The stock market has been so unusually strong this year that only two of the 30 components of the Dow Jones industrial average are down. The index itself is higher by 11.6% to 26,026. The real laggard is Coca-Cola Co. (NYSE: KO), which is off 4.2% this year to $45.38 a share.
The stock market started to lose its affection for Coke a long time ago. In the past five years, the S&P 500 is up 74%. Coke’s shares are only 18% higher over the period. Coke’s five-year revenue growth rate over the period is down 7.43%, according to Morningstar, to $31.86 billion. Its net income five-year growth rate is down 5.6% to $6.43 billion.
One reason Coke’s management has gotten poor grades is brand management. Interbrand ranks Coke as the fifth most valuable brand in the world at $66.3 billion. The companies that own the other top brands — Apple, Google, Amazon and Microsoft — are all growing quickly, at both the top and bottom line. Coke, by comparison, is going nowhere financially.
Another reason Wall Street is miffed with Coke is the way that management characterized its performance. When it announced its most recent numbers, the company headlined them as “Coca-Cola Reports Strong Results for Fourth Quarter and Full Year 2018.” The strong results included a 6% drop in revenue for the final quarter of last year and a 10% drop for all of 2018. Management also posted plans for a weak 2019. Revenue is expected to rise 4% and per-share earnings to be in a range of down 1% to up 1%.
Warren Buffett recently released his widely followed shareholder letter for Berkshire Hathaway. Coke is one of his largest holdings. He has been loyal to the company for years, due to steady management and a consumer brand that is unparalleled in recognition. Buffett will hold stocks for decades. However, Coke’s performance is so poor enough that its time in the portfolio may be coming to the end before long.
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