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.
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.
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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.