Coca-Cola Co. (
are down 4% in morning trading after the company reported
earnings before the market opened on Tuesday.
Adjusted earnings for the fourth quarter came in at 46 cents
per share, in line with analyst estimates. Revenues in the period
were $11.04 billion, missing estimates of $11.3 billion.
The results were negatively impacted by currency fluctuations,
but volume improvements and margins were less than the previous
In essence, it was a nondescript earnings report, but with
shares trading for a healthy valuation investors chose to sell
the stock after the news was released.
I'm not sure any of that really matters.
The real story for Coca-Cola is the recent
deal it signed with
Green Mountain Coffee Roasters
. That deal to bring the hugely popular Coke brand to the home
beverage market is a game changer, but the market is not acting
Shares of Coke fizzled after the
deal was announced
. At the same time, Green Mountain shares exploded higher.
Why was there not a bigger boost for Coca-Cola? Perhaps it
goes back to valuation.
Analysts expect Coke to grow profits by an anemic 6% in 2014.
At current prices, shares trade for 17 times 2014 estimated
That sort of profit growth is not what excites investors. It
also explains why the company would strike a deal with Green
When you are a global brand like Coke, where are you going to
The home market is a natural extension for the brand and opens
up the potential to grow sales by a significant amount.
Investors' immediate reaction to the Green Mountain deal
suggests sales growth may be limited by sales losses
I think that reaction is overly pessimistic. A Coke drinker is
a Coke drinker. The product is highly addictive. Being able to
consume at home may have a negative impact on supermarket sales,
but it also might mean that there will be more sales, given the
simplicity of the home-delivery device.
If you examine the success of Green Mountain's single-serve
coffee machine, you will see that the market for coffee expanded
- it did not contract.
I think the same thing will happen for Coke. The potential to
reach new consumers with the home-delivery product is quite
Investors should be excited about that potential, but they are
Combined with earnings selling on Tuesday, I would look at
Coke shares as being attractive at current levels. Add in the
and I think there is higher-than-market-return potential