Coke to Step Up North American Restructuring
10 February 2016 - 9:31AM
Dow Jones News
By Mike Esterl
Coca-Cola Co. said Tuesday it will greatly accelerate the
restructuring of its North American operations, refranchising
distribution and divesting roughly 55 soda-bottling plants by the
end of next year.
The Atlanta-based beverage giant also reported healthy U.S.
sales growth in the fourth quarter but warned this year's earnings
will take a hit from the asset sales. A weak global economy and
foreign currencies also will drag down results in 2016.
The accelerated pace of its bottling restructuring will allow
the company to focus more on marketing and its more profitable
concentrate business.
It represents a giant unwinding of Coke's $12.3 billion
acquisition of Coca-Cola Enterprises Inc.'s North American bottling
and distribution assets in 2010. That deal gave Coke greater
control over its business but hurt its domestic operating margin,
which fell to 11.4% in 2014 from 20.7% in 2009.
Chief Executive Muhtar Kent said Tuesday that Coke needed to
make the acquisition to fix U.S. operations but that the company
will become more of a "brand business" after divestments. "That's
what we're best at," he told reporters in an earnings call.
The company said in late 2014 it wasn't likely to get a return
on the 2010 deal this decade. In an interview Tuesday, Chief
Financial Officer Kathy Waller said she expected Coke eventually
will recoup the investment but didn't say how long that could take.
Under the divestment deals, bottlers will make payments to Coke
based on gross profits.
The marketer of Coke, Minute Maid juices and Powerade sports
drinks is trying to return to mid-single-digit revenue growth and
high-single-digit earnings growth after falling short the last
three years amid overseas turmoil and sluggish soda
consumption.
Coke slashed more than 1,500 white-collar jobs last year, part
of a plan to cut $3 billion in costs by 2019. It has also made
several acquisitions in faster-growing beverage categories,
including paying $2.15 billion last June for a 16.7% stake in
energy drink maker Monster Beverage Corp.
The company promoted Europe chief James Quincey to the roles of
president and chief operating officer last August, giving Mr. Kent
a clear deputy for the first time. That has prompted speculation
inside the company that Coke could announce CEO succession plans
later this year or in 2017. Mr. Kent, 63, has been CEO since 2008
and hasn't signaled he plans to step down.
Coke reported that revenue fell 8% to $10 billion in the fourth
quarter from $10.87 billion a year earlier, dragged down by weaker
foreign currencies and six fewer selling days. Profit rose 61% to
$1.24 billion from $770 million, after 2014 results were hurt by
restructuring charges and a large Venezuelan write-down.
North American beverage volumes rose 3% in the fourth quarter,
including a 2% increase in carbonated drinks. The company also has
been raising prices and selling smaller packages that cost
consumers more per ounce, helping fuel its best North American
results in three years.
But Coke estimated weaker foreign currencies would have negative
impacts of 4 percentage points on revenue and 9 percentage points
on profit in 2016 as major markets including Brazil and Russia sink
deeper into recession and China's economy slows.
"The global economy remains challenged," Mr. Quincey told
analysts. "There's still much uncertainty."
Chelsey Dulaney contributed to this article.
Write to Mike Esterl at mike.esterl@wsj.com
(END) Dow Jones Newswires
February 09, 2016 17:16 ET (22:16 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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