1 Stock Knocking Out the Competition


Second-quarter results for Coca-Cola (NYS: KO) are in, and true to its ticker symbol, Coke knocked out the competition, clobbered analysts' forecasts, and beats the snot out of any and all excuses for not buying this stock.

Coke after Coke after Coke, ad infinitum
The counter at the bottom of the Coca-Cola corporate homepage says it all. Like McDonald's classic "over five billion served" signage, this counter keeps a running tally of the number of Coca-Cola-brand beverages being consumed around the world each day.

Unlike McDonald's signage, the speed of the flashing numbers on Coke's counter is dizzying, and the company's second-quarter earnings reflect this herculean pace of global consumption and Coke's market-dominating position:

  • Total sales are up a staggering 47%, due mainly to Coke acquiring the North American operations of bottling giant Coca-Cola Enterprises at the end of 2010, but also to big growth in China and Russia.

  • Volume growth worldwide, a key indicator in this space, is up an Olympian 6% for both the quarter and year to date, thanks to strong volume growth across all five geographic operating groups.

  • Gross margins are a head-shaking 61%, an awesome demonstration of Coke's pricing power.

All of this shakes out to an extremely healthy increase in net profit from $1.02 per share to $1.20, beating Wall Street expectations for the quarter.

I'd like to buy the world a Coke...
...but I don't need to, because plenty of people are already doing that for themselves. What they aren't doing is buying Pepsi, at least not at Coke-like levels.

To be fair, second-quarter results for Pepsi's parent company, PepsiCo (NYS: PEP) , are very respectable, and by some measures not far off from Coke's. But in terms of close competition from Pepsi, Coke just doesn't have much to worry about right now.

This soda tastes flat
Despite these impressive numbers, it's worth noting that, aside from help this quarter from the Coca-Cola Enterprises acquisition, growth abroad is Coca-Cola's sole growth driver. Coke comes in with positive domestic growth (4% by volume) only because of its cross-licensing deal with Dr Pepper Snapple Group (NYS: DPS) .

How much more growth is realistically possible for Coke in a mature market like the U.S.? Get used to a flattish, domestic beverage market and for growth abroad to drive business.

Have a Coke and smile, Fools
If you're an investor, there's every reason to. And if you're not, what are you waiting for? There's no sign that Coke's 125-year march to world beverage domination is doing anything but picking up pace.

Spectacular brand power. Emerging market strength, and did I mention that Coca-Cola pays a dividend and that the company just raised it from $0.44 per share to $0.47 ?

Coke truly is the real thing. Add it to your watchlist.

At the time thisarticle was published Fool contributorJohn Grgurichattributes his semi-svelte physique to Diet Coke and chasing his 3-year-old boy around the house, but owns no shares of Coca-Cola or any of the other companies mentioned in this article. The Motley Fool owns shares of Coca-Cola and PepsiCo.Motley Fool newsletter serviceshave recommended buying shares of McDonald's, Coca-Cola, and PepsiCo.Motley Fool newsletter serviceshave recommended creating a diagonal call position in PepsiCo. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

Copyright © 1995 - 2011 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.