Coke CEO Vows to Rebuild Management

Thu Sep 23, 2004
By Paul Simao

ATLANTA (Reuters) - Coca-Cola Co's new Chairman and Chief Executive, Neville Isdell, says bolstering the soft drink group's depleted management ranks will be a key priority as he embarks on a make-over of the slumping company.

"We've got a pretty thin bench," the 61-year-old Irishman said in an interview at Coca-Cola headquarters in Atlanta this week. "I'm actually very comfortable that we've got a very strong management team, but we don't have a strong bench."

"That's the major piece I'm addressing."

Isdell, who took over the reins the world's largest soft drink maker on June 1, offered his candid assessment less than a week after issuing a profit warning and acknowledging the company had fallen short in its marketing and execution.

Although he has managed to hire and promote a number of experienced executives since filling the shoes of Doug Daft, the Coke chief continues to grapple with the fallout from a dizzying four-year exodus of talent.

The list of departures includes two No.2 executives, two chief marketing officers, the heads of North American and European operations, as well as thousands of lower-ranking workers let go in a string of restructurings.

Isdell, who has jetted around the world recently to take stock of Coke's fortunes, admits management and staff shake-ups sapped morale, particularly in North America, the company's largest and most important market.

He said employees had spent too much time "reading tea leaves" and not enough time focused on the company's core objective: growing its vast portfolio of carbonated soft drinks, bottled waters, juices and other drinks.

Improving the development of internal talent and continuing to hire skilled outsiders are likely to be the cornerstones of Isdell's effort to restore the luster to Coke's culture.

"He can do it quickly but not overnight," said John Sicher, editor of Beverage Digest. Many investors, however, are not waiting to see if Isdell can nudge the company into a new era of growth and prosperity.

Shares of Coca-Cola have slumped about 20 percent since Isdell's arrival. They fell to a 16-month low of $39.95 last Thursday after the company warned that profits would lag Wall Street expectations in the second half of 2004.

Coca-Cola dipped 9 cents to $40.33 on Thursday on the New York Stock Exchange.
Goldman Sachs analyst Marc Cohen, who has an outperform rating on Coca-Cola in the context of a neutral rating on the beverage sector, said investors appeared to be taking too conservative a view of the company's long-term prospects.

"We believe that those who are looking for a quick turnaround have misplaced expectations," Cohen said in a research report on Wednesday that suggested the soft drink maker's fair stock value was about $50.

But investors are not likely to warm up to Coca-Cola until Isdell finds a way to boost soft drink sales, which account for the bulk of the company's business in its more than 200 markets around the world.

While the Dasani bottled water, Minute Maid juices and other non-carbonated products have delivered solid, sometimes spectacular growth, the company's flagship Coca-Cola brand and other carbonated drinks have been a disappointment.

The company currently expects its unit case volumes, a key measure of financial health in the beverage industry, to grow an anemic 1 percent to 2 percent in 2004.

Coca-Cola has been hurt by global economic weakness and other factors beyond its control, but industry observers say mediocre marketing and strategic gaffes are also to blame for the poor showing.

They note that PepsiCo Inc. and other rivals have gained ground on Coca-Cola in some markets.

"Coke has great products, but it is a company that has lacked coherence and direction," said Manny Goldman, a San Francisco-based beverage consultant who has followed the firm for more than three decades.

Isdell, who oversaw Coke's heady expansion into India, Eastern Europe and other foreign markets in the 1980s and 1990s, said he saw opportunities for the company to develop and grow its brands at a healthy rate, especially overseas.

He also rejected suggestions its marketing strategy was in need of a massive overhaul, pointing to the recent introduction of the C2 mid-calorie cola drink as an example of how marketing had helped spur sales of a new brand.

But Isdell would not rule out the possibility of lowering the company's long-term annual targets of 10 percent operating income growth and 11 percent to 12 percent earnings per share growth.

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