Video: Coke on ice

By Bertha Coombs Reporter
updated 11/9/2005 4:39:50 PM ET 2005-11-09T21:39:50

In the 1970s, Coca-Cola Co. taught the world to sing with its catchy commercials and in the decades that followed got Wall Street singing its praises. But now the beverage giant is trying to put the sizzle back in its stock.

“This business is not a complicated business … they’re basically making and selling variants of flavored water. But it's a complicated business to do well,” says Beverage Digest's John Sicher.

Charismatic CEO Roberto Goizueta did it very well, spinning off Coke's bottling business, positioning the firm as a global giant and sending shares skyrocketing 3,500 percent during his 16-year tenure.

But Coke's seen hard times since Goizueta’s death in 1997. In the late 1990s came a rift with bottlers, when the company hiked prices on its concentrate. In more recent years, arch rival Pepsi has taken the lead the growing non-carbonated drink market.

“It’s taken the company quite a long time to recover from that,” says Sicher. “They've now got new management, and Neville Isdell is doing what needs to be done.

Coke insider Neville Isdell was brought back from retirement in 2004.  He's half way into a turnaround plan to boost brand marketing and expand market share with new energy and health-related drinks.  The company's most recent quarter saw earnings up 37 percent.

But as part of the growth strategy, Coca-Cola recently told bottlers in Latin America it was raising prices. Its biggest bottler in Mexico threatened to cut its marketing spending, in response.  

Analysts say the price increase could help Coca-Cola reach its target 6-8 percent annual growth, but, according to Morgan Stanley's Bill Pecoriello, this could come at the risk of hurting its relationship with one its best bottling partners, Mexico's Femsa.

Pecoriello called the public rift "surprising.” Bear Stearns' Carlos Laboy called it "worrisome," saying it would take Coca-Cola back down the path to conflict, mistrust and lower earnings growth.

Beverage Digest's Sicher thinks Coca-Cola will strike the right balance. On Wall Street, most analysts rate Coca-Cola a “buy” or “hold,” with a $47 a share target.

But the jury's still out on just when Coca-Cola will give shareholders something to sing about again. 

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