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Coca Cola (NYSE:KO) will release its third quarter numbers before the market opens on Wednesday, 21st October, and investors are waiting in anticipation. I just think this company has been battling against some adverse trends recently (which I believe are temporary) and I am convinced these underlying trends (which we will discuss in this preview) will abate in the not too distant future. Past earnings numbers would definitely imply that the company will beat analyst expectations next Wednesday, as the company has consistently topped analysts EPS predictions since 2013. Revenue is a different story as analyst expectations actually exceeded actual revenues in the corresponding quarter of 2014. (see chart below)

Based on current open interest, option premium and earnings history, I don't envisage the stock moving a lot after Coca Cola earnings are reported. I have already written on why this company is an excellent long term hold and should be aggressively bought on any meaningful pullback. If revenues disappoint once more ( $11.55 billion predicted on an EPS of $0.50), Coca Cola stock could easily drop back to the $40 a share level which I believe will be heavily defended. The long term fundamentals of this stock are still sound and the company's temporary headwinds will eventually subside.

Weakening Dollar To Improve Revenue

Firstly, when you look at the chart above, it is quite evident that revenue dropped sharply since the second quarter of 2014 but then rebounded sharply in the last quarter. Analysts are not making much of this as they see it as seasonal which in part is correct when you also see the spike in revenues in the second quarter of 2014. The second quarter historically has always been this company's highest revenue generating quarter but the company's most recent quarter is far better in my opinion than many analysts believe. Why? Well we have to look to the dollar for our answer (see chart below).

The dollar index has gone from roughly an average of 80 in the second quarter of last year to a present 94.59. That's a 15%+ move. Many thought this move alone would have collapsed revenues, as in fiscal 2014 almost 60% of net revenues came from international markets. However revenues dropped less than 4% in Q2 of this year compared to Q2-2014. This illustrates to me that the company's turnaround plan is gaining traction. Big international markets such as Russia & Brazil have had their currencies decimated against the dollar which could affect revenues but again in the short term. Why? Well the chart above shows the long term moving average crossing over the short term moving average forming a death cross, which is a technical signal for an ensuing bear market. There has been so much talk about the dollar's strength but it is still trading flat for the year. I think its bull run is over and its imminent weakness will boost US multi-nationals - no more so than Coca Cola.

Opportunities In Emerging Markets

Secondly, there is no denying that the company's flagship product is coming under pressure in many markets but the company has been making multiple in-house changes to ensure a continued declines on the carbonated side can be contained. Firstly its smaller cans offering have been a success and are more profitable to the company. Analysts also forget that the "coke" brand may be struggling in the western world but the brand has ample room to grow in many emerging economies (per capita consumption is very low), especially, when you consider the emergence of a growing middle class in the east.

Non Carbonated Drink Segment To Grow

Furthermore, the company is far more diversified than before and its non carbonated drinks such as ready to drink tea, premium milk and bottled water are growing at high single digit numbers in some markets which is really encouraging when you consider that 27% of unit case volume came from non carbonated or still drinks in fiscal 2014. Therefore expect this percentage to increase substantially going forward, as the company capitalizes on new customer health trends.

Coca Cola  Stock Is A Good Buy For Income Investors

For income investors, I just think things will get better from here for a variety of reasons. Firstly the restructuring which the company is currently undertaking is bound to increase the free cash flow levels. Through consolidation of distribution centers, streamlining of its supply chain and optimization of its bottling operations (divestitures & re-franchising), the company seems to be on track in achieving its savings goal of $3 billion by 2019. Where will these new funds end up? My guess (from the company's recent history) will be marketing and heavy investment into launching new non carbonated drinks that could improve margins even more.

Therefore with a 53 year history of dividend history and an expected spike in cash flows coming this year, I can only see more cash being returned to shareholders in the form of dividends and buybacks over the next 12 to 18 months. Do not be put off by its high P/E ratio of 24.63. Dividend aristocrats always sell at a premium and one has to remember that this stock has basically traded flat for the last 2 years and should be ready for its next jump up from here once we get some dollar weakness and its restructuring efforts begin to take shape. If you are not long this stock, use earnings to get long or double down on a meaningful pullback.