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Coca-Cola (NYSE:KO) surprised Wall Street analysts and investors alike with its full year 2011 results. The release, issued February 7th, showed gains in global volume growth and earnings per share. Fourth quarter earnings and full year earnings are both up by 10% in the comparable period last year. Coca Cola has been working hard and is shrugging off the effects of global slowdown. Coke increased sales of its core brand, Coca Cola, 3% across all geographical sectors. The company was also able to increase net revenue and operating margins by 30% and 20% respectively. These gains are a part of the long term growth and productivity plan put into place four years ago. The ongoing savings places the company in excellent position to meet or exceed expectations in 2012. In this article, I will provide an in-depth anaysis of Coca Cola and its primary competitor Pepsi (NYSE:PEP).

Coca Cola began distributing the Dr. Pepper (NYSE:DPS) brand in 2010. This addition to the line up accounts for 1% of the total volume growth experienced for the year. The statement cited strong growth in developed markets like the US, Germany and Japan. Emerging and growth markets for the companies beverages like China and India each had double digit volume growth. Other domestic industries are experiencing similar growth in these markets. Ford Motor (F) increased sales in India by 15% in 2011. The Coca Cola brand soft drinks had remarkable market growth in Asia. Thailand grew by 33% followed by 15% growth in India and 13% growth in China.

It is clear from this report and that global economic concerns are not impeding Coke's long term plans of sales growth. Investors have been skeptical about the soda maker for a number of reasons and economic slowdown is only one. The company is highly exposed to worldwide conditions, recession in Europe and a feared prolonged slow down in China could affect sales growth. There is also exposure to unfavorable currency exchange, especially in one of the companies most established markets, Japan. Japanese based corporations have been struggling with poor exchange rates cutting into profitability. There is also growing concern that educated and health concsious consumers will turn away from carbonated and sugar-filled beverages. Coke only operates in the beverage industry, unlike competitor Pepsico who also deals in food and snacks through its Frito Lay arm.

Coke is planning to implement a new global productivity and and integration program in 2012. These initiatives are expected to produce over $800 million in annualized savings. The proceeds will be reinvested into brand building and to offset rising commodity costs. This plan, along with the recently completed four year growth and productivity plan should help the company continue making strong gains in 2012. The stock is currently trading around $68 with a p/e ratio near 12. This a is low valuation when compared to the rest of the Dow (NYSEARCA:DIA) stocks. Coke currently yields around 2.8% on average volume. Action after the announcement included some selling but the stock finished the day up with a nice move up from the short term moving average. The stock has been trending sideways for over a year but looks ready to move up from here. Coke needs to continue implementing cost saving strategies, focus on established markets and grow developing ones.

Coca Cola's primary competitor is PepsiCo (PEP), which is highly diversified into food and snacks, reducing its dependence on volume growth within its soda portfolio. Pepsico markets snacks under the Frito Lay brand and juices under Tropicana. Pepsi is scheduled to release fourth quarter 2011 earnings later this week and is expected to have increased profits by nearly 10%. Third quarter earnings were good. The company was able to build on 2010 numbers and increase revenue and profits. Net revenue increased by 13% in the quarter but was hurt by rising costs. Earnings per share grew by 5%. The importance of diversified revenue stream is evident in Pepsi's numbers. Snack volume grew by 8%, twice Pepsi's worldwide beverage volume growth in the quarter. Pepsi may not win the cola wars but it just may win the making money war. Coca Cola could find itself lagging behind Pepsi once soft drinks reach saturation in developing markets.

Pepsi is currently trading around $67 in anticipation of earnings numbers. The stock is valued about 15 times earnings, slightly higher than Coca Cola. Pepsi also yields a better dividend, $2.06 annually or about 3.1% of current prices. A strong release will propel Pepsi higher, pushing share price up towards $70. Pepsi is in better shape long term than Coke. Coke is limited to increasing sales among beverages, Pepsi has two other strong business segments.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Source: Coca Cola: A Buy And Hold Forever Stock Making A Splash