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Stock Analyst Update

Coke's Prospects Looking Brighter

Restructuring shows results as company closes books on rough year.

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What Happened?
Coca-Cola (KO) on Wednesday announced fourth-quarter results in line with expectations, marking another positive step in the company's reorganization. Coke's earnings for the quarter were $0.38 per share excluding nonrecurring items, although various one-time charges dragged down net income to $0.10 per share--still much better than the $0.02 net loss posted a year ago. Revenue declined from last year's fourth quarter; lower costs across the board were responsible for the profit improvement. The company said that it expects growth to pick up in 2001, and that it's comfortable with consensus earnings estimates for the coming year.

What It Means for Investors
Although Coke is not quite out of the woods in its restructuring, there are several positive signs in these results, and we continue to think that this is a solid stock for the long term. The effects of Coke's streamlining were most evident in the operating margins: Although revenue was slightly down from a year ago, cost of goods sold and administrative expenses each fell 5%, resulting in a 13% increase in operating profit. Even the decline in revenue was not as bad as it first appears, because unfavorable currency translations dragged down sales. Case volume increased 4.4% for the year, and volume growth was especially strong overseas, where Coke's recent problems had been most severe.

Even though Coke is not going to revisit its glory days of 20% earnings growth, it's positioning itself well to start generating consistent profits again. The worst of the charges and disruptions are behind the company, and it's been beefing up its non-soft-drink lines, which are growing more quickly than cola. With one of the world's best-known brand names behind it, Coke is still a fine stock to own, in our opinion.

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David Kathman does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.