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Coca Cola North American Sales Are Up | Revenue Is Down

|Includes: AMZN, K, KHC, The Coca-Cola Company (KO), PEP

Coca Cola North American Earnings Are UpAs mentioned in yesterday's post, Coca Cola's fourth quarter report came out earlier today. Over the past year, Coca Cola has really been struggling as Americans are starting to choose more healthy beverage options. Ultimately, the company reported a major decline in Q4. On the bright side, the report was better than analysts expected. Today, we'll talk about Coca Cola's better than expected fourth quarter report, the beverage market's evolution, and what the overwhelmingly positive report means for the United States economy. So, let's get right to it.

Coca Cola's Fourth Quarter Earnings

Earlier this morning (2/10/2015) Coca Cola reported that in the Quarter ending December 31st, 2013 they generated $10.9 billion in revenue ($5.37 billion in North American sales). However, as with any other big brand company, they had their fair share of expenses. As a matter of fact, net earnings in Q4 were down by 55% at only $770 million; equating to $0.17 per share. Nonetheless, as American consumers become more health conscious, analysts expect to see declines in revenue; believe it or not, the numbers reported were better than expected.

The Evolution In The Beverage Industry

In recent years, soda was a smash hit around the United States; and to some extent, it still is. However, the overall opinion that Americans have on the beverage is continuing to change. The reality is that soda is a very unhealthy beverage and consumers are becoming more and more aware of what they're actually putting into their bodies. So, as a result, sales on soda have been down quite a bit over the past year or so. As a matter of fact, in North America, Coca Cola's sales have been down for four straight quarters. However, for the first time in a while, sales in North America are actually up!

Does that mean that health conscious consumers are starting to drink more soda again? Not necessarily. While Coca Cola's sales revenue in Q4 2013 was up, that doesn't necessarily mean that the amount of soda sold was up. As a matter of fact, analysts say the exact opposite is true. North Americans aren't consuming more soda, they're just willing to pay more for it.

How Coca Cola Is Reacting To The Beverage Consumption Change

Recently, Coca Cola has been rolling with the punches and working to keep up with the evolution of the way North Americans consume beverages. These days the brand is repackaging and reintroducing everything from juice to milk. The idea is that if you drink it, they want to make it!

What This Means For The Pantry Brand Week?

As I mentioned in yesterday's post, this week is the week of household brands; the types of brands that fill your cupboard and refrigerator. Tomorrow, we have Pepsi and Wholefoods followed by Kraft and Kellogg on Thursday. I would imagine that if consumers are willing to spend more money on Coca Cola, we'll see the same with Pepsi. Because American consumers are more conscious of health and willing to spend more, we can expect Wholefoods to do very well. Also, I couldn't imagine in times like these that we'd see Kraft or Kellogg produce a bad report. So, all in all, based on what we've seen today, I think we're in for a week of big earnings.

What This Means For The US Economy

In the short run (6 months to a year) this is a great thing. We're most likely going to see heavy inflation in pantry products, major increases in the value of the United States dollar, and I could imagine we're going to see uptrends in the market. So, all in all, in the short run, this is great news. However, as I've mentioned quite a few times recently, I am a bit concerned about what the overwhelmingly positive reports will mean for the US economy in the long run. Here's why...

  • Coca Cola's Report Proves The Pace Of US Dollar Growth Is A Problem - With health conscious consumers spending more money on Coca Cola, revenue in the North America was up. However, because the dollar is growing at such a strong rate and other currencies around the world are losing value, foreign trade tanked; ultimately leading to a 55% reduction in revenue! If we continue going at this rate, we very well could see this in several other industries and the results of falling foreign trade can be devastating.
  • Can Anyone Say "Higher Interest Rates"? - One thing that I've been watching closely has been the Federal Reserves plans with interest rates. Of course, the Fed is incredibly secretive and doesn't like to tell us flat out what's going to happen. However, recent changes in language revolving around the Fed's willingness to keep interest rates at low levels for an extended period of time have started to spark debate. Personally, I am among those that believe that overwhelmingly positive reports could be the ultimate reason for earlier than expected rate hikes from the Federal Reserve. Unfortunately, this could have devastating affects on the economy as a whole as well.

Final Thoughts

Regardless of the chances that this could be bad for the economy in the long run, this week is starting to become as exciting as I had expected. Currently, Coca Cola stocks are up nearly 3%, the US Dollar index is up, and investors seem happy with the way things are moving. However, I can't stop thinking about what a fast, unsustainable rate of growth could do to the economy in the long run. Only time will tell, but I think we may be headed down a relatively rough path if growth continues at such a fast pace compared to the rest of the world.

What Do You Think?

Do you think that the faster than expected pace of growth is a good thing overall? Let me know in the comments below!

This post was originally published on CNA Finance

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