Coke's Moves Away From Corn Bear Fruit

(MoneyWatch)  The combination of rising commodities prices and the weak economy is putting a lot of food and beverage companies in a bad position. But there are exceptions, and Coca-Cola Co. is one of them. The company on Wednesday reported first-quarter results that substantially exceeded expectations. It helps that three-quarters of Coke's sales come from overseas markets.

It also helps that Coke has aggressively moved into non-carbonated drinks. Worldwide sales of soda rose a relatively anemic 3 percent. Sales of non-carbonated drinks soared by 17 percent.

Coke is a huge buyer of corn (in the form of high fructose corn syrup), one of the commodities that have seen the biggest price gains. While that has put a dent in the company's domestic profits, the weak dollar has helped it greatly in foreign markets, particularly in Mexico, China, and India. Unit sales in those countries rose in the quarter by 10 or 11 percent each.

The push into non-carbonated beverages like juice, tea, and bottled water makes Coke that much less dependent on corn. And it puts it into markets ?€" both domestically and globally ?€" where demand is burgeoning. That push has helped it particularly in Mexico, where total unit sales rose 11 percent in the quarter, helped in large part by its acquisition in November of juice-maker Jugos del Valle.

Revenues in the United States were flat ?€" hurt by a decline of 4 percent in fountain and foodservice sales. This is where Coke is really playing it smart. Rather than simply cut prices, it plans to use its profits to increase its marketing, largely of non-carbonated drinks ?€" what the industry calls "still beverages."

In a conference call with analysts Wednesday morning, Muhtar Kent, Coke's president and chief operating officer, noted that the Coke is "the fastest-growing still beverage company in North America and our still beverage portfolio is outperforming the industry."

If the company can build on that growth, the only real weak spot left would be declining or flat domestic sales, and rising costs, of its core products ?€" corn-fed soft drinks.