(FORTUNE Magazine) – WHEN CEO NEVILLE ISDELL CHOPPED Coca-Cola's earnings growth targets to the "high single digits" in early November, he got--as Coke's ads say about the brand--"real." Long gone are Coke's mid-1990s glory days, when profit growth averaged 18% annually. Gone also are the unreasonable targets of Isdell's predecessors, Doug Ivester (who strived for mid-teens growth) and Doug Daft (who wanted 11% to 12%); the Dougs ended up delivering nothing even close to their targets. "There's an argument that you have to stretch people," Isdell told FORTUNE as he raced to the airport after his presentation to analysts, his first since coming out of retirement to take charge last May. "But this is a time when you have to face up to fundamental reality." One fundamental reality, as Isdell says he discovered by surveying Coke's employees, is that "lack of trust"--and overall low morale inside the company--exceeded his expectations. Another reality, as he detailed to the skeptical Wall Street crowd, is that Coke, in chasing its lofty goals, took to offloading expenses onto bottlers--thereby weakening its critical distribution system--and also shortchanged its brands in terms of marketing and innovation. So Isdell is pledging to raise such marketing-related spending by $350 million to $400 million annually.

But is that enough? "I got that question after the meeting," Isdell admits, still insisting it is. Some analysts, however, contend that Coke will need to spend more to compete with private-label brands (which are on the rise) and with Pepsi, which has walloped Coke in high-growth, high-margin categories like sports drinks in North America. True to fighting form, PepsiCo reaffirmed its own growth outlook--for double-digit profit increases--that same morning when Isdell presented. With its thriving Frito-Lay business, PepsiCo stock now trades at a higher price/earnings ratio than Coke. Is it deserved? "I'm not going to comment on that," says Isdell, a bit annoyed. "Two-thirds of their business is focused on snack foods. It's a different business." -- Patricia Sellers