Wall Street underestimated the potential for a volume drop, and Coke stock took a hit on Tuesday, falling $1.5625 to $63.25 in New York Stock Exchange composite trading. At noontime Wednesday, the shares were down a further $2 to $61.25. The slides followed the company's warning on Monday evening that its world-wide unit case volume would decline slightly in the first quarter.

While Coke's international business was weaker than expected, the biggest surprise was Coke's disclosure that case volume in North America, which accounts for 27 per cent of Coke's profit (up from 22 per cent in 1996), is expected to rise only 2 per cent in the quarter. That figure is half of what most analysts had expected.

Jennifer Solomon, an analyst at Salomon Smith Barney, on Tuesday reducedher "buy" rating on Coke to "neutral," and said that "confidence is eroding" in Coke. "Although we think investors are forgiving of near-term difficulties for Coca-Cola, we think this may be the end of giving Coca-Cola the benefit of the doubt," Solomon said, noting that the stock could fall further.

"I think it's shocking the stock isn't going down further, given the magnitude of the miss," said one institutional investor.

Independent sales data show that Coke's volume was growing at a healthy clip for the first two months of the year. But anaIysts say the meagre 2 per cent growth suggests that retail sales of Coke hit the brakes in March, and perhaps more troubling, that the company's powerhouse fountain business of selling syrup to restaurants is weakening.

Several analysts and Coke blamed the slowdown on an effort by bottlers to end a price war and raise retail prices of soft drinks, boosting the profitability of such bottlers as Coca-Cola Enterprises Inc. One motive for the timing is today'sinitial public offering of Pepsi Bottling Group Inc., PepsiCo Inc.'s company-owned bottling unit. The impending offer seemed to give comfort to the idea that Pepsi would match the increases. Analysts still expect Pepsi's North American volume to increase 3 per cent to 4 per cent in the first quarter, despite higher prices.

Andrew Conway, an analyst at Morgan Stanley Dean Witter, noted that "at least 50 per cent" of Coke's first-quarter domestic volume comes in March. The Asian Wall Street Journal