Coke shares have seen a modest uptick year-to-date as the company works on its turnaround.

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NEW YORK (CNN/Money) - Coca-Cola Co. on Thursday posted second-quarter profits that beat Wall Street estimates, spurred by strong volume growth in its international markets and a modest improvement in North America.

Excluding one-time items, the Atlanta-based company earned $1.64 billion, or 68 cents a share for the period. Analysts surveyed by First Call were expecting a profit of 64 cents a share.

Including special items, Coke (Research) earned $1.72 billion, or 72 cents a share, compared to a profit of $1.58 billion, or 65 cents a share, in the same period a year ago.

Revenue increased to $6.31 billion, in line with analysts' estimates, and up from $5.96 billion in the same period a year earlier.

Neville Isdell, Coke's chairman and chief executive officer, said in a statement that the company's improved quarterly performance was helped by "strong performance in Latin America, central and eastern Europe and northern Asia, as well as stabilization from an increasingly focused North America."

"However, we still have considerable work ahead of us in the U.S. and in markets like Germany, the Philippines and, in particular, India, as well as to improve our performance in the areas of innovation and marketing. In the second half of the year, the work, already underway to rebuild the system for profitable long-term growth, will intensify," he added.

The company also announced plans to repurchase at least $2 billion in shares during 2005 and bought back $1 billion in the second quarter.

Coke has recently shifted its focus on expanding its diet cola category, as well as investing heavily in advertising and marketing in a bid to capture more customers.

The company said its best sales performance last quarter, as measured by unit case volume growth, was clearly in its international markets, including double-digit percentage growth in China, Brazil and Russia. In the North America market, unit case volume was up 1 percent, while volume growth again declined in Germany and India.

Analysts said Coke, under Isdell, is taking the right steps to exploit other opportunities outside its core cola business, especially as more consumers replace colas in their shopping carts with water, juices and energy drinks.

In a conference call with analysts later Monday morning, Isdell said that while he welcomed the surprisingly better-than-expected upside in profits, future such upswings cannot be guaranteed. The call was monitored via webcast in New York.

"2005 is still a transition year for Coke," he told analysts. "We now have some positive results but we still building the base this year for sustainable growth in the future."

No doubt, Wall Street is well aware of the challenges that lie ahead while the world's largest beverage maker is in the midst of a turnaround.

Practically all Coke's management team is new.

"So it's hard to get a solid read this early in their job performance, but it benefits the company to have some stability in management," said Matthew Reilly, an analyst with Morningstar.

Under the leadership of Neville Isdell, who succeed former CEO Doug Daft in June 2004, Coke has made a number of executive changes, including an operational overhaul of all of the company's global operations.

Wall Street's reacted by pushing up shares of the company about 3 percent year-to-date.

Said Reilly, "Isdell has said in recent conference calls that Pepsi has done a better job in management development than Coke. I'll be looking to see what next steps management is prepared to take going forward."

Isdell Thursday once again reiterated his commitment to pushing Coke management team and division heads to present new ideas on improving Coke's global branding efforts.

The biggest challenge facing both Coke and Pepsi is slowing sales in North America -- as measured by unit case volume growth -- for the $65 billion carbonated soft drinks (CSD) industry.

Atlanta-based Coke's overall volume fell 1 percent in 2004, while Pepsi managed a volume gain of 0.4 percent in the United States.

Separately, Coke saw its domestic market share drop by 0.9 percent to 43.1 percent last year, while that for New York-based Pepsi slipped 0.1 percent to 31.7

Said Reilly, "Coke now is putting all its energy into increasing volume. The company realizes that they can't cost cut their way to prosperity, which was the strategy management adopted before Isdell took over."

According to John Sicher, editor of Beverage Digest, most of the 1 percent increase in volume last year came from sales of diet colas and to a lesser degree, energy drinks such as Red Bull, Monster and Rockstar.

Given that trend, Reilly said Coke's decision to expand its diet cola offerings -- introducing "Coke Zero" and "Diet Coke with Splenda" this spring -- is on the mark. Isdell told analysts that both "Coke Zero" and "Diet Coke with Splenda" had got off to a "solid start."

Said Reilly, "It's still early in the game for Coke. Its products account for about 10 percent of worldwide volume for nonalcoholic beverages. However, Coke has not fully exploited this framework over the past few years, even with its vast distribution system. We believe energy drinks, water products and other noncola drinks is where there's real opportunity for Coke's future financial performance."

Doing well overseas is important for Coke, since its international markets account for about 68 percent of the company's total business.

Once again, Coke's profit boost last quarter was the result of strength in its overseas markets, including China, Russia and Brazil, which offset declines in Germany, the Philippines and particularly India.

"India problems are not new. Coke has had a challenging time there and the company is not making money," said Robert van Brugge, analyst with Bernstein & Co. But while India accounts for 1.5 percent of Coke's worldwide sales, Brugge said Germany accounts for a larger 3 percent of the company's worldwide sales and about 6 percent of total operating profit.

"What it comes down to is Coke's need to improve performance in developed markets where it gets most of the profits," Brigge said. "Last quarter Coke's emerging markets did very well but the U.S., Western Europe and Japan weren't particularly impressive. Those three regions together represent about two-thirds of Coke's profits."

With $7 billion in cash, Coke can certainly afford to go shopping for a few brands to expand its portfolio, said Morningstar's Reilly. However, Coke's management did not address acquisition plans during the call, focusing instead on the company's ongoing efforts to keep the turnaround on track.

"I think it could potentially seek smaller companies in strategic markets to grow profits or some noncarbonated drinks companies in the U.S.," Reilly said.

Beverage Digest's Sicher said he's aware of speculation surrounding Coke and Arizona.

"The antitrust laws would make it hard for Coke and Pepsi to buy more carbonated soft drinks brands," Sicher said.

Observers said Dean Foods, Ocean Spray and Glaceau are other brands that could falls on Coke's radar in the months ahead.

Click here to read more about Coke and Pepsi's calorie battle.