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Will The Coca Cola Company (KO) Have a Fizzy or Flat 2013?

Few companies are as globally known as The Coca Cola Company (NYSE:KO), the world’s largest beverage company. Few stocks are also as trusted as Coca-Cola, which has generated steady growth and income for conservative investors over the past decade. However, Coca-Cola’s fourth quarter results have some investors doubting the soft drink giant’s ability to continue expanding overseas. Is Coca-Cola still a fizzy investment, or has this stock gone flat?

The Coca-Cola Company (NYSE:KO)

The Fizzy Fundamentals

Before we analyze Coca-Cola’s fourth quarter earnings, we should first compare its fundamentals against two other industry peers – PepsiCo (NYSE:PEP) and Dr Pepper Snapple Group Inc. (NYSE:DPS).

Forward P/E 5-year PEG Price to Sales (ttm) Return on Equity
Profit Margin Debt to Equity
Coca-Cola 17.29 2.36 3.64 26.42% 18.48% 97.47
PepsiCo, Inc. 16.40 4.57 1.70 26.10% 9.03% 129.46
Dr Pepper Snapple 14.15 2.26 1.58 27.33% 10.47% 119.33
Advantage Dr. Pepper Dr. Pepper Dr. Pepper PepsiCo Coca-Cola Coca-Cola

Source: Yahoo Finance

Dr. Pepper Snapple wins in every growth metric. However, this is also because it is a much smaller company, with a market cap of $9 billion compared to Coca-Cola’s $168 billion and PepsiCo’s $112 billion. Coca-Cola comes out on top in two important categories – lower debt and higher profit margins. Both will be extremely important for balancing the company’s overseas expansion with unstable commodity prices.

Let’s also chart Coca-Cola’s top and bottom line performance against PepsiCo and Dr. Pepper Snapple over the past three years.

KO Revenue TTM data by YCharts

Coca-Cola’s revenue growth is notably outpacing its earnings growth. Although Coca-Cola is still growing its bottom line at a healthy rate, the divergence of PepsiCo’s top and bottom lines should serve as a cautionary tale for Coca-Cola shareholders. Meanwhile, Dr. Pepper has grown its bottom line faster than its top line – a healthy indicator that its margins are still kept in check.

Lastly, we should compare the operating margins of these three companies over the same period.

KO Operating Margin TTM data by YCharts

Coca-Cola’s margin growth is the healthiest, despite its wide exposure to global markets.

Based on pure fundamental growth, Coca-Cola is a rock solid stock that trades at a slight premium to its peers but also has the margin and revenue growth to back it up.

The Flat Fourth Quarter Earnings

So if Coca-Cola’s fundamentals are so stable, why are investors worried? Let’s take a look at the key numbers from its fourth quarter earnings.

Coca-Cola’s top line grew 3.8% to $11.46 billion – or 5% excluding currency impacts. Meanwhile, its earnings rose 12.65% to $1.87 billion, or 41 cents per share. Excluding one-time charges, the company earned 45 cents per share.

While earnings topped the Thomson Reuters’ forecast of 44 cents per share, revenue missed the forecast of $11.53 billion. Gross margin also dipped from 60.1% to 59.6%.