May 29 2008
America Loses Its Fizz to Emerging Markets
Look no further than the Q2 earnings of Coca Cola (NYSE: KO) to see that America lost the Cold War.
As emerging markets thrive, we can no longer afford the staple of Yankee Doodle consumerism: a bottle of Coke. Even the CEO of Coca Cola admitted that the U.S. market is slipping, and he will place greater emphasis on emerging markets.
Any investor who seriously wants to make money in emerging markets can probably do much better for himself by recognizing the truth that America lost the Cold War to Russia and China. This is not an ideological belief, but an economic one. As the middle class in Russia, China and other emerging markets continue to grow, we now cannot afford a 20-ounce bottle of Coke.
That’s completely incredible…
In its Q2 earning report, Coke’s second-quarter earnings outlook slipped below Wall Street’s expectations. The company blamed weak North American sales of higher-margin 20-ounce drinks and “weakening economic trends.”
If the trend continues, Coke’s full-year earnings forecast could be thrown into jeopardy.
Feeding the American market to the Wall Street wolves, Coke said that “Strength in international operations, representing over 80% of the company’s operating income, is expected to continue to offset weakness in North America resulting from the difficult economic environment.”
Ha, ha, ha…what a joke. Because, in January, at the big economic pow-wow in Davos Switzerland, Coke’s CEO Neville Isdell told Reuters that emerging markets would continue to power ahead, softening the impact on a global basis and averting a worldwide slump.
Isdell also said that he believed there is a greater than 50% chance that the U.S. is facing a recession.
The “R” word? That’s hilarious. How about total economic defeat?
“What we are going to see is some rebalancing in the global economy because the importance of the developing world is going to increase,” Isdell said in the Reuters interview.
Well, that’s more like it. Rebalancing implies that America’s influence on the global economy is on the decline. So really, it’s not the “R” word…but the “L” word.
A quick rundown of Coke’s activities in 2008 clearly shows that the company’s international efforts are expanding at a rapid pace — especially in emerging markets. Check it out…
– May 2008 the Turkish unit of the Coca-Cola Company signs an agreement to acquire a 12.5% stake in Turkmenistan Coca-Cola Bottlers.
– May 2008 Coke invests $50 million in capital expenditure in Kenya, with most of the money earmarked to fund the expansion and scaling up of its bottling lines. The investment marked one of the largest made by Coca-Cola in Kenya in any single year, reflected the drinks company’s confidence in the Kenyan economy, a senior company official said.
– April 2008 the Hungarian arm of Coke opens a new plant in bottling line at its Dunaharaszti plant, near Budapest.
–April 2008 The Brazilian Consumer Affairs Division approves the acquisition of local bottled tea maker Leao Junior SA by Coke. The deal includes three factories in southern Brazil.
– March 2008 The Turkish division of Coca-Cola Co says it’s looking to purchase opportunities in the non-alcoholic beverage market in fast-growing Turkey.
– January 2008 Coke’s Russian bottling partner says it will evaluate a proposal to convert an old Siberian pulp mill into a bottling plant on the shore of Lake Baikal. If the project get’s the go-ahead, it will be Cokes 15th plant in Russia.
Looking ahead, there are still six more months in 2008 in which Coke (and other American corporate icons) could move ahead to plan for a new economic world order. Investors should recognize this as a once-in-a-lifetime opportunity to rethink their investment strategies.
What does Coke know that you don’t?
–Irwin Greenstein
