Coca-Cola's Earnings Slide Indicates that the US Consumer is Still Struggling

The seemingly untouchable soft drinks giant

has seen its earnings fall a full 71 percent from the previous year's period. According to the

, the previous year included a large gain from the purchase of some bottling operations. Sales have been challenged by a struggling economy, which may surprise many who very nearly consider Coca-Cola a staple of the American diet. In previous years, it appeared that people could always find the money for a coke and food from McDonald's

. In other words, when Americans stop buying Coca-Cola, we can be fairly sure that something is seriously wrong. The news comes after KO had been using favorable exchange rates to help offset rising costs for materials like plastic (for the bottles) and corn (for the sweetener). In addition, KO continues to bring its bottlers in-house, acquiring Great Plains Coca-Cola Bottling Co. in October for approximately $360 million. On Monday, J.P. Morgan reported that KO was at $0.75, two cents below consensus. “Q4 will mark the first quarter where CCE is in the base period, so we should get a clearer understanding of the underlying business, particularly in North America.” The research report noted that KO does not give specific earnings guidance. “Consensus has moved down $0.20 (4-5%) over the past few months, and now stands at $4.10 (JPMe $4.06). With the dollar having pulled back here, we are expecting only a 2-3% hit on the operating line from currency, versus 1-2% on the revenue line. We note that Coke's earnings target is high-single-digit dollar-based earnings growth (not Fx neutral). As we highlighted last week, we think Coke will have significant COGS inflation in 2012, but less than in 2011.” On Tuesday, KO reported on-going Q4 EPS of $0.79, vs. our $0.75 estimate and the $0.77 Bloomberg consensus. “Volumes of 3% were below our 4% estimate, and maybe just slightly below consensus,” reported J.P. Morgan. “The quality was rather mixed, as GM missed, pricing came in below our expectations, and some timing shifts lowered SG&A. That said, not a whole lot was expected in the quarter.” J.P Morgan, while looking at potential growth in the North American operating profit, said, “North American operating profit drove the upside in the quarter, as some changes in spending timing drove big upside. Comparable currency neutral operating income grew 25% in the quarter, with 1% volume and 2% price mix. An extra selling day added 1% to revenues as well.” Coca-Cola's fourth-quarter profit came in at $1.65 billion, or 72 cents a share, down from $5.77 billion, or $2.46 a share, a year earlier. According to the Wall Street Journal, excluding items such as asset impairments, restructuring and productivity initiatives, earnings rose to 79 cents from 72 cents. Revenue jumped 5.2% to $11 billion as worldwide unit case volume grew 3%.