The beveragemaker's top executive expects a bumpy road, but says problems can be fixed.
By Associated Press
Published September 16, 2004
ATLANTA - Coca-Cola's top executive said Wednesday that the world's largest beveragemaker needs to work harder, better execute its business strategy and improve its culture as he warned that third-quarter per-share income will drop at least 24 percent from a year ago.
Chief executive Neville Isdell said in a speech to employees that a lack of personal accountability and internal politics, among other issues, have hurt the Atlanta-based company.
"We need to systematically remove the barriers that impede our progress," Isdell said. "In my opinion, these include a lack of accountability, personal accountability, the hindrance of internal politics, an aversion to risk and an underinvestment in developing the capability necessary to succeed."
The comments came hours after Coke temporarily shelved its policy of not giving quarterly earnings guidance and announced its unfavorable outlook, which would fall short of expectations. The company's stock fell on the news.
"Today, we are not growing the way we should be," Isdell said in a conference call with investors and reporters.
Coke, citing poor weather in Europe and problems executing its business strategy in North America, said its reported net earnings for the July-September period will be in the range of 35 cents to 38 cents. At 38 cents, that would be a 24 percent earnings per share decline from the 50 cents Coke reported in the same period in 2003.
Excluding charges, Coca-Cola said it now forecasts third-quarter earnings in the range of 46 cents to 48 cents per share. Analysts surveyed by Thomson First Call were looking for Coca-Cola Co. to post third-quarter earnings of 54 cents per share, excluding one-time items.
For the second half of the year, the company now expects to earn 88 cents to 92 cents.
Coke releases its third-quarter and year-to-date earnings on Oct. 21.
"I am not satisfied," said Isdell, who was named CEO in May, replacing Doug Daft. "I understand these results to be the symptom and not the problem, and we will set about what is needed to move our business forward and improve our long-term performance."
Coke shares fell $1.71, or 4 percent, to close at $41.16 Wednesday on the New York Stock Exchange. Coke stock had risen steadily since last year to a high of $53.50 in April before dipping in July and hovering around $40. Rival PepsiCo Inc.'s stock has fallen since a high of $55.71 in June, but less dramatically than Coke stock. The New York-based beverage company's shares have hovered around $50 since mid July.
Coca-Cola blamed unfavorable volume trends in the North America bottle and can business, as well as changing marketplace dynamics in Germany and unfavorable weather in northern Europe for its reduced forecast. In particular, a German requirement placing a deposit charge on returnable bottles has negatively affected the company's outlook.
The company forecasts a 1 to 2 percent increase in worldwide unit case volume for the full year. Volume growth for the third quarter will be flat to 1 percent.
In North America, Coke also has seen some challenges with sales of its new mid-calorie cola, C2, Isdell said.
While the company has had success in sales of its 20-ounce version, it has underperformed with its eight-pack can version, Isdell said. Abroad, C2's performance has been good in Japan.
"We can overcome our challenges, and our problems can be fixed," Isdell said. "Regardless of what skeptics may think, I know carbonated soft drinks can grow."
In the short-term, however, things will be bumpy for Coke as it tries to better implement its business strategy, he said.
"Regrettably, we do not see an immediate benefit from our actions," Isdell said.
In his speech later to employees, Isdell said there also are larger issues Coke needs to improve, such as innovation and marketing.
"We also have to do something we've not been terribly good at," Isdell said. "We have to support new products with disciplined follow-up so that today's hits become tomorrow's enduring brands."
Merrill Lynch analyst Christine Farkas said she thinks investors will be cautious with Coke as the company implements its changes. She lowered her rating on Coke from buy to neutral.
"We believe that today's announcement suggests further challenges to Coke that may take longer to resolve," Farkas said in a research note. "Further, significant measures are likely to be taken to address Coke's challenges, and the financial impact is currently unknown."
