* Q3 EPS of 83 cents excl items tops view of 77 cents
* Revenue up 9 pct; global volume up 5 pct
* Coke shares end up 1.1 pct, Pepsi down 5.8 pct (Recasts to compare with Pepsi results, adds analysts)
By Martinne Geller
NEW YORK, Oct 15 (Reuters) - As the cola wars spread to other battlegrounds, Coca-Cola Co (KO.N) has come out ahead of PepsiCo Inc PEP.N, proving it can steal market share and grow even as a financial crisis threatens the global economy.
While analysts recommend buying both stocks as part of a defensive strategy during tumultuous times, third-quarter results this week show that Coke’s global penetration and strong brands may do more to help it weather a spending downturn.
“I like both companies. I just prefer Coca-Cola for their international exposure and for not having the snack business,” said Standard & Poor’s beverage analyst Esther Kwon, who has a “buy” rating on Pepsi and a “strong buy” rating on Coke.
“I just think right now Coke’s portfolio and their model works a little bit better than Pepsi’s,” she said.
Coke posted a better-than-expected 14 percent rise in quarterly profit on Wednesday, helped by strong international demand that offset declining sales at home.
The results sent its shares up as much as 8.2 percent before the market turned sharply lower on recession fears.
A day earlier, Pepsi posted a disappointing profit and cut its full-year forecast, saying U.S. consumers were drinking more water from the kitchen tap to save money.
Coke and Pepsi reported similarly weak results in North America, where drink sales by volume fell as budget-conscious consumers ate out less and made fewer trips to gas stations and restaurants.
The main difference, according to Edward Jones analyst Jack Russo, was that Coke’s international reach gave it a bigger cushion against the U.S. slowdown. Coke itself cited growth in markets like China and India.
Coke “really relied upon the international platform that they have and they are a little further along on that platform versus Pepsi, especially on the beverage side,” said Russo.
He has a “buy” rating on both, due in part to the companies’ historically low valuations.
Pepsi, which also sells Frito-Lay snacks and Quaker Oatmeal, derives less than half its total sales from outside North America, versus more than 70 percent for Coke.
What is more, Coke’s drinks-only portfolio, which includes vitaminwater, Fuze and Coke Zero, makes it less exposed to commodity inflation than Pepsi, whose snack business has been pressured by higher costs for grains and cooking oil.
Coke’s net income rose 14 percent to $1.89 billion, or 81 cents per share, in the third quarter ended on Sept. 26. Excluding items, profit was 83 cents a share, ahead of a Wall Street forecast of 77 cents, according to Reuters Estimates.
Revenue rose 9 percent to $8.39 billion, helped by the relative weakness of the U.S. dollar, which boosts the value of international sales.
Global sales by volume rose 5 percent, driven by a 7 percent increase internationally.
The company pointed to double-digit sales gains in places like Turkey, India, Nigeria and China, where it sponsored the 2008 Summer Olympics.
Coke also said it gained market share in Russia, Latin America and North America — where a 2 percent volume decline outperformed the industry. Pepsi’s North American beverage volume fell 2.5 percent in the quarter.
Coke said its third-quarter currency benefit was bigger than expected but should be weaker in the fourth quarter. It declined to say how currency would impact results next year, given recent volatility, but it warned of sales slowing ahead.
“We expect fourth quarter volume to trail the year-to-date trend, due to the continued impacts of the economic slowdown and bottler pricing actions,” Chief Executive Muhtar Kent said on a conference call about North American sales.
Regarding international markets, Kent, who has been Coke’s CEO since July, said emerging markets would continue to grow next year but that growth may slow. He expects further difficulties in North America into 2009.
Morgan Stanley analyst William Pecoriello reiterated his “overweight” rating on Coke shares, saying the quarter’s results show “it should be able to sustain solid operating results in more challenging economic times.”
Coke shares, which had fallen nearly 29 percent this year through Tuesday’s close, closed up 1.1 percent at $44.21 on the New York Stock Exchange on Wednesday after trading as high as $47.33. Pepsi closed down 5.8 percent at $51.25. (Reporting by Martinne Geller; Editing by Lisa Von Ahn and Tim Dobbyn)