Can Coke's new CEO put fizz back in beverage giant?

Coca-Cola Co.’s former president and chief operating officer, Muhtar Kent, took as chief executive officer last week just as the beverage market is losing some of its fizz.

When the company announced late last year that Kent, the 55-year-old protege of Chairman and now-former CEO E. Neville Isdell, would ascend to the top spot July 1, the global beverage giant appeared to be finally shaking off years of malaise.

But since then, Coke’s stock has fallen about 21 percent from an eight-year high in January.

In recent weeks, two of Coke’s biggest bottlers in Europe and the U.S. have issued profit warnings, clear indicators that the deteriorating economy is cutting into beverage sales.

At least one analyst says U.S. sales have recently slowed in Glaceau drinks, which Coke acquired in a $4.1 billion acquisition of Energy Brands Inc. last year, a major deal Kent drove.

Kent insists that the beverage industry is better positioned than many other businesses to weather economic difficulties. He says rapid urbanization and blossoming of the middle class in big emerging nations are juicing demand for on-the-go beverages. So many people are moving to urban centers that it is like “adding a city the size of New York to the world every three months,” he said in a recent interview.

Atlanta-based Coke said in late May that it remains confident in its “global business outlook” for the second quarter and the full year. Coke has also said in recent months that Glaceau sales are strong, and a Coke spokesman said the company is pleased with its acquisition.

But Kent acknowledges that he faces stronger headwinds than were expected seven months ago. He has indicated that as CEO he will stick to the current strategic plan emphasizing closer cooperation with retailers, improved marketing and aggressive expansion into juice and other drinks.

“No one knows what the world macro scene is going to be like in the next six to eight months,” he said. “But my prediction is there will be some tough times, and we’ll be best poised to deal with them, with our bottling partners.”

Kent says Coke can revive carbonated soft-drink growth in the U.S. “I don’t want to put a number on the table in terms of how soon, but we feel that we’re working towards it,” he said, cautioning that growth would still be “not high.”

Kent, the son of a Turkish diplomat who holds dual U.S.-Turkish citizenship, has been a major force in a turnaround led by Isdell that put the global giant back on track after years of turmoil.

He has been gradually transitioning into the CEO role since December 2007. He will retain the title of president. Isdell, 65, will remain chairman until April 2009. It isn’t yet clear whether Kent will also assume that role then.

Kent’s elevation marks a stunning comeback after an insider-trading controversy more than a decade ago cost him his job as a senior executive of Coca-Cola Amatil Ltd., a Sydney-based Coke bottler. Kent said that without his knowledge, his financial adviser sold short 100,000 Amatil shares before a profit warning on Nov. 15, 1996. He reached a civil settlement in the matter, disgorged his profits, and denied wrongdoing.

Isdell remained an ardent supporter of Kent, and pushed for his return to top Coke leadership after Isdell was called back from retirement to run the company in 2004. Coke’s board ordered a new review of the stock matter, and declared Kent clear of any suspicion. Isdell named him to run several international units in 2005 and then elevated him to head the company’s overall international business in January 2006.

Working closely together, Isdell and Kent found a hit in Coca-Cola Zero, the company’s new diet cola, and accelerated international soft-drink sales by fixing ailing bottlers and troubled markets like Japan, India and the Philippines.

But they haven’t managed to reverse declines in U.S. sales of carbonated soft drinks. Now, the weak economy, along with negative publicity about the environmental impact of plastic bottles, is turning some U.S. consumers off once fast-growing drinks like bottled water.

Coca-Cola Enterprises Inc., which handles Coke sales in most of the U.S., warned in May that second-quarter profit would slip. Coca-Cola Hellenic Bottling Co., whose sales territory includes Eastern Europe, earlier this month lowered its forecasts, citing slowing sales in Italy, Romania and Ukraine.

The profit warnings unnerved analysts and investors who have been hoping Coke and its bottlers can offset declining U.S. sales with robust growth in emerging markets. It “raises issues on the impacts we might see in consumer spending across the globe, especially when a relatively affordable item like soft drinks is impacted,” Morgan Stanley analyst Bill Pecoriello wrote in a research note. He expects 2008 U.S. nonalcoholic beverage industry volume growth to be the “worst in decades.”

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