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Sozzi: Coke Isn't It

Tickers in this article: KO PEP

Ever have those people in your life that for some reason you just don't like?  They could be perfectly pleasant and lovely folks that help grannies cross the street and have done you no direct wrong. Yet, something about them rubs you the wrong way.

That individual for me, in business, is Coca-Cola ( KO) CEO Muhtar Kent. No clue as to why these feelings exist. Maybe it's frustration at seeing him rock the same hat at Davos each year. Maybe it's that he is at Davos each year instead of addressing the slow-growth trends he and his team have overseen. Weird.

But that aside, Coca-Cola has positioned itself very poorly for the future of goods consumption. New 1.75 liter bottles in the U.K. ain't going to cut the mustard. Consumers want to be shown complete solutions for their lives. They want planning for occasions made as simple to them as it is to download a free weather app. PepsiCo ( PEP) is doing that as it owns a food (not snacks) portfolio that pairs with its drink portfolio to go to the consumer with solutions for life events, whether the Super Bowl or World Series.

Within Coca-Cola's dismal quarter (another one), I found various lessons and takeaways regarding the global economy.

  • In the middle of last year, Coca-Cola should have unloaded a three-year earnings-per-share range and made it as low as possible so it couldn't be trumped. Normally I am not a fan of these types of projections, but in the case of Coca-Cola there is a certain level of predictability that could have been leveraged to use such projections. Instead we have Coke's confusing press releases littered with the buzzwords "strong" and "momentum" when the actual financials are anything but those things.
  • I liked that Europe continues to log positive price for Coke and that China volume rose 12%. But I am wondering if that will be the peak volume for China this year.
  • Do research on this new Mexico excise tax that negatively impacted Coke's Mexico volumes. It could weigh on sales at Wal-Mart ( WMT) and others (Wal-Mart operates the WalMex chain in Mexico).
  • I believe Coke is cannibalizing itself with these smaller can sizes it's distributing. Less is often more.

Around the Horn

  • Most important component of the Empire State Index, which mirrored comments from trucker J.B. Hunt ( JBHT): Expectations were solid.
  • Anticipate upgrades in retail in the next few weeks ahead of earnings season for the sector.

Spotlight: Credit Cards

It would appear to me that the reason for the market not falling completely off a cliff is that companies are reaffirming their forward-growth-related comments. Watch the credit card stocks that have been moving in lock step with the market. A breakdown in these names (or breakout) at the end of April would be major red flags on a key attribute holding the market together.