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Here’s Why Shares of Coca-Cola Are Sliding

Pile of Coca Cola boxes in a grocery store.Pile of Coca Cola boxes in a grocery store.
Pile of Coca Cola boxes in a grocery store.Photograph by Roberto Machado —Noa LightRocket via Getty Images

Coca-Cola kicked off 2016 with results that should easily please Wall Street observers. The beverage giant’s first-quarter sales and profits exceeded analysts’ expectations. And importantly, Coke stuck with full-year targets it outlined in February, including a projected 4% to 5% increase in organic revenue for 2016.

The problem? Wall Street analysts don’t believe Coke’s (KO) bullish targets. And that explains why shares are trading nearly 5% lower on Wednesday.

The biggest cause of concern seemed to center on Coke’s 2016 revenue target. Because organic revenue only grew 2% in the first quarter, it implies that growth will accelerate throughout the rest of the year to make up for the difference. And the analysts that closely cover Coke aren’t fully convinced management can hit their numbers.

Steve Powers, an analyst at UBS, asked management early in the conference call about the top line acceleration. Powers asked if it was fair to assume that Coke was actually targeting growth more toward the low end of that sales range.

“We are confident, definitely, in the strategy and initiatives in place to support our growth targets over the course of the year,” said CEO Muhtar Kent in response to that question. Kent pointed to the launch of a new campaign that would aid results later in the year, as well as the benefit of Summer Olympics marketing in the second and third quarters.

Not everyone was persuaded.

Berstein’s Ali Dibabj later in the call got even testier. His comment: “I’m getting a lot of skepticism from investors about the 4% to 5% organic revenue growth target for the year and openly you don’t sound 100% confident.” He went on to ask Coke what specifically gave the executives the confidence they would hit those numbers.

On the defense at this point, Kent–who recently saw his pay cut as Coke faces challenges in selling soda in many mature markets–again pointed to marketing plans and said different quarters perform differently. Essentially, he is saying don’t judge 2016 on the performance of the first three months of the year.

Ultimately, what Coke is facing is a big challenge to the company’s core soda business. In markets like the U.S., volume for the industry has slipped drastically as consumers move toward drinks they deem healthier than soda. Coke has tried to pivot but perhaps not fast enough. Packaged water has been a bright spot for the industry and Coke has made investments in startup brands and even recently made a big splashy launch in the milk category, but ultimately, soda is still a big business for the beverage giant.

In the first quarter, North America volume grew 2% but only because of a 5% increase for “still” beverages—including gains for juices, sports drinks, teas, and packaged water. Volume for the “sparkling” business were flat, hurt by a weak performance for the namesake soda. Peer PepsiCo (PEP) is facing similar challenges though the two business aren’t entirely comparable, as Pepsi also derives a ton of business from food, while Coke is completely focused on beverages.

Overall, Coke on Wednesday reported total operating revenue of $10.28 billion for the quarter, down 4% from last year. Adjusted earnings slipped to 45 cents per share from 48 cents.