Sorry, Buffett: Coke’s Sales Fizzle, Shareholders’ Anger Sizzles

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The secret is out: Coca Cola’s (NYSE:KO) sales further fizzled in 2013′s fourth-quarter. The company reported Tuesday that sales fell 3.6 percent to $11 billion, missing analysts’ expectations. Net income dove 8.4 percent to $1.71 billion, or 38 cents a share, from $1.87 billion, or 41 cents a year earlier. That marks the fourth straight quarter of declining sales for Coke, and not only is CEO Muhtar Kent not happy — shareholder Warren Buffett isn’t either.

Last April at Coke’s annual meeting, Bloomberg reports that Buffet made the case that the Atlanta-based company must not get complacent about its success. The 83-year-old advised Kent to stay ahead of competitors by staying proactive, and explained to his audience, “I like to study failure. We want to see what has caused businesses to go bad, and the biggest thing that kills them is complacency. You want a restlessness — a feeling that somebody’s always after you, but you’re going to stay ahead.”

With Coke’s latest earnings release Tuesday, it is clear that the company couldn’t translate Buffett’s motivation into actions. Following the report, Coke’s stock plunged 3.8 percent, marking the biggest one-day drop the company has suffered since August 2011. The shares slid 9.3 percent this year through Tuesday, Bloomberg reports, and they were sitting down 0.80 percent at $37.17, as of 12:30 p.m. Wednesday.

Arguably, the biggest problem Coke has is its evolving consumer base. The company used to quench the thirst of sugar-hungry customers who were more likely to not care about their products’ labels and calorie counts, but now consumers in the U.S. are becoming more and more health-conscious, and are recognizing that Coke’s products aren’t exactly the most healthful options. The problem also extends outside of Coke’s domestic market. Generally, as Bloomberg points out, Coke boasts that it can offset losses in one market with gains in another, thanks to its operations in more than 200 countries. However, it is becoming more and more clear that Coke’s problems in the U.S. have spread overseas, and even in new markets, consumers are shunning the soft drinks for health reasons, consequently hurting sales. Even Coke’s zero-calorie Diet Coke, one of the company’s most popular products, is now suffering a lack of demand on account of concerns surrounding the health of artificial sweeteners.

So, what is Coke to do? Kent says that first and foremost, the company will cut costs. The chief executive pledged on Tuesday to cut $1 billion in annual costs by 2016, as reported by Bloomberg. Those savings should help Coke pull back on losses that it has suffered from flattened demand, global currency fluctuations, and an influx of new competitors, but Ali Dibadj, an analyst at Sanford C. Bernstein & Co. still notes via Bloomberg that those cost-cutting plans may not go far enough. He says, “There needs to be much more cost cutting. There needs to be faster innovation. There needs to be much more return of cash to shareholders.”

That’s what investors are looking for, Dibadj says, and hopefully, Kent is hearing him, along with Buffett, loud and clear. It is evident that Coca-Cola needs to keep its investors happy, especially considering the latest stock decline, and stock buybacks may be its only short-term answer.

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