Coca-Cola's Story Falls Flat

 | Jul 16, 2013 | 12:14 PM EDT
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Nope, not buying it. Not buying it at all. I am talking about the comments explaining the disappointing quarter that Coca-Cola (KO) announced today, including, "Our second-quarter volume results came in below our expectations, reflecting an ongoing challenging global macroeconomic environment and unusually poor weather conditions in the quarter."

Challenging global macro conditions? What? Huh? Does it suddenly cost as much to buy a can of Coke as it does a car? A dishwasher? Sure, Coca-Cola is a global company, and we know there's turmoil in the emerging markets where Coke is sold. But in China, for example, the domestic economy has been fairly strong, strong enough to buy a record number of BMW's. I am not hearing a lot of complaints from other consumer companies about Chinese sales. Far from it.

Weather? Do we stop drinking Coke if it is cooler or rainier in some places? That didn't hold a lot of water with me. Sure, I like that the company didn't pretend that it was a good quarter, and accepted that it was disappointed with itself. I just simply expected better from a company that sells one of the least expensive, non-cyclical products that has a pretty good record historically of being like the Post Office, where neither rain, nor snow nor heat nor gloom of night would stop its appointed sales, although you have to substitute cool for heat to make the comparison more apt.

I expect better from Coca-Cola.

Meanwhile, on Monday, PepsiCo (PEP) hit an all-time high, and I do not expect similar handwringing and alibis when it reports next week. In fact, what this release of Coca-Cola's may verify is that PepsiCo now has the better model, even as some think it makes sense to break PepsiCo into two: a drink company and a snack company.

To me, the combination of the Frito-Lay division and the drinks division is what's making PepsiCo the standout here, not Coca-Cola, and that's why it is up double what Coca-Cola is up since the year began. The consistency of PepsiCo's model as well as the leadership of Indra Nooyi, who has taken PepsiCo more global while taking out costs and developing healthier snacks, has made it the go-to name in the space.

And yet the stocks, bizarrely, are evenly valued, with very similar price-to-earnings multiples and yields.

Tomorrow, at CNBC's Delivering Alpha conference, Andrew Ross Sorkin will be interviewing Nelson Peltz, a fabulous investor, one we have urged you to mimic, even after his stakes are taken, including big stakes in Mondelez International (MDLZ), the fast-growing food and beverage company, and PepsiCo. There were rumors last spring that he favored merging the two companies, in part because he might not have been all that happy with their performance.

May I suggest, Mr. Peltz, that you would be better off taking a stake in Coca-Cola and suggesting that it merge with Mondelez to get the same broader, more diversified product exposure that PepsiCo has? In a world where soft drinks are under fire for health considerations, perhaps some diversification away from a model so dependent on carbonated soda could be as good for Coca-Cola as it is for PepsiCo.

Either way, this Coca-Cola quarter shows that PepsiCo is the better bet for precisely the reason that the foolish jackals favored splitting PepsiCo into two: You don't just want to be a drink company, and not just because business turns south when the weather is bad and there's challenging economic environment, as Coca-Cola lamely told us this morning.

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