Coke earnings lose their fizz

In an earnings report released today, Coca-Cola Co. (KO) revealed that its first quarter profit fell 10 percent. While this met analysts' expectations, it represents a drop in net income from $1.5 to $1.35 billion. The beverage maker blamed its falling earnings on write-downs and restructuring charges and noted that, if these expenses were excluded, its earnings were $1.51 billion. However, this explanation fails to account for a three percent drop in sales to $7.17 billion.

Facing recessionary drops in spending, Coca-Cola has focused on its core brands, namely Coke, Diet Coke and Sprite. It has also used the current crisis to expand overseas with an investment in Britain's Innocent Drinks and has tried to buy China's Huiyuan Juice Group. Unfortunately, the rising dollar, which helps with investment, isn't quite so helpful when it comes to selling sodas: a stronger dollar translates into higher prices and lowered profits.

In a broader context, Coke's determination to act creatively overseas yet conservatively in the U.S. seems shortsighted. American consumers crave variety, and unusual drinks would seem to be a fun, cheap splurge. If purchasers are truly desperate to save money, they will most likely forgo the premium Coke brands in favor of generic or regional sodas. On the other hand, those customers who are used to premium brands and the occasional culinary experimentation may view exotic beverages as a low-cost extravagance.

These sorts of expansions wouldn't require research and development. Coke already owns hundreds of unique regional brands, many of which could easily find a niche in the American market. For example, bubble-gum-flavored Inca Cola is currently only available in Latin American grocery stores, but could be a fun beverage for mainstream stores.

The same goes for many of the fruit juice-based concoctions that the company sells around the world. For instance, Cappy, a juice brand sold in Eastern Europe, is simply extraordinary, and would be particularly relevant given the current trend toward juices and healthy beverages.

As Coke's earnings suggest, this may well be the time for the company to think outside the bottle, instead of going with safe bets. Given the low price of its products, it is already well positioned to weather a tough market; now may be the time to see if it can inspire interest in a weary and increasingly miserly public.

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