Coca-Cola (NYSE:KO) can be so frustrating sometimes. Makes you want to grab the nearest red can of carbonated sugar liquid, shake it like a Polaroid picture, and then quickly pop the top, watching as the pressure forces a frothy foam up and out, in all directions. That's about as close to action-packed as you're going to get with Coca-Cola; certainly don't count on the stock to stoke a celebratory atmosphere.
For the last six years Coca-Cola shares have been in one downer of a downtrend. They've risen at times but have always trended right back in the opposite direction for the most part; and then there are the multiple, highly boring sideways-trading patterns that the shares tend to get stuck in for lengthy periods. It's like being located on the bad side of a jet stream that refuses to move, with all the good weather just to the south, never on its way up north.
So... what does Coke do now?
This is a very puzzling predicament; the powers that be at the company probably feel like they are stuck on a very difficult level in a Sony (NYSE:SNE) video game. The latest batch of unfriendly news came in the form of a gloom-and-doom guidance release; you can read Seth Jayson's review of it here. What it boils down to is this: Coke will essentially experience no significant growth in case volume revenues this year. This is unacceptable to the big institutional players on Wall Street -- case volume is the metric Coke is judged on the most.
As Seth mentioned in his article, cash-flow-wise, things are OK. The company does well on buying back stock, generating free cash, and increasing dividend payouts. In general, it's an efficient operation with nice margins. Here's the problem, in my mind:
Growth in the intangible brand value has been stagnating.
I'm not about to suggest that Coke isn't a strong brand and that the stock doesn't always carry a premium for it; yet, if all other measures such as the ones mentioned are doing OK and case volume disappointments are constantly beating up the stock, then there has to be something wrong with the brand. There has to be.
The Coca-Cola Company needs to stop fooling around and go back to the drawing board regarding its marketing initiatives. And the specific initiatives I speak of concern TV advertising. The soda wars will not be won on the backs of price increases, expanded distribution channels, favorable currency exchange rates, C2, and/or customized local programs. There exists one -- and only one -- element at this point that can turn the stock around. And I couldn't possibly tell you what it is -- because it is an idea that has yet to be found. Some new creative spark needs to brand Coca-Cola into the mindshare of the youth. It can't be people singing on a hilltop or CGI polar bears sliding down a frosty landscape. It's been done. I think CEO Neville Isdell needs to put in quite a few extra hours brainstorming with his team -- forget passing it off to consultants. Do the work yourself, and figure this conundrum out.
I believe Coca-Cola stock will suffer the same fate as Microsoft (NASDAQ:MSFT) stock: The shares are most likely headed below 30 unless a miracle occurs. In fact, I foresee a time in the next couple years when KO might actually be stuck in a range between 25 and 28... something Mr. Softy is all too familiar with. Both were mighty growth stocks at one point that have hit a wall. They have great amounts of free cash at their disposal, and they can divvy up the dividends with the best of them, but that capital component has been passed over to the Ugnaughts by Darth Market and frozen in a block of carbonite, much to the delight of all the short-selling Jabba the Hutts out there who are cackling madly and uttering triumphant phrases in an incomprehensible alien language (sorry for all the Star Wars references; it's the release of the DVD and all).
I'm a shareholder, and I still believe in both the company and the stock. But I've come to the conclusion that all weak hands must be shaken out of their positions. So, let's see the price drop so the stock can finally find a true level of support and let it take a few years to build a solid base. Let the dividend continue to rise, because that will give me the patience I need to allow Isdell et. al. the time they need to construct a new advertising paradigm that will infiltrate people's minds and get them to buy Coke.
Be sure to check out Selena Maranjian's recent commentary on the enemy of the Atlanta syrup seller, PepsiCo (NYSE:PEP).
Fool contributor Steven Mallas owns shares of Coca-Cola.
