As sales growth and revenue limp along at The Coca-Cola Company (NYSE:KO), hedge fund investor David Winters of Wintergreen Advisers isn’t shy about telling Coke how to fix their problem. And at least one of Coke’s major institutional investors is listening.
Wintergreen launches a new web site to outline the problems with Coca-Cola
Yesterday Wintergreen launched a new web site, www.FixBigSoda.com, that outlined the problems with Coke as well as offering solutions.
Wintergreen recommends Coca-Cola cut costs, improve margins and step up the pace of bottler re-franchising to significantly improve operating results. Wintergreen’s plan also calls for Coca-Cola to strengthen its corporate governance, improve disclosure, separate the roles of chairman and CEO and create a strong and independent Board of Directors, the value fund said in a statement.
The independence of the Board of Directors was a bone of contention in Wintergreen’s recent battle to nix what was called an excessive pay package for Coke management. The board approved the plan and it was later revealed that Warren Buffett, Coke’s largest shareholder, privately disagreed with the compensation package, indicating it was excessive, but he did not vote against it or speak out. When asked by ValueWalk why Warren Buffett’s son, Howard is on the board of Coke, Winters replied “this is a great question, and one better addressed by Coca-Cola.”
Wintergreen is reporting progress. One of the top ten institutional shareholders has expressed interest in learning more about the plan, Winters said in an interview, and many smaller institutional investors have expressed support. He declined to name the institutional investors.
David Wintersnoted Coca-Cola has more potential than PepsiCo
When comparing the investment to PepsiCo, Inc. (NYSE:PEP), Winters noted his belief Coke “has even more potential over the long term, given their more global footprint, irreplaceable bottling network, and the world’s most valuable brand,” he said.
Winters looks to Pepsi and activist Nelson Peltz as a point of progress, a destination for Coke. “Nelson Peltz has pushed Pepsi to cut costs and concentrate on its core beverage business; it’s not all that different from what Coke should be doing.”
Wintergreen has been a Coke shareholder for over 5 years and considers itself a long term investor, not an aggressive activist per say. “We’re not being aggressive (in launching the web site), we are simply stating that Coke should strive to be the company investors expect it to be – best in class with regards to profitability, governance, and compensation practices,” Winters said.
Winters’ promotion of his investment thesis
Winters has used informational web sites in the past to promote his investment thesis. In 2009 during a campaign for the mind share of Consolidated-Tomoka Land Company shareholders the firm employed a web site as well. “A website was the best way to keep all Coke shareholders up to date on what is going on with the company.”
The fight to re-invigorate a classic US company in the face of declining interest in carbonated beverages among younger US demographics is a challenging task, one Winters thinks needs to be urgently addressed.
“Coca-Cola’s lackluster second quarter earnings report underscores the need for urgent action,” he said in a statement. “If the current board of directors and management team are unwilling or unable to get The Coca-Cola Company (NYSE:KO) back on the path of profitable and organic growth that accrues to all shareholders, they should be replaced. Coca-Cola and its shareholders deserve nothing less.”
“By any measure, it has been a tough couple of years for Coke,” Deutsche Bank recently said after The Coca-Cola Company (NYSE:KO) reported lackluster earnings. “Once fast growing US diet carbonated soft drink volumes are falling…. As a result, investor sentiment on the shares has fallen to multi-year lows, in our view, putting significant pressure on management to turn the tide or face the prospect of somebody else doing it for them. With activist activity near a fever pitch, we see urgency percolating behind the scenes.”
The bank sees upside potential if the company can turn itself around, maintained its buy rating and $45 target price.