Will the decision by Coca-Cola ( KO) to stop providing specific short-term financial forecasts prove to be a misstep on the order of "New Coke?" Perhaps not, some analysts say. The reaction by the investment community has been widely varied, but ultimately, some say, the move could be a smart one. Coke's shares initially slid on the news Friday, but have regained some steam since then. The shares were down three cents at $45.82 Monday morning. By locking quarterly and annual earnings guidance in vault along with its highly protected secret ingredient, Coke is hoping force Wall Street into adopting a longer-term view of the beverage giant.
Deft or Daft?
"Share owners are best served by this because we should not run our business based on short-term expectations," Coke's chief executive, Douglas Daft, said Friday, the day of the announcement. Warren Buffett, a large shareholder and director of Coke, is seen as the driving force behind the decision. Gillette ( G), another company where he is director, stopped providing short-term earnings estimates in January 2001. Buffett's dislike for Wall Street's emphasis on short-term earnings is well documented. He recently told the London Independent that "many businesses would be better understood by shareholder owners and the general public if managements and financial analysts modified the primary emphasis they place upon earnings per share and accounting appearance over economic substance." Coke and Buffett may end up accomplishing that goal, some market watchers say. Todd Stender, an analyst with Crowell, Weedon & Co., a Los Angles-based brokerage, said, "I will now have to be a lot more thorough in my analysis. It will require a lot more work and diligence. I will also shift my focus from EPS to volume sales growth." This is one of Coke's objectives. Stender added, "These are smart guys, I don't think they are looking to hide anything, but they no longer want to cater to the whims of Wall Street."