe this is when it tasted the best), & now the bottling is back to being independent. The bottlers buy the syrup from Coke so they would have an interest (albeit short-sighted) in using less to save money. I actually complained to Coke corporate a few months ago to get their bottlers back on track. Corporate seemed genuinely interested & got the can information from me but I haven't seen a huge change back to the glory days of how it tasted. The year 2006 stands out because I had just moved into a new place & a friend & I were drinking Coke while watching a movie & we commented how great & syrupy it tasted. It taste no where near that now which is disappointing.
You notice the stock is up today.Buy the dips,works big time for me.
We have an old 8 pack of 16 oz. bottles of the "Old Coke"...
We drank one bottle in celebration once....The rest are all still there and still capped.
The empty with it's cap also..
You could tell there is at least one Coke drinker in the house, actually two..
Then they brought Old Coke back....Wahoooo.
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The solid report comes a month after the retailer closed all of its Canadian operations.
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