Friday, July 18, 2008

Even Stocks Are Obese

One in four Americans is obese. The epidemic has even spread into the stock market.

Analysts at Morgan Stanley have discovered that Coca-Cola Enterprises is too fat. They've branded the stock as 'overweight', and it needs to slim down for the sake of corporate health.

Beverage consumers overseas hear news about the fat Americans and attribute the problem to all the fizzy drinks that are so popular in the States. That means Coke and its various products are not selling as they might, and investors don't like that sort of thing. Overseas growth is where the money's to be made, and if the world's not being bought a Coke to sing in perfect harmony, the profits don't plump up.

Drinkers in the U.S. have cut back on soft drink purchases, perhaps in a bid to take off a few sugar-induced pounds. At the same time, Coca-Cola has experienced a decine in profits of 23%. That's a heavy load of profits shed, and that's not where the company wants to reduce.

Coca-Cola Enterprises is on a diet that is not palatable to its investors. Commodities prices are up, the cost of shipping is up, and sales are slipping. The company is looking at a price increase, but if the bottlers pass on the increase to consumers, there's a risk that Pepsi will pick up the bargain hunters and Coke's sales will continue to slide.

With obesity and fizzy drinks inextricably linked, Coca-Cola's volume growth is not helped by surveys that remind consumers of that very link. The overweight public is cutting back on soft drinks in a bid to lose a few pounds, but what does an overweight stock do to get back to fighting weight? That's the dilemma for the suits who run Coca-Cola.

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