Coke shares plunge despite solid earnings

Posted on Wed, Apr. 16, 2003 HARRY R. WEBER Associated Press

ATLANTA - Investors ignored Coca-Cola's solid first-quarter earnings Wednesday, dumping shares amid concerns about the company's business abroad. Some pleaded with executives to address their high pay, union strife in Colombia and human rights abuses in China.

The world's largest beverage maker said it earned $835 million, or 34 cents a share, in the three months ending March 31, compared with a loss of 8 cents a share, or $194 million, in the same year-ago period.

Excluding one-time items - an accounting change related to goodwill, a charge for job cuts and a gain from a litigation settlement - Coke earned 37 cents per share in the first quarter, equal to what analysts surveyed by Thomson First Call were expecting.

Revenue in the quarter was $4.49 billion, a 10 percent jump from the $4.08 billion that Atlanta-based Coke made in the same January-March period a year ago.

But shares of Coke fell $2.85, or more than 6 percent, to $39.68 in afternoon trading on the New York Stock Exchange. Analysts said investors are worried about the company's growth and increasing anti-American sentiment cutting into its international business because of the war in Iraq.

In Houston, at the Atlanta-based company's annual meeting, shareholders charged that Coke has not done enough to deal with abuses suffered by employees of its independent bottlers who work in other countries. Some also said they were concerned with the millions in compensation earned by chief executive Doug Daft at a time when the company laid off workers.

Daft said Coke and its bottlers have not abused or condoned abuse of trade unions in Colombia and the company has worked hard to deal with human rights issues in China. As for his pay, he said that's up to the compensation committee, not him.

"If the company doesn't deliver and he doesn't deliver, he doesn't get paid," Coke lawyer Deval Patrick told shareholders at the meeting.

Eight shareholder proposals dealing with workers' rights, executive pay and other issues were voted on and rejected. Four board proposals - the election of new directors, the appointment of an independent auditor and changes to the company's stock option and long-term incentive plans - passed.

Coke generates 80 percent of its operating income from other countries. Troubles in the Persian Gulf and Asia will likely weigh on the company's results in the future and help explain Coke's falling share price Wednesday, analysts said.

"International concerns weigh on management," said Todd Stender, an analyst with Crowell, Weedon and Co. in Los Angeles. "Couple that with talk of boycotts overseas really makes people anxious. These are still lingering issues."

Bryan Spillane, an analyst with Bank of America Securities in New York, said Coke has seemed to weather the storm so far, but its volume growth in the quarter was lighter than he expected.

"It's a lousy environment," Spillane said. "Going forward, is the operating environment going to improve? Coke has sort of moved in the right direction, but it's been a sort of nonlinear recovery."

Coke saw strong growth in the quarter in China, the Philippines, India and Thailand, but declines in Japan, Venezuela, Europe and the Middle East.

In Venezuela, the company's operations were shut down during the national strike in January and February.

The biggest decline abroad for Coke was in Germany, where unit case volume dropped 10 percent due to a new deposit law on nonreturnable packages, such as beer or soda cans. The January change resulted in major retailers pulling nonreturnable packages, Coke said.

In North America, unit case growth for the quarter was 3 percent. That includes 2 percent growth in trademark Coca-Cola.

Non-carbonated beverages also posted solid gains for Coke, led by 22 percent growth in Dasani, 16 percent growth in Powerade and double-digit growth from Minute Maid Lemonades.

"We're confident that we will see improving trends in the remainder of the year," chief financial officer Gary Fayard said. "Specifically, we don't expect another strike in Venezuela. We don't expect to see another month like January in Germany."

The past year has seen significant changes at Coke.

Coke announced in December that it would no longer give quarterly earnings guidance, saying it distracts from its long-term goals. The same month, Coke hired a new president and chief operating officer, Steve Heyer, who has moved to streamline the company's management. Several executives were shifted to other assignments.

In January, Coke announced 1,000 layoffs, saying it was still working to make its North American operations more efficient.

On the Net: www.coca-cola.com