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Tickers in this Article: PEP, KO, DPS, CCE, COKE
Coca-Cola (NYSE:KO) bills itself as the world's largest beverage company, and the world proved to be its oyster during the third quarter as it more than offset challenging conditions in the North American market. International market growth may prove more of an uphill battle going forward, but Coke is easily besting the competition right now and overall stock market malaise is making the share price look quite interesting at current levels.

The Quarterly Fizz
Coke posted total quarterly sales growth of 9% to $8.4 billion, led by a stellar 24% improvement in its Latin American market and 17% jump in the Eurasian & African region. A weak U.S. dollar certainly helped results when translating overseas sales back to the home currency, and although this is expected to moderate as the dollar proves a safe haven during the credit crisis, Coke mentioned emerging markets are driving the solid top-line results, with China, Turkey and India posting double-digit case volume growth, just to name a few. Despite economic uncertainty, the world still needs its Coke.

But just as with arch rival PepsiCo (NYSE:PEP), Coke is having a tough go at growing in North America. The third quarter top line slid 2% on a 2% volume dip as higher pricing wasn't able to offset a 3% drop in concentrate and other sales. The trends are not encouraging, but management was quick to point out that the volume fall still outperformed the industry and new products such as Coke Zero and Olympic-related marketing performed well. More insight on this region is forthcoming on November 13, when Dr Pepper Snapple (NYSE:DPS) reports third quarter earnings. Dr Pepper only operates in North America. (To learn more, read Understanding The Income Statement and Breaking Down The Balance Sheet.)

North America
The North American sales of Coke products struggles are significant as they accounted for 26% of total sales for the quarter, which is the second biggest category behind the Bottling Investment operations. But from a profitability perspective, North America is less important as it accounted for only 18% of operating income. This clearly demonstrates that there is work to do at home, but it also helps the impact of the fast-growing and high-margin international operations, which have collectively grown to account for 53% of sales and an astounding 92% of operating profit. Of this profit, a surprising 36% of the total $2.2 billion was from the European region which saw a 14% growth for the quarter.

Latin America
Latin America is an impressively expanding and profitable region which accounted for 26% of total operating income. Quarterly operating margins came in at 54%. There was a 30% jump in operating income to $559 million in the three months ending September 2008 from $430 million the same period in 2007.

Moving down the quarterly income statement, total net income for the Coca-Cola Company grew 14% to $1.9 billion, or 81 cents per share. That works out to 23% of sales, illustrating just how lucrative Coke's business model is. As a comparison, PepsiCo posted a 14% third quarter net margin as it is somewhat constrained by its capital intensive snack food manufacturing facilities. Dr Pepper Snapple is similar in that it currently owns all of its bottling operations. Coke's bottlers, such as Coca-Cola Bottling (Nasdaq:COKE) and Coca-Cola Enterprises (NYSE:CCE) operate separately and help Coke avoid having to consolidate its bottling operations.

Drink in the Reasonable Valuation
As it stands currently, shares of Coke are trading at just under 19-times their projected free cash flow for the year. That is the same multiple that PepsiCo is trading, but PepsiCo is less profitable and seeing more hiccups than Coke in terms of the domestic struggles and volatile commodity costs. Both are consistently profitable, recession-resistant firms, but at current levels I am a bigger fan of Coke's stock, which is even more of a bargain considering it's down 25% so far in 2008.

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