With No Growth, Coke and IBM Struggle to Please Investors Coca-Cola Co. (KO)andInternational Business Machines Corp. (IBM)got a stark message from investors this week: If they cant keep their businesses in growth mode, theyd better do something about it -- and fast.

Shares of both Coca-Cola and IBM fell more than 6 percent this week following their respective earnings, underscoring failings in their strategies. In Coca-Colas case, investors want deeper cost cuts and assurances that the savings will reward shareholders. For IBM, its the opposite: After years of financial maneuvering to fund buybacks and dividends, investors want good old-fashioned sales growth.

Both businesses are under increasing pressure after years of sluggish demand for their products. IBM and Coca-Cola are in the bottom fifth of the Standard & Poors 500 Index in terms of quarterly sales growth. Five years into a U.S. expansion -- with theunemployment ratedown to a six-year low of 5.9 percent -- shareholders are looking for more dramatic remedies from companies that arent sharing in the economic gains.

If your portfolio isnt really capable of generating top-line growth, clearly either management needs to change or the business mix needs to change, said Pete Sorrentino, senior vice president at Huntington Asset Advisors Inc. in Cincinnati. Because thats what investors are paying for.

Sorrentino helps oversee $1.8 billion in funds, including IBM and Coca-Cola shares.

Stock Drops

IBMs shares tumbled 7.1 percent to $169.10 on Oct. 20, when the Armonk, New York-based company released disappointing results and backed away from its long-stated earnings goal for 2015. The stock fell an additional 3.5 percent yesterday, marking its worst two-day decline since the depths of the recession in November 2008. Coca-Colas earnings sent its stock down 6 percent to $40.68 yesterday, the biggest one-day drop since October 2008.

Coca-Cola and IBMs share slides have wiped out more than $2 billion fromWarren Buffetts stock portfolio this week, assuming he hasnt changed his holding in either since June 30. His firm,Berkshire Hathaway Inc. (BRK/B), is the largest investor in both companies and he has publicly supported the strategies of the CEOs. He didnt respond to a message seeking comment left yesterday with an assistant.

Coca-Cola, the worlds largest beverage maker, is struggling with slower international growth and mounting concerns over obesity and artificial sweeteners in the U.S. Sales in the third quarter declined to $11.98 billion from $12 billion a year earlier, the Atlanta-based company said yesterday. Analysts had estimated $12.1 billion on average, according to data compiled by Bloomberg.

Cost-Cutting Plan

Chief Executive OfficerMuhtar Kenthas responded to the slowdown with a plan to cut expenses by $3 billion a year by 2019. Investors wanted more, saidAli Dibadj, a New York-based analyst at Sanford C. Bernstein & Co. Shareholders also arent sure how theyll get a payoff from the goal, he said. Coca-Cola has said that the savings will be used to fund marketing, expand profit margin and increase returns on invested capital.

What we do with my team is to try to control what we can control and execute flawlessly and implement the plan that we have outlined, Kent said on a conference call after being asked about investor critics. We have outlined very bold and aggressive plans for cost cutting.

IBM, meanwhile, has spent $19 billion buying back its shares in the past 12 months. The strategy may have reached its limit, though.

Sales Slump

Now that earnings growth has also slowed, investors are no long satisfied with IBMs sales, which fell more in the most recently reported quarter than 93 percent of companies in theS&P 500, according to data compiled by Bloomberg.

James Sciales, a spokesman for IBM, didnt respond to requests for comment.

IBM has said that revenue declines are a byproduct of streamlining the business. The company has been divesting unprofitable units to help boost earnings, getting rid of revenue that CEO Ginni Rometty calls empty calories. Besides plying investors with stock buybacks to lift earnings per share, Rometty has slashed expenses by lowering the companys tax rate and cutting jobs.

IBMs steady increase in income had been praised by investors like Buffett. Net income has tripled since 2002.

Then this week, IBM reported its 10th straight decline in revenue and had to scrap a five-year profit forecast, telling investors that annual adjusted earnings would fall this year for the first time since 2002.

Services, Software

While investors had called for a return to revenue growth in the past, they had been placated by consistent returns from IBMs legacy units like services and software. Sales in those businesses tumbled last quarter, raising additional concerns, saidToni Sacconaghi, another Bernstein analyst.

The companys growth initiatives are not big enough or growing fast enough to offset the secular pressures facing its traditional businesses, he said in an Oct. 20 note to clients.

Sorrentino, themoney managerat Huntington, sees a broader shift in investor attitudes. Shareholders may not be as accepting of companies that arent growing organically, he said.

There should be winners and there should be losers, and the winners should be the ones generating organic growth and the losers should be the ones misspending shareholder capital, he said. Hopefully this leads to that. These changes are never smooth and never pleasant.

Source : http://www.bloomberg.com/Date : Oct 22, 2014

Name : Mogos CristinaGrupa 1010, Facultatea Cibernetica, Statistica si Informatica Economica