Warren Buffett and Berkshire Hathaway (BRK.B) have been long-time fans of Coca-Cola (KO), with the investment company holding roughly 11% of shares. It’s easy to see why, since Coke has a powerful brand and an enormous reach, along with a nice 2.8% dividend yield.
However, the unfortunate truth is that Coke’s flagship soft drink faces big challenges ahead. For starters, its brand is tied to a product that has reached critical mass — with Coke already penetrating markets at a heavy rate, and with broad consumer trends moving away from soft drinks to healthier options in an age of obesity and diabetes.
Coke investors seemed to buy excuses about wet weather sapping sales in the spring, but another quarterly report full of disappointment rattled the stock this summer and sparked declines. And after the company met earnings expectations in October, some may be content to write off the underperformance this year as something that’s in the rear-view mirror.
However, details showed that net revenue was down again in the third quarter — a decline of 3%. Furthermore, North American sales grew just 2% — and largely thanks to non-soda offerings — with core products like Coca-Cola and Sprite remaining weak. Sales fell by volume in Europe, and barely remained flat in Latin America.
Pressure in Western markets isn’t good, but weakness in a growth area like Latin America is a serious concern.
A strong dollar could continue to depress international revenue thanks to unfavorable exchange rates, so expect troubled months ahead for Coca-Cola stock.
Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at firstname.lastname@example.org or follow him on Twitter via@JeffReevesIP. As of this writing, he did not own a position in any of the stocks named here.