| There has been much talk lately about Coca-Cola and | | | | problem [with Ivester], though, was his tin ear. |
| its potential as a value stock - as it now spots a | | | | Ivester was high in IQ but terribly short on EQ. A |
| dividend yield of 2.6% (which is the highest dividend | | | | self-made, stubborn, very shy son of North Georgia |
| yield since the late 1980s) and a P/E or less than 21 - | | | | millworkers, he had gotten where he was through |
| right at the bottom of its five-year low. Moreover, | | | | brains and hard work. He resented Keough's |
| the current price of approximately $43 a share is also | | | | grandstanding, say people who knew him well, and |
| near the bottom of its nine-year range - (nine years | | | | never fully appreciated the importance of Goizueta's |
| ago, the last former great CEO of Coke, Roberto | | | | almost daily chats with directors. (Ivester declined to |
| Goizueta, was still at the helm of the company). Sure, | | | | comment.) Before long, head-down and full tilt in a |
| Coke has had its own set of problems, but it is a | | | | turbulent market, Ivester had alienated European |
| great company, they would argue - and heck, | | | | regulators, executives at big customers like Wal-Mart |
| Warren Buffett is also an owner of Coke shares. | | | | and Disney, and some big bottlers, including Coca-Cola |
| Don't get me wrong. I really like Coke as a company. | | | | Enterprises (on whose board sat Warren Buffett's |
| Its brand is as American as can be, and yet over | | | | son Howard). As he raced to put out fires, he |
| 70% of all its sales are derived from outside of North | | | | became increasingly isolated from his own board of |
| America. The country with the highest consumption | | | | directors. One person was keeping in touch with |
| per capita of Coca-Cola is Mexico. According to | | | | them, though, even in his retirement--Don Keough." |
| Interbrand.com, the brand name of Coca-Cola is | | | | By December 1999, Ivester was out as CEO, after |
| worth approximately $67 billion and is the world's | | | | board members Warren Buffett and Herbert Allen |
| number one brand name. Who could forget the | | | | told him that they have lost confidence in his |
| famous declaration of Coke's patriarch, Robert | | | | leadership. If anything, the next CEO Doug Daft |
| Woodruff? When the United States made the | | | | fared even worse than Ivester. Daft, an Australian |
| decision to enter World War II, he placed his hand on | | | | and who ran Coke's Japanese operations, did not |
| his heart and famously declared that he would "see | | | | have a clue about the culture in Atlanta. In a sort of |
| that every man in uniform gets a bottle of Coca-Cola | | | | retaliation for Ivester's handling of Keough's loyalists, |
| for five cents wherever he is and whatever it costs." | | | | he also made many of Ivester's favorite executives |
| Of course, it didn't hurt that Woodruff's friend, | | | | leave the company. He also looked for quick fixes - |
| General Dwight Eisenhower, was a great promoter of | | | | for example, by trying to boost Coca-Cola's |
| Coke as well. By the time the war ended, hundreds | | | | profitability by simply reducing headcount. By May of |
| of thousands of fighting men and women became a | | | | last year, Daft was out as CEO, and Neville Isdell - a |
| fan of Coca-Cola for the rest of their lives. | | | | former darling of Keough - came out of retirement |
| Under the leadership of Goizueta, Don Keough, and | | | | to run Coca-Cola. |
| Doug Ivester, Coca-Cola emerged as a growth and | | | | Described as "charismatic," Isdell may be the best |
| must-own stock during the late 1980s and up to the | | | | man for the job, but it is still too early to see what |
| mid to late 1990s. Keough was the great motivational | | | | he can do at this stage to revitalize the brand. Under |
| speaker, while Goizueta was unmatched in his ability | | | | the leadership of the trio of Goizueta, Keough, and |
| to "manage" the stock price and the Wall Street | | | | Ivester in the 1980s and much of the 1990s, the |
| analysts who covered the non-alcoholic beverage | | | | shares of Coca-Cola were a must-have and |
| industry and Coca-Cola. Goizueta had a habit of | | | | Coca-Cola was regarded as a growth stock. Please |
| watching the stock price of Coca-Cola on an intraday | | | | also keep in mind, however, that the run of KO |
| basis on a computer in Coke's headquarters. When | | | | during that time also occurred in the midst of the |
| Warren Buffett was buying shares of Coca-Cola back | | | | greatest bull market in U.S. stock market history. |
| in 1988, he and Keough figured it out by watching | | | | Again, readers should recall that I have always |
| the action of the trading and tracing those purchases | | | | contended that we are still in a secular bear market - |
| to a broker based in Omaha. Ivester, a former | | | | a bear market not unsimilar to the 1966 to 1974 |
| accountant, could have been regarded as a great | | | | secular bear market. While indices such as the Dow |
| financial alchemist. Under the financial leadership of | | | | Industrials, Transports, the S&P 400 and |
| Ivester, Coca-Cola bought out many of its bottlers | | | | S&P 600 have recovered nicely since the cyclical |
| and named the entity as Coca-Cola Enterprises. The | | | | bear market bottom in October 2002, large caps |
| bottler went public in November 1986. | | | | such as Coca-Cola, Microsoft, or even GE have never |
| When Coca-Cola Enterprises (CCE) went public, | | | | really covered, and it is my belief that large caps will |
| Coca-Cola (the company) owned 49% of its | | | | continue to underperform once the bear reasserts |
| outstanding shares. Because of this, Coca-Cola had | | | | itself sometime this year. The dividend yield of 2.6% |
| the ability to raise syrup prices at will (the former | | | | may or may not help, but who would want to hold a |
| agreement mandated that Coca-Cola only adjusted | | | | "value stock" once the Fed Funds rate is greater than |
| its price to match inflation for its syrup in the North | | | | its dividend yield (as of right now, the Fed Funds rate |
| American market) - thus squeezing the profit margins | | | | is 2.5%)? I really do not see deep value here. While a |
| of the bottler but increasing its own revenues and | | | | P/E of 20 is at the low end of its five-year range, it |
| profits. The stroke of genius was this: Because of | | | | is interesting to note that Warren Buffett started |
| the fact that Coca-Cola only owned 49% of CCE, it | | | | buying his shares of Coca-Cola in 1988 when the P/E |
| did not have to consolidate any of its financial | | | | was only 13 (with a market cap of less than $15 |
| statements with CCE. At the time, not one single | | | | billion) - and analysts at the time were proclaiming the |
| analyst totally understood this relationship. | | | | stock to be expensive! S&P currently projects a |
| Year-after-year, the company delivered. Goizueta | | | | fair value of Coca-Cola at $46, so there is really not |
| carefully (personally) managed all the information that | | | | a great margin of safety here. |
| came out of Coca-Cola. He would personally call Wall | | | | While I believe Coca-Cola is a very strong brand and |
| Street analysts. Any analyst that dared to question | | | | should be a part of every investor's long-term core |
| him openly or disagree with Coca-Cola's earnings | | | | holdings, I do not believe it is a good time to buy at |
| projections would be rebuffed. One such analyst was | | | | this point. The growth in the stock price of KO was |
| Allan Kaplan from Merrill Lynch, who at one point | | | | neither due to luck nor coincidence - it was due to |
| wrote a note to his clients observing that Coca-Cola | | | | Goizueta's shrewd management of the stock price, |
| may be depending on Japan for too much of its | | | | Keough's salesmanship of the company, and Ivester's |
| profits. When Goizueta found out about the note, he | | | | financial genius - along with a roaring bull market more |
| responded angrily with letters to both Kaplan and his | | | | than anything else. Despite the lack of leadership in |
| bosses at Merrill Lynch. Kaplan was banned from | | | | Coca-Cola during the last seven years, part of the old |
| attending analyst meetings at Coca-Cola for more | | | | dream of KO being a growth stock has still hung on - |
| than a year. From that point on, analysts knew not | | | | for far too long. For KO to be an attractive stock |
| to mess with Goizueta and Coca-Cola. | | | | once again, this author will need to see a more |
| Keough officially retired in 1993 while Goizueta passed | | | | compelling valuation, such as a stock price of $25 to |
| away in October 1997 - succumbing to lung cancer. | | | | $30 a share. At some point, however, I believe KO |
| Ivester succeeded as CEO but behind the scenes, | | | | may be a glamour stock once again (as it still has a |
| the company was in disarrays. People loyal to Keough | | | | lot of potential in China and India where only a total |
| and to Ivester clashed - with the former group | | | | of about 850 million cases of Coke finished products |
| bearing the brunt of the hardship. The current CEO, | | | | were shipped in 2004, compared to 20 billion cases |
| Neville Isdell (who was loyal to Keough and the only | | | | for the entire world), but not until some of the weak |
| true competitor for the top job back then) was sent | | | | hands have been shaken out from the stock. |
| into "exile" to Great Britain to head up a bottler. | | | | Please let us know your thoughts and opinions. Is KO |
| According to a recent Fortune article, "The biggest | | | | a buy, hold or sell? |