Do the new Coke and the new PepsiCo both fail the taste test?

Gee, I really hate this deal.

It’s not just that I question the price that Coca-Cola (KO) is paying to acquire the North American operations of its biggest bottler Coca-Cola Enterprises (CCE). The $12.7 billion price works out to about the same multiple that PepsiCo (PEP) paid to acquire its two biggest bottlers. After the deals both close Coke will have control of about 90% of its North American bottling and distribution system; Pepsi will control about 80%. But while the companies are paying about the same price PepsiCo looks like it has a much bigger opportunity to cut costs in its deal than Coke does.

Or that the deal takes away a major reason to own shares of Coca-Cola. Wall Street preferred Coke to Pepsi because it saw Coke as the better emerging markets play. But this deal will take Coke’s revenue from 74% overseas to 54% overseas, according to Barclays Capital.

Or even what the deal says about the declining market for soft-drinks in North America. And the shift in power toward big box stores such as Wal-Mart (WMT.) First, U.S. sales volume of carbonated drinks is down across the industry according to Beverage Digest. Sales volume fell in 2009 following a 3% decline in 2008, a 2.3% drop in 2007, and a 0.6% falling 2006. At the same time, the increasing market power of big box retailers has put pressure on soft drink margins and cut into the shelf-space that Coke and Pepsi get for their bottled waters and the other non-carbonated drinks that they’re counting on to make up for the drop in carbonated soft-drink sales volumes.

No, what really troubles me is that this deal has history, you see. And the history is one of asset-shuffling and accounting razzle-dazzle. If these companies’s are willing to forgo the financial magic that the deals brought them in 1986 and 1999, respectively, then the long-term challenges facing these companies are more serious than I thought. (For more about the implications of the current wave of deals see my post http://jubakpicks.com/2010/02/26/can-ceos-destroy-shareholder-value-in-an-acquisition-just-watch-them/ ) Read more

Things go better–but not better enough–with Coke

Investors didn’t like Coca Cola’s (KO) second quarter earnings reported before the open on July 21. The stock was down around 2% at 1:30 p.m. ET that day.

 I’ve got to wonder what they’re been drinking. If you look beyond the problems created by a stronger U.S. dollar Coke turned in a quarter with enough growth to keep the company’s momentum going.

Second quarter earnings came to 92 cents a share, before one-time items. That was 3 cents a share better than the Wall Street consensus but still represents a drop of 9% from earnings in the second quarter of 2008. Revenue flel 8.6% to just $8.27 billion, significantly below the $8.66 billion projected by Wall Street analysts.

The culprit in the case of both revenue and earnings was a stronger dollar. (When the dollar goes up, Coke’s revenue earned overseas in India, China, Europe, wherever, translates into fewer dollars on the company’s books.) Read more

Earnings tomorrow from CAT, Copper, and Coke enough to keep the rally going?

Quite a set of economic indicators in tomorrow’s earnings reports. And all before the stock market rings the opening bell at 9:30 ET too.

Caterpillar (CAT), an important indicator of prospects in the construction and industrial sectors, is expected to report earnings of 22 cents a share on revenue of $8.8 billion. That would be a big step down from the 39 cents a share the company reported in the first quarter of the year. Expect that the company will bring down its guidance for the year 2009 year from the $1.25 goal it set last quarter to something more like the current Wall Street consensus of $1.03. The key to market reaction on the quarter will be evidence that the company was able to cut costs enough during the quarter to maintain its prices.

Freeport McMoRan Copper & Gold (FCX) has been a key commodity indicator recently because copper has been leading commodity prices higher in anticipation of growing demand from China. Read more