The world’s largest soft-drink maker, Coca-Cola, reported earnings per share of 92 cents for the quarter (excluding some items), outpacing analyst expectations of 89 cents, but down from comparable numbers in the year-earlier period. Revenue shrunk 8.6 percent to $8.27 billion from 9.05 billion in 2008, as foreign exchange fluctuations cut into dollar-denominated sales – the company collects over 70 percent of its revenues from outside the country. The volume of drinks sold worldwide rose 4 percent – not surprisingly led by huge gains in China and India with 14 and 33 percent increases, respectively. These developing world nations more than made up for the 1 percent volume drop the company saw in the U.S. market. Chairman & CEO Muhtar Kent was pleased with the developing market sales, but plans to cut out more than $250 million in annual expenses, and possibly twice that by 2011 to free cash for additional marketing campaigns in that part of the world. 

 

We like Coke’s international focus, as well as a superb balance sheet in a time of tight credit. The company maintains over $7.6 billion of cash in its coffers, while its debt is rated highly by the major agencies. Shares yield 3.3 percent at current prices, while trading at less than 15 times 2010 expected earnings and a PEG of 1.5. 

 

While Coca-Cola relied on foreign operations to buoy its business, consumer electronics powerhouse Apple was able to grow earnings despite meager exposure to the developing world. The company reported fiscal third-quarter profits last night that greatly exceeded expectations and represented the company’s best non-holiday quarter ever. Relying on sales of its iPhone (which the company has struggled to maintain enough supply to meet demand) and less-expensive Mac notebook computers, the company’s quarterly profit rose to $1.23 billion from $1.07 billion in the year earlier period. Sales, which rose 12 percent to $8.34 billion, combined with better than expected gross margins of 36 percent to provide earnings of $1.35 per share compared to expectations of $1.17. 

 

Despite the blowout numbers, the company did cite some relative weakness (or lack of growth) in education and business markets which have been subject to budget constraints. However, given the added speed and features of its new iPhone model, COO Tim Cook noted that the phone is showing positive signs in corporate, government, and educational sectors. 

 

As per usual, the company’s forecasts were short of analysts’ estimates. The company sees sales of $8.7 billion to $8.9 billion in the coming quarter, while earnings per share will be $1.28-$1.23. Profit margins will likely come in some as the company touts back-to-school promotions, and feels the effects of recent price cuts to its Mac computer line. Regardless, both pricing measures will help Apple continue to increase its market share – which now sits at 8.7 percent of the U.S. computer market. The company has an astounding $31.1 billion of cash on its balance sheet with no debt – an enviable position in the current climate. Shares have rallied over 75 percent this year, but still only trade at a PEG of only 1.5. The company has demonstrated a remarkable ability to grow a consumer-dependent business in one of the harshest consumer environments of the last 80 years, and remains a standout in our portfolio.