Coca-Cola Cuts Long-Term Earnings Targets

The Associated Press
11.11.2004

The Coca-Cola Co. warned investors to expect slower earnings and sales growth from the world's biggest soft drink company but said it is beefing up spending on marketing its core brands and on innovation as it tries to catch up with consumer's growing thirst for alternatives to soda pop.

New chairman and chief executive Neville Isdell said Thursday a review showed Coca-Cola has "underperformed since 1997" and faulted the company for being slow to push the water, juice and other non-carbonated drinks consumers want as they become more health-conscious. He said weak results will persist into 2005 in key markets including North America, Germany and the Philippines.

"The emerging consumer trends in health and wellness were missed," Isdell told a conference of analysts and investors gathered in New York and carried over the Internet. "We stopped driving carbonated soft drinks, and we're the world leader."

It was Isdell's first such presentation since the former bottler was named CEO in May to replace the retiring Doug Daft.

The Atlanta-based company said it expects sales volume growth of 3 percent to 4 percent, down from its previous targets of 5 percent to 6 percent.

It also projects operating income growth of 6 percent to 8 percent, compared to 10 percent previously. Coke is projecting earnings per share growth in the high single-digits, which had been 11 percent to 12 percent.

In a two-hour speech that often sounded like a pep talk, Isdell and other executives pleaded with investors for patience in the short term in exchange for higher profits in the long term.

Isdell said 2005 "is not going to deliver the kinds of returns that are going to be acceptable to me, as a shareholder. ... But we can't save our way to prosperity, we have to grow our way to prosperity."

Coca-Cola shares, which dropped as much as $1.81 during the day, wound up down 21 cents to close at $40.96 on the New York Stock Exchange. Its shares are down 23 percent from its high last spring of $53.50.

Among the plans to boost growth: much more advertising. The company plans to spend an additional $350 million to $400 million on marketing next year, shifting its ads from local, promotional types to big-media buys that could span an entire country or continent. Clips were shown of a Christmas ad to show in Europe and North America, along with a more-subdued ad coming to the Islamic world.

"Our advertising has not been as consistently effective as it needs to be in recent years," said chief marketing officer Chuck Fruit. Since 2000, he said, there has been "too much local stuff" and "too little attention to brand-building iconic advertising."

Most of the marketing spending will be outside the United States, Isdell said. Here in North America, there could be more sponsorship deals, such as Coke's presence on the TV show "American Idol."

Isdell said young people, Hispanics and aging baby boomers are the three segments most important for growth in North America.

After talking at length about the future of non-carbonated drinks, Isdell then pledged to breathe new life into its flagship brand, the nation's best-selling carbonated soft drink.

Even as the company offers more low-calorie drinks, Isdell said Coke will be pushed more as "a decent thing, honestly made."

"Unless we have a healthy Coca-Cola we will not intellectually have a healthy Coca-Cola Co.," he said.

Besides its flagship soft drink, Coca-Cola makes Diet Coke, Sprite and Fanta as well as Dasani water, Odwalla juices and Powerade sports drinks.

Second Mortgage News