When business seemed brighter for Coca-Cola four years ago, the company launched an ambitious “20/20 Vision” plan that pledged to double revenue in 10 years.
But after declining sales in 2013 led to a fourth-quarter and full-year earnings slump last week — a rare double whammy for the Atlanta beverage giant — some question whether Coke needs to be more focused on stemming decline than chasing lofty growth goals.
It’s a question Coca-Cola is likely to hear a lot this year. Like others in the beverage industry, especially those whose core product is soda, the company faces increasing headwinds.
Archrival Pepsi, for instance, reported earlier this month that fourth quarter earnings were up 3 percent in its Americas food division, but dropped 2 percent on its beverage side. The news reignited calls by some shareholders for the company to spin off beverages into a separate company.
Coca-Cola Chairman and Chief Executive Offices Muhtar Kent was expected to dive deeper into solutions on Friday at Consumer Analyst Group of New York (CAGNY conference in Florida.
Last week, when the company reported that full-year profit fell 5 percent and revenue 2 percent in 2013, Kent termed the troubles “a speed bump.”
But the results follow a long, slow slide in sales of Coke’s core products — carbonated drinks — it its flagship market of North America.
And they prompted Coke to also announce it will redirect $1 billion over the next two years into unspecified marketing gambits.
The root problem is an ongoing decrease in the consumption of sugary drinks in North America. As Americans become more concerned about their expanding waistlines, messages from health officials and others who cite soda as a culprit have had an effect.
Sales of diet sodas, often seen as an alternative for the calorie-conscious, have fared even worse after questions were raised about negative long-term effects of sugar substitutes.
Meanwhile, the beverage market has become more fragmented, giving consumers a wider array of choices, from energy and sports drinks to specialty juices, teas and water.
Coke leaders point out that there is plenty of good news. Global volume rose 2 percent for the full year of 2013 and 1 percent for the fourth quarter. Volume for water, juices and teas also rose in North America.
And despite the drop in soda consumption stateside, the company sold nearly 100 million additional cases of brand Coca-Cola worldwide last year. The 20/20 Vision, company officials said, is in tact.
The company remains hugely profitable. Though profit slipped, Coke still racked up $8.6 billion last year.
“While 2013 was an unusual and challenging year, it has certainly not deterred us from our commitment to our 2020 Vision,” Kent said during a call with analysts. “Many economies around the world remain volatile in 2013, developed markets are slowly starting to recover from this turbulent time, and consumer expenditures remain moderated.”
But the company faced problems abroad too. A new sugar tax in Mexico has slowed sales and given a preview of things to come if similar legislation is approved in the United States. Economic turmoil in southern Europe and slowing growth in Brazil last year also posed challenges.
“We believe there remains a high level of skepticism regarding volume growth, the impact of taxes in Mexico and the overall health of the Diet Coke/Coke Light franchises,” SunTrust analyst Bill Chappell wrote in notes titled “2014 Rebound Not As Easy As It Looked.”
And CLSA analyst Caroline Levy said in notes Tuesday she expects volume growth will decline further in 2014 with currency and tax increases taking a toll.
“We reiterate our underperform rating on Coke, as we do not believe relative valuation has sufficiently improved to offset the challenges it faces,” she wrote.
Late last year, Coca-Cola reorganized its top brass. In March of 2013, the company said it laid off about 750 U.S. workersto streamline operations three years after absorbing its largest bottler, Coca-Cola Enterprises.
The $1 billion in “redirected” money for marketing promises further internal changes.
On Thursday, Chief Financial Office and Executive Vice President Gary Fayard announced he would retire in May after 20 years at the company.
“Coke’s decision to increase advertising and marketing is a good one,” said John Sicher, editor and publisher of industry publication Beverage Digest. “Coke and the industry face growth challenges. More and better marketing is not the entire answer but it is part of the answer.”
The company also pledged to be more innovative, with Kent citing Coca-Cola’s recent purchase of a 10 percent stake in Green Mountain Coffee Roasters. That deal is expected to help Coca-Cola allow its products to be made at home, a new market created by upstart Soda Stream.
Kent said there won’t be any quick fixes.
“There is no doubt that the lingering effects of the global recession in 2009 have created a challenging environment over the last few years,” he said in prepared remarks to analysts. “In addition, obesity and ingredient concerns have raised some questions about growth in developed markets.
The CEO said Coke has still “consistently delivered” on profit goals and won’t be distracted in search of short-term gains. “Instead,” he said, “we have thoroughly evaluated what we need to do to accelerate sustainable growth and we’re acting with urgency and decisiveness.”
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