Coca-Cola can't catch Goizueta with Coke, tries lab
Tuesday, 4 September 2007
Mary Jane Credeur
Roberto Goizueta, the late, legendary Chief Executive Officer 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, taking cues from drugmakers, is running as many as 21 clinical trials to prove the benefits of drinks such as Minute Maid Heart Wise orange juice that 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 11 percent in 2007, are forecast to rise 10 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 rose 25 cents to $53.51 at 4:06 p.m. today in New York Stock Exchange composite.
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, who was Cuban, died suddenly in 1997 from cancer, 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 is 64 and Irish, worked for Coca-Cola and its bottlers for three decades before he 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 4.2 percent during his tenure.
Greenwood Capital bought Coca-Cola shares again in 2004 in the mid-$40s and sold them at about the same price last year because Todd ``ran out of patience'' with the company's turnaround. PepsiCo Inc. is now a top 10 holding, while the firm owns no Coca-Cola shares.
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 Gatorade, which it bought for $14 billion as part of the purchase of Quaker Oats Co. in 2001 after Coca-Cola's board rejected the deal because it was too expensive.
New drinks with benefits may help Coca-Cola win back consumers. Healthier beverages, overseas expansion and the recent $4.1 billion purchase of Glaceau Vitaminwater may lift Coca-Cola's revenue 22 percent by 2010, faster than the 18 percent gain forecast for Pepsi in a Bloomberg survey.
While soda sales have shrunk in North America, overseas demand is surging in countries such as China, Russia, Brazil and parts of Europe. Global soda shipments rose 4 percent last year, the biggest gain since 1998, and executives have said repeatedly that soft drinks will remain their top focus.
Coca-Cola gets 70 percent of sales outside North America. It sells some fortified juices in Europe and Asia, and analysts including Bill Pecoriello of Morgan Stanley have said Coca-Cola will likely expand Glaceau Vitaminwater to Europe and beyond.
``The core of our business is healthy and it's poised to capture significant growth over the coming years,'' President Muhtar Kent said on a July conference call. ``All the programs that were put into place, both the sparkling and still beverages, are working.''
Still, investors want to see more.
``I like to see the company branching out and looking for growth, especially with drinks that contain something good for you,'' said David Kolpak, who helps manage $60 billion including Coca-Cola shares at Cleveland-based Victory Capital Management Inc.
These new beverages can be more than twice as profitable as soda, said Gary Hemphill, vice president of Beverage Marketing Corp. in New York. At a Publix grocery store in Atlanta, 6-packs of Enviga sold for $6.59 while 12-packs of Coca-Cola were $3.99.
Some have questioned the science behind the drinks. Coca- Cola's assertion that three cans of Enviga burn 100 calories amounts to ``voodoo nutrition,'' Connecticut Attorney General Richard Blumenthal has said.
To burn the 3,500 calories it takes to lose a single pound, consumers would have to drink three cans of Enviga per day for 35 straight days at a cost of $146, the nonprofit Center for Science in the Public Interest said in a February lawsuit against Coca-Cola and Nestle SA, who co-developed the drink.
``It sounds like a magic cure, but I'm skeptical,'' said Katrin Schulz, 41, a stay-at-home mom in Atlanta. ``You might as well go for a walk and burn the 100 calories that way.''
Coca-Cola dismisses criticism of Enviga, and says the drink helps ``achieve a healthy lifestyle'' by gently increasing metabolism, says Rhona Applebaum, Coke's chief scientist.
Clinical trials, some of them double-blind and placebo- controlled, can cost upward of $500,000, Applebaum said. Money for the studies comes out of Coca-Cola's $2.55 billion marketing budget. The company doesn't break out the research portion.
The Enviga clinical was run by the University of Lausanne in Switzerland, and 31 participants were sealed in ``metabolic chambers'' where blood pressure and heart rate were measured.
They were given meals such as risotto and drank three 8.5-ounce servings per day of Enviga, which contains green tea extracts, caffeine and calcium.
The study showed that the average person burned about 100 calories from three servings of the drink.
``We really agonise about the designs of these studies to make sure they are bulletproof,'' said Danny Strickland, Coke's chief innovation officer. ``We really needed to step up the pace of innovation as part of the total revitalization of the company.''
Bloomberg
Roberto Goizueta, the late, legendary Chief Executive Officer 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, taking cues from drugmakers, is running as many as 21 clinical trials to prove the benefits of drinks such as Minute Maid Heart Wise orange juice that 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 11 percent in 2007, are forecast to rise 10 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 rose 25 cents to $53.51 at 4:06 p.m. today in New York Stock Exchange composite.
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, who was Cuban, died suddenly in 1997 from cancer, 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 is 64 and Irish, worked for Coca-Cola and its bottlers for three decades before he 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 4.2 percent during his tenure.
Greenwood Capital bought Coca-Cola shares again in 2004 in the mid-$40s and sold them at about the same price last year because Todd ``ran out of patience'' with the company's turnaround. PepsiCo Inc. is now a top 10 holding, while the firm owns no Coca-Cola shares.
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 Gatorade, which it bought for $14 billion as part of the purchase of Quaker Oats Co. in 2001 after Coca-Cola's board rejected the deal because it was too expensive.
New drinks with benefits may help Coca-Cola win back consumers. Healthier beverages, overseas expansion and the recent $4.1 billion purchase of Glaceau Vitaminwater may lift Coca-Cola's revenue 22 percent by 2010, faster than the 18 percent gain forecast for Pepsi in a Bloomberg survey.
While soda sales have shrunk in North America, overseas demand is surging in countries such as China, Russia, Brazil and parts of Europe. Global soda shipments rose 4 percent last year, the biggest gain since 1998, and executives have said repeatedly that soft drinks will remain their top focus.
Coca-Cola gets 70 percent of sales outside North America. It sells some fortified juices in Europe and Asia, and analysts including Bill Pecoriello of Morgan Stanley have said Coca-Cola will likely expand Glaceau Vitaminwater to Europe and beyond.
``The core of our business is healthy and it's poised to capture significant growth over the coming years,'' President Muhtar Kent said on a July conference call. ``All the programs that were put into place, both the sparkling and still beverages, are working.''
Still, investors want to see more.
``I like to see the company branching out and looking for growth, especially with drinks that contain something good for you,'' said David Kolpak, who helps manage $60 billion including Coca-Cola shares at Cleveland-based Victory Capital Management Inc.
These new beverages can be more than twice as profitable as soda, said Gary Hemphill, vice president of Beverage Marketing Corp. in New York. At a Publix grocery store in Atlanta, 6-packs of Enviga sold for $6.59 while 12-packs of Coca-Cola were $3.99.
Some have questioned the science behind the drinks. Coca- Cola's assertion that three cans of Enviga burn 100 calories amounts to ``voodoo nutrition,'' Connecticut Attorney General Richard Blumenthal has said.
To burn the 3,500 calories it takes to lose a single pound, consumers would have to drink three cans of Enviga per day for 35 straight days at a cost of $146, the nonprofit Center for Science in the Public Interest said in a February lawsuit against Coca-Cola and Nestle SA, who co-developed the drink.
``It sounds like a magic cure, but I'm skeptical,'' said Katrin Schulz, 41, a stay-at-home mom in Atlanta. ``You might as well go for a walk and burn the 100 calories that way.''
Coca-Cola dismisses criticism of Enviga, and says the drink helps ``achieve a healthy lifestyle'' by gently increasing metabolism, says Rhona Applebaum, Coke's chief scientist.
Clinical trials, some of them double-blind and placebo- controlled, can cost upward of $500,000, Applebaum said. Money for the studies comes out of Coca-Cola's $2.55 billion marketing budget. The company doesn't break out the research portion.
The Enviga clinical was run by the University of Lausanne in Switzerland, and 31 participants were sealed in ``metabolic chambers'' where blood pressure and heart rate were measured.
They were given meals such as risotto and drank three 8.5-ounce servings per day of Enviga, which contains green tea extracts, caffeine and calcium.
The study showed that the average person burned about 100 calories from three servings of the drink.
``We really agonise about the designs of these studies to make sure they are bulletproof,'' said Danny Strickland, Coke's chief innovation officer. ``We really needed to step up the pace of innovation as part of the total revitalization of the company.''
Bloomberg