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Coca-Cola renews push to slim operations

Companies

New York - Coca-Cola Co. will step up its bid to transform the company into a far leaner operation under incoming Chief Executive Officer James Quincey.

The soda giant vowed to cut costs by an additional $800 million a year, adding to a plan to wring $3 billion in savings. The belt-tightening effort accompanies a move to spin off much of Coca-Cola’s bottling operations, one of the company’s biggest strategic changes in decades.

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The 52-year-old Quincey takes the reins on May 1 from Muhtar Kent, who has been divesting bottling plants around the world. The company is trying to re-emerge as a more focused and profitable business, which will concentrate on developing new drinks and selling ingredients to partners.

For now, the changes are taking a toll on results. Coca-Cola posted first-quarter earnings of 43 cents a share on Tuesday, short of the 44 cents predicted by analysts. A decline in soda volumes and currency fluctuations also continued to weigh on sales.

Revenue fell 11 percent last quarter, with the structural changes accounting for 10 percent of the decline, the Atlanta-based company said.

The overhaul makes it more difficult for investors to assess the results, said Ken Shea, an analyst at Bloomberg Intelligence.

"It’s hard to find the underlying profitability with this company at the moment,” he said. “It’s almost like investors have to take the company’s word for ‘Look, we’re going to get out of this plumbing change at the end of the year and at that point we’ll have our operating model in place to do some nice things.

Profit Forecast

On the bright side, Coca-Cola’s earnings per share may not decline as much as expected during the full year. The company now projects a drop of 1 percent to 3 percent, compared with a previous prediction of as much as 4 percent. Organic revenue, which excludes currency effects and structural changes, is expected to grow 3 percent.

The shares were little changed at $43.15 in early trading in New York. The stock had risen 4.4 percent percent this year through Monday’s close.

Read also: CBA gives R800m boost to business

Coca-Cola and rival PepsiCo Inc. are scrambling to add more non-cola beverages, coping with a shift by consumers away from traditional soft drinks. Per capita consumption of soda beverages sank to a 31-year low in the US in 2016, according to Beverage-Digest, a trade publication.

Coca-Cola has shifted its strategy to focus on profit growth, rather than volume. That’s included the introduction of smaller cans and bottles, which fetch higher prices per ounce than larger packages. After promoting the smaller packs in the US, the company is now taking the concept to emerging markets.

Soft-Drink Tax

Soda producers also are grappling with greater regulatory burdens on their core products. Philadelphia was the first major US city to implement a soft-drink tax in June. Similar measures have since passed in the San Francisco Bay area, Boulder, Colorado, and Illinois’s Cook County.

Coca-Cola’s sparkling-drink volume declined 1 percent in the first quarter. Though overall sales shrank, it still came in ahead of analysts’ estimates. Coca-Cola reported revenue of $9.12 billion, compared with a prediction of $8.87 billion.

The beverage maker expects to achieve the additional $800 million in cost savings by 2019.

“Next week I will proudly hand over the CEO reins to James Quincey with full confidence that he will complete the company’s transformation and lead our aggressive growth agenda,” Kent, 64, said in the statement.

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