| Subject: Coca-Cola Decides That Silence Is Golden |
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Date Posted: 10:03:58 12/13/02 Fri
Food & Beverage
Coca-Cola Decides That Silence Is Golden
Mark Lewis, 12.13.02, 11:51 AM ET
NEW YORK - The Buffett-ization of Coca-Cola proceeds apace. First Coke decided to start expensing stock options, and today the firm announced it will issue no further earnings guidance. Investors who want to buy Coke will just have to adopt Warren Buffett's buy-and-hold approach. No momentum players need apply.
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Coke (nyse: KO - news - people ) shares traded lower on the news, even though Chief Executive Douglas Daft reaffirmed his current earnings guidance before shutting the door on any future updates. "We believe that establishing short-term guidance prevents a more meaningful focus on the strategic initiatives that a company is taking to build its business and succeed over the long term," Daft said in a statement.
Daft said he made the decision after "a series of discussions with our board of directors," one of whom happens to be the Oracle of Omaha. Buffett does not provide earnings guidance for his own firm, Berkshire Hathaway (nyse: BRK - news - people ). Nor are investors privy to any such updates from Gillette (nyse: G - news - people ), another firm on whose board Buffett sits.
A new book about Buffett by James O'Laughlin quotes its subject as follows, according to a review in London's Independent newspaper: "Many businesses would be better understood by their shareholder owners, as well as the general public, if managements and financial analysts modified the primary emphasis they place upon earnings per share and upon yearly changes in the figure. In the long run, managements stressing accounting appearance over economic substance usually achieve little of either."
Daft in his statement this morning sounded just like the master. "We are quite comfortable measuring our progress as we achieve it, instead of focusing on the establishment and attainment of public forecasts," he said. "Our share owners are best served by this because we should not run our business based on short-term 'expectations.' We are managing this business for the long term."
Is this the start of a trend? Probably not. As with expensing options, abandoning the guidance game is a step that Coke can better afford to take than many less-established firms, which are more dependent on Wall Street's favor. The widow-and-orphan investors who dote on stocks such as Coke probably weren't paying all that much attention to the earnings guidance anyway.
But the analysts who cover Coke cannot be pleased. Now they'll have to work harder to figure out how Coke is doing, instead of just having the numbers periodically handed to them. Maybe they should read O'Laughlin's book to see how Buffett does it.
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