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Business News

Coca-Cola loses its fizz as sales targets are cut again

Coca-Cola, the world's largest soft-drink maker, said yesterday that slumping sales in the US and Europe had prompted it to lower key long-term earnings and sales targets.

The news, delivered by Coke's new chief executive, Neville Isdell, to analysts and investors in New York, was the latest gloomy forecast to come from the beverage giant.

Coke also attributed the reduction in its forecasts to increased competition from its main rival, PepsiCo, which has been able to continue to grow its business despite the explosion of alternative soft drinks into the market. Coke said it expected annual earnings per share (eps) growth in the high single digits in percentage terms and annual unit case volume growth of between 3 per cent and 4 per cent over the long term.

The company's previous long-term targets were 11 per cent to 12 per cent eps growth and 5 per cent to 6 per cent volume growth.

Coke has been under pressure from Wall Street analysts to trim its guidance to a more realistic figure in light of the tough conditions facing the company in many of its more than 200 markets around the world. The Atlanta-based company earned $1.77 per share in 2003, marginally higher than the $1.64 per share it made in 1997. Earnings per share, however, nosedived 22 per cent in the third quarter of 2004.

Mr Isdell, who is Irish and joined Coke in 1966, returned from retirement in June to try to turn around Coke's fortunes.

He said he would boost spending on marketing and developing new products by $350m to $400m a year starting in 2005. Coca-Cola sales gains have averaged 2.3 per cent annually in the past five years compared with 3.8 per cent for PepsiCo. The increased spending will accelerate Coke's sales growth in emerging markets such as India and China as well as increase training for employees to address the company's lack of management depth, Mr Isdell said.

Coke stopped the practice of making regular forecasts in 2002. In September, Mr Isdell departed from the policy by saying that second-half results would miss forecasts.

Ineffective advertising, price increases and a workforce suffering from poor morale have hurt sales in the US, Coke's biggest market.