Weak jobs market could fizzle Coke

By Melanie Lindner, reporter

(Fortune) -- On Tuesday, all eyes will be on the Coca-Cola Company as the world's largest soft drink maker reports its first quarter earnings. Though analysts are predicting solid year-over-year gains, all is not sweet for the Atlanta-based soda company, as the weak job market is likely to weigh on its top and bottom lines.

Morningstar analyst Philip Gorham told Fortune that high unemployment in the U.S. and Europe continues to keep would-be customers at bay. "The out-of-work construction laborer isn't stopping at a convenient store for a soda when he doesn't have a job," says Gorham.

Lucky for Coke, higher unemployment doesn't necessarily mean lower profits. In Coke's fiscal first quarter of 2009, unemployment averaged at 8.2%, and the company made sales of $7.2 billion. In the first quarter of 2010, 9.7% of job seekers were out of work, and analysts are predicting Coke will make sales of $7.8 billion. The missing link in the equation is growth overseas.

"We expect growth in most emerging markets will show accelerated strength, and believe recent data points from China support our estimate of 18% volume growth in the first quarter," UBS analyst Kaumil Gajrawala wrote in a recent note to investors. According to UBS, Coke has a dominant position in emerging markets around the globe, reaping as much as 75% of its revenues from markets outside the U.S.

While industry experts have often touted Coke as the soft drink industry trailblazer, the company has recently been playing copycat to PepsiCo. During the first quarter, Coke's Miami-based rival rallied investor support when it completed its acquisition of bottlers Pepsi Americas and Pepsi Bottling Company. Coke announced a similar acquisition deal with its bottler Coca-Cola Enterprises in late February, but its stock hasn't gotten the same bounce. According to Gorham, Coke overpaid; judging by their reaction, investors seem to agree.

Investors aren't the only ones who are less than pleased about Coke's bottling deal. The Teamsters labor union, representing some 15,000 Coca-Cola Enterprises employees hosted a conference call on Friday slamming the Coca-Cola Company's plans to acquire its bottler.

"Coke's distribution experiment may look good in theory but will prove to be a costly mistake," says David Laughton, Director of the Teamsters Brewery and Soft Drink Workers Conference. Laughton claims that Coke has already fallen behind Pepsi in integrating its bottling operations.

The union leader lashed out against the Coca-Cola Company's plans to implement a new distribution program to 7-Eleven stores in southern California, which he says will cut jobs. "The new Coke plan will only complicate its distribution system," says Laughton. "[It will] hurt customer relations and provoke a work stoppage that could disrupt operations not only in Southern California but in other key markets as well." Gorham says a work stoppage would have minimal effect on Coke's share price.

"The landscape of beverage bottlers and distribution networks is changing," Gorham told Fortune, noting, that Coca-Cola is likely in talks with Dr Pepper Snapple to create a licensing deal similar to the one the Schweppes and Sunkist maker struck with PepsiCo for $900 million as part of its bottler acquisition.

Whether closing the deal with Coca-Cola Enterprises will have a positive effect on Coca-Cola Company's bottom line remains to be seen. For now, shares of the soda-maker likely won't get too much of a pop on the company's first quarter report, since the market is well aware that high volumes in emerging markets are the main bulwark against the negative impact of high unemployment here in the U.S. To top of page

Frontline troops push for solar energy
The U.S. Marines are testing renewable energy technologies like solar to reduce costs and casualties associated with fossil fuels. Play
25 Best Places to find rich singles
Looking for Mr. or Ms. Moneybags? Hunt down the perfect mate in these wealthy cities, which are brimming with unattached professionals. More
Fun festivals: Twins to mustard to pirates!
You'll see double in Twinsburg, Ohio, and Ketchup lovers should beware in Middleton, WI. Here's some of the best and strangest town festivals. Play
Company Price Change % Change
Apple Inc 97.19 2.47 2.61%
Facebook Inc 71.29 2.02 2.92%
Microsoft Corp 44.87 0.04 0.09%
EMC Corp 28.75 0.23 0.81%
Bank of America Corp... 15.52 0.00 0.00%
Data as of Jul 23
Index Last Change % Change
Dow 17,086.63 -26.91 -0.16%
Nasdaq 4,473.70 0.00 0.00%
S&P 500 1,987.01 3.48 0.18%
Treasuries 2.46 -0.00 -0.08%
Data as of 4:34am ET


McDonald's is standing by a troubled meat supplier, even after allegations the company was selling tainted and expired meat. More

With cost-cutting at the U.S. Postal Service more letter carriers are working later and later to deliver your mail. About 38% of mail is delivered after 5 p.m. in cities nationwide. And areas like Atlanta, Washington and South Florida, it's 70%. More

Like many of its Silicon Valley peers, Twitter workers are mostly male and white according to a diversity report released by the company Wednesday. More

As 65,000 IDF reservists are tapped to serve in Gaza, Israeli's tech community tries to maintain business as usual, amidst bombs, sirens and employees called to war. More

Chinese buyers are now the biggest international players in the U.S. housing market and some states are seeing billions of dollars in real estate deals as a result. More

Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.