Coca-Cola

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Muhtar Kent should not take it personally. On his first day behind the desk as Coca-Cola’s new chief executive, shares in the drinks group sank to their lowest point in just over a year. Much like a new president inheriting a disastrous legacy, however, that trough ought to play to Mr Kent’s advantage. Not because he can blame his predecessor – he enjoys a good relationship with Neville Isdell, who remains as chairman. And the transition has been smooth, exceptionally so by Coke’s standards.

Rather, Mr Kent inherits a group that has recovered well but now faces headwinds largely beyond his control. In the US, structural decline in sales of carbonated soft drinks has been reinforced by an economic slowdown forcing Americans to trade down to cheaper brands and eat out less often. Meanwhile, investors are nervous about the impact of rising prices on consumers in faster-growing emerging markets, their concerns heightened by gloomy outlooks from some of Coke’s bottling partners.

Such pessimism, with Coke’s stock now trading at a lower multiple of earnings than during its meltdown of 2004, ignores Coke’s defensive qualities – and the role Mr Kent can play. Only a fifth of Coke’s operating profit is derived from North America, considerably less than for arch-rival PepsiCo. While Coke does not enjoy Pepsi’s exposure to snacks, the flip side is less pain from rising crop costs. Similarly, the warnings from Coke’s bottlers have more to do with their exposure to plastic and aluminium costs than slumping sales.

Mr Kent’s background in bottling provides the first chance to make his mark. Low-margin bottlers are in the business of picking up pennies. Applying that mindset more rigorously to Coke’s marketing-led model should yield efficiencies.

Longer-term, Mr Kent’s strategic challenge is like that faced by Microsoft – what to do when you sell the soft drink equivalent of Windows in a mature market? Fortunately, Coke’s strong balance sheet and free cash flow provide the necessary tools. In the meantime, streamlining the existing operation should give investors a short-term rush.

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