Have A Coke And A Smile ... Or Snarl?

| About: The Coca-Cola (KO)

Puzzling out the conflicting evidence in Coke (KO) consumption is the key to understanding the sugary water giant's near term future.

In reporting its second quarter yesterday, Coke showed commendable sales growth and beat earnings estimates, but suffered margin degradation-even though commodity costs are rising less than expected.

What gives?

The cause flustered analysts, traders and even Coke officials: the poison Coke drinkers have been picking has been coming in larger bottles, not ready-to-drink sizes. That is common in times of economic despair (you save money by drinking at home in bulk, instead of on the go) but uncommon in times of lower gas prices (lots of high-margin 16 and 20 ounce Cokes are purchased while filling the tank.)

Coke officials -- and some analysts -- said it was only a matter of time until the traditional lower-gas-price effect took hold. This, though, makes two false assumptions. Number one, gas prices have only dipped. There is no larger trend at hand, at least any that a trader in their right mind can even remotely rely on. Two, even if gas prices continue their slide as the economy weakens, the global economy is so systemically troubled and the resulting consumer confidence so irreparably shattered, that extrapolating direct relationships between a few pennies of gas and a couple of extra Cokes is simplistic in the extreme.

European consumers, for example, are worried about the sanctity of their currency system and rightfully concerned that their retirement funding won't stay solvent. They are not going to go hog wild on the Coke because they are saving a touch on a per liters price that translates into around 10 bucks a gallon.

In this economy, anytime a good company-like McDonald's (MCD) has assumed an easily recovered consumer, they've been bitten hard. Whether it's hamburgers or Wal-Mart (WMT) or Pepsi (PEP) or Coke , the same will hold true.

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