Speaking to reporters in Tokyo, Coca-Cola Co. (KO) President (and soon to be CEO) Muhtar Kent warned that high commodity and food prices are here to stay.
Kent blamed a perfect storm of “high oil prices, poor weather, the growth of ethanol production for non-food purposes, and rising demand in emerging markets.” Rising ingredient prices could presumably hit Coke’s margins (and, with them, the stock), though Kent appeared to be pontificating about general commodity-price trends rather than warning about Coke’s future performance.
The longer-term concern for Coke is that people are drinking less soda and opting for healthier beverages such as water or tea, especially in the US. Beverage Digest reports that the US market for carbonated soft drinks fell 2.3% in 2007, 0.6% in 2006 and 0.2% in 2005. KO plans to seek out small, targeted acquisitions (likely in the juice or water segments) across the globe to find additional revenue sources. Coke will also continue to focus its effort on greater efficiency and keeping costs down.