Thursday, April 02, 1998

Cash-King Portfolio Report
by Tom Gardner

ALEXANDRIA, VA (Apr. 2, 1998) -- Tonight's Cash-King report probably has arrived late to its window this evening. I've been pounding my way through literally 1,200 e-mails over the past twenty-four hours. Our report on April Fool's Day has drawn an enormous response; the mails are still coming in handfuls every five minutes here.

If you missed our reports, here's a link to our Public Apology on April 1st. And then here's the Response to the Letter and the Follow Up on April 2nd. Due to time constraints, we were only able to publish excerpts from a few dozen notes. There are literally hundreds and hundreds more. For me, and clearly for many, many others, this has been an exhilarating and extremely entertaining way to learn more about the public markets and the people that make them.

In tonight's Cash-King report, I'd like to act as the owner of Coca-Cola (NYSE: KO) that I am and dare to offer the company a few very small suggestions for improving its business. None of these would have a material effect on Coca-Cola's financial statements, but I figure those are being pretty well taken care of by the Board of Directors, management team, and its 25,000+ employees. So, consider this frivolous, Foolish, but -- ya never know -- possibly useful ideas for the company.

1. A Better Web Site

Coca-Cola can and should improve its Web site dramatically. Today, the site is visually unattractive and is extremely difficult to navigate. A company with $1.7 billion in cash and 22% profit margins can certainly invest more into its presence on what will become the most powerful communication medium known to man in the next two decades.

What can it add? Coca-Cola could set up a simple, attractive, active site with 1) a thorough review of its business for shareholders; 2) a direct link to its Investor Relations Department; 3) a daily report from a Coca-Cola employee in the field somewhere on the planet; 4) a weekly Coke trivia sweepstake for its billions of customers; 5) a single public message folder where customers can share Coke stories as well as suggestions for the company.

To view its present site, click here: Coca-Cola Web Site. You'll probably be mildly disappointed. Feel free to email the company your suggestions.

2. Internal Taste Test

In the 1980s, Coca-Cola went to war with Pepsi in a series of public taste tests. The most meaningful consequence of them was that consumers were generally forced to choose between the two horses in the race. Gone was RC Cola. Gone were the generic brands. It was either Coke or Pepsi. Whether intentional or not, the contests knocked everyone else to the canvas, leaving two boxers standing.

Now that Coca-Cola has assumed a truly dominant position in soft drinks, it should begin locking down even more consumer mindshare for its products. How so? Coke could feature a taste test between two indirectly competitive brands: Coca-Cola and Sprite. Have consumers debate the benefits of caramelized corn syrup versus carbonated limon sugarwater. I can see it now, a middle-aged woman under a straw hat on a hot summer day confessing to America: "I happen to love Coca-Cola. But to be honest, I prefer Sprite."

3. Full Drinks Package for Shareholders

Do most shareholders know the full selection of drinks and flavors that Coca-Cola offers? I doubt it. Sprite. Coca-Cola. Diet Coke. Fanta. Orange Juice. Water. Electric Chill POWERaDE. Barq's Root Beer. Georgia Coffee. Surge. Saryusaisai. And many, many others.

One great way to remind owners of how vast and glorious is their business is to give them a free sampling of all the products. Coca-Cola should consider mailing a basket of all its drinks to any shareholder who has held KO ownership slips for more than five years. Along with this, Coke could include information on how to order any Coca-Cola drinks that aren't available at the corner market.

There is an up-front cost here. But it's a cost that encourages long-term ownership and a cost that identifies for the many owners the great variety of products that Coca-Cola offers.

4. Change the Fruitopia Name

I don't think the Fruitopia name will ever stick. It's too long. It's too unusual. It's too forgettable. Coke and Sprite are among the most recognized drink brands on the planet. They're also one-syllable words. They're pronounceable.

I find the Fruitopia name to be too removed, too bizarre, too unpronounceable. Again, too forgettable. Now, since I don't like folks who name problems without identifying solutions, I offer my replacement name: Froosh. (Hey, it's no worse than Fruitopia! And I didn't even get paid to think that up.)

I'd start drinking Froosh. In fact, I can even hear myself ordering "Five raspberry Frooshes, please!"

5. Promote the Lemonade Heavily in Summer

This is a very personal one.

Believe it or not, I actually forgot that Minute Maid offered the lemonade that I consumed in huge quantities in my teenage years while trying not to lose again to my brother in whiffle ball. I'm not sure how I forgot their drink. It's probably a combination of a little too much beer in college (mild memory loss) and an indication that Coca-Cola's subsidiary isn't marketing this product well enough.

I haven't dug down into the financial statements in search of Minute Maid's plans or profits, but I think there's an enormous opportunity for them to win the beach, to sit in the softball dugout, to conquer summer. Again, disclaimer -- this is very much a matter of personal preference. Whether they go for it or not, now with our 27 shares of Coca-Cola, I'm going to make sure to pour myself a giant glass of lemonade each summer day.

6. Never Let the Dividend Rise Again

Today, Coca-Cola pays out a $0.57 per share dividend, making for a dividend yield of 0.70% with its stock trading today at $81 1/8. That totes up to $1.4 billion in cash payments to its owners each year. Given the opportunities around the globe today, could Coca-Cola not use that money to knock its competitors even further down the list of preferred brands?

I'd rather see Coca-Cola drive that money into its business, which presently returns earnings of 22 cents on every dollar. But at the same time, we all recognize that reducing a dividend could send a confusing message to the markets. I'm just hoping -- as I'm sure many are -- that Coca-Cola commits "excess" funds exclusively to investments in its business and to stock repurchases rather than ever hiking its dividend again (barring unforeseen changes in tax laws).

And, Fools, there are my six suggestions for Coca-Cola. If you're an owner of Coke and have your own suggestions, you should consider e-mailing or faxing them to the company's Atlanta headquarters. The same idea goes for any companies that you own.

A good idea or two might even come from a Fool one day.

Enjoy your evening,

Tom Gardner


Stock  Change    Bid 
 CHV   +  15/16 83.44 
 KO    +  9/16  81.19 
 EK    +  1/2   66.38 
 XON   +  15/16 69.88 
 GM    +  1/16  67.44 
 INTC  -1 3/16  76.31 
 MSFT  +  15/16 91.31 
 PFE   +1       99.69 
 TROW  +1 1/2   72.50 
                  Day   Month    Year  History 
         C-K      +0.57%   1.37%   5.37%   5.37% 
         S&P:     +1.07%   1.66%  11.86%  11.86% 
         NASDAQ:  +0.29%   0.94%  12.10%  12.10% 
     Rec'd    #  Security     In At       Now    Change 
    2/3/98    22 Pfizer        82.30     99.69    21.13% 
    2/27/98   27 Coca-Cola     69.11     81.19    17.48% 
    2/3/98    24 Microsoft     78.27     91.31    16.67% 
    3/12/98   20 Exxon         64.34     69.88     8.61% 
    2/6/98    28 T. Rowe Pr    67.35     72.50     7.65% 
    3/12/98   20 Eastman Ko    63.15     66.38     5.11% 
    3/12/98   15 Chevron       83.34     83.44     0.11% 
    3/12/98   17 General Mo    72.41     67.44    -6.86% 
    2/13/98   22 Intel         84.67     76.31    -9.88% 
     Rec'd    #  Security     In At     Value    Change 
    2/3/98    22 Pfizer      1810.58   2193.13   $382.55 
    2/27/98   27 Coca-Cola   1865.89   2192.06   $326.17 
    2/3/98    24 Microsoft   1878.45   2191.50   $313.05 
    2/6/98    28 T. Rowe Pr  1885.70   2030.00   $144.30 
    3/12/98   20 Exxon       1286.70   1397.50   $110.80 
    3/12/98   20 Eastman Ko  1262.95   1327.50    $64.55 
    3/12/98   15 Chevron     1250.14   1251.56     $1.42 
    3/12/98   17 General Mo  1230.89   1146.44   -$84.45 
    2/13/98   22 Intel       1862.83   1678.88  -$183.96 
                               CASH   $5666.26 
                              TOTAL  $21074.82 
 *The year for the S&P and Nasdaq will be as of 02/03/98