Roberto Goizueta, the late, legendary chief executive of Coca- Cola Co., fueled a 39-fold surge in the company’s stock by relying on its flagship brand: Coke.
Now, after the U.S. market for soft drinks shrank for two years, current CEO Neville Isdell has turned to the lab to try to restore growth and revive the shares by creating new drinks with proven health benefits. Some say it’s too little, too late.
“They’re doing the right thing with these new drinks, but I still see a problem for them with reliance on soft drinks,” said Walter Todd, a principal at Greenwood Capital Associates LLC, which held Coca-Cola shares when they peaked. The South Carolina firm is affiliated with WealthTrust LLC, which manages $6 billion.
Coca-Cola is running as many as 21 clinical trials to prove the benefits of drinks such as Minute Maid Heart Wise orange juice, which lowers cholesterol, and Enviga green tea, which boosts metabolism. Those products can be twice as profitable as soda, which still accounts for 80 percent of Coca-Cola’s sales.
The shares, already up about 10 percent in 2007, are forecast to rise 11 percent in the coming year to $59. Even at that price, they’ll still be a third less than they were at the stock’s all-time high of $87.94 in 1998. Coca-Cola stock had gained every year from 1981 through 1998 as the company expanded overseas and sold assets such as Columbia Pictures and Sterling Vineyards.
After Goizueta’s death in 1997, the company struggled with management changes, with three CEOs in the next seven years. The stock dropped in 1999 and lost half its value until reaching a low of $37.07 in March 2003.
Isdell, who worked for Coca- Cola and its bottlers for three decades, was brought out of retirement in June 2004 to take the helm. At the time, the shares were trading at about $51. They have gained 3.7 percent during his tenure.
Coca-Cola’s battle mirrors that of Anheuser-Busch Cos., whose domestic volume growth slowed to 1.2 percent last year as consumers switched to imports and spirits. Sales at Anheuser increased an average of 4 percent over the past five years, trailing Coca-Cola’s 6.5 percent gain.
PepsiCo’s sales have outpaced both, rising an average of 8.4 percent over the same period, fueled by demand for Frito-Lay snacks and drinks such as Gator ade, which it bought for $14 billion as part of the purchase of Quaker Oats Co. in 2001 after Coca-Cola rejected the deal because it was too expensive.
While soda sales have shrunk in North America, overseas demand is surging in countries such as China, Russia, Brazil and parts of Europe. Coca-Cola gets 70 percent of sales outside North America.
