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Coke 3Q estimate fizzles
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September 25, 1998: 10:36 a.m. ET
Soft-drink giant warns of second-half shortfall, blames overseas volatility
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NEW YORK (CNNfn) - Soft-drink maker and snack giant Coca-Cola Inc. warned Wall Street Friday its second-half earnings will fall well below estimates, due largely to currency pressures in overseas markets.
In a meeting with analysts in New York, Coke said it expects to post diluted earnings per share for the third quarter of 35 cents, about the same as last year's results. Fourth-quarter earnings, it added, will likely fall below the 33 cents it reported a year ago.
Analysts polled by First Call were looking for 39 cents a share in the third quarter and 37 cents for the fourth.
Company Chairman and Chief Executive M. Douglas Ivester told analysts, in the hastily arranged meeting, that Coke will begin an aggressive push to build up market share in lagging markets, particularly Russia and Asia. The move is expected to position the company for future growth. He also suggested the company's long-term outlook is positive.
About 75 percent of Coke's profits are derived from overseas markets.
Coke stock prices have shed almost 35 percent of their value since July.
Shares of Coke (KO) were down 2-3/16 Friday morning at 54-1/2 on the New York Stock Exchange, not far off from its 52-week low of 50 per share set back in November.
Analysts blame the company's earnings downturn on a variety of factors, including severe climatic swings worldwide. Many, too, fear that Coke's market diversification, which in the past has helped neutralize the effects a sporadic market disruptions, may now become its handicap since so many global markets are in crisis-mode.
Coke has faced emerging-market pressures before, but never the combination of negative factors that plague the markets today.
In the mid-1990s, Coke faced significant pressure in Mexico where the crippled peso threatened to shrink the company's roughly 50 percent market share. Implementing the same aggressive marketing strategy Ivester is touting now, Coke was able to retain and build its marketplace dominance. Today, the company corners more than 60 percent of the Mexico's soft-drink market.
This time, however, analysts say it won't be that easy.
"They've really got a crisis that they've never seen before on their hands," said Schroder & Co. analyst Caroline Levy. "Emerging markets are collapsing; Japan, which is an enormous proportion of their earnings, is very weak; and the strange thing is that U.S. volume growth has actually slowed in the last couple of months. Not dramatically, but just on the margin, and North America is about 30 percent of Coke's global volumes. That will definitely impact growth if it slows [more]. Everything seems to be turning down at the same time."
Most analysts expect Coke to post 5 percent to 6 percent volume growth this quarter. Levy expects a growth rate of about 3 percent to 4 percent. Even so, she said, when averaged out with the year-ago 11 percent volume growth rate, the company is still on track with its 7 percent growth goal.
In related news, PepsiCo Inc. (PEP), Coke's $20 billion arch rival, said Friday it will split its North American operations into two separate businesses - bottling and concentrate. The move makes it easier for Pepsi to spin-off its less lucrative bottling division.
It also copies the business structure of Coca-Cola. 
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