Coca-Cola To Sell Nine U.S. Plants
September 24 2015 - 8:15PM
Dow Jones News
(FROM THE WALL STREET JOURNAL 9/25/15)
By Mike Esterl
Coca-Cola Co. said Thursday it plans to sell nine U.S.
production plants worth about $380 million to three large bottling
partners as the beverage giant accelerates a refranchising drive
and lightens its balance sheet.
The company said it would create a new nationwide supply group
that will include Coke and independent U.S. bottlers Coca-Cola
Bottling Co. Consolidated, Coca-Cola Bottling Company United and
Swire Coca-Cola USA. Under the letter of intent, nine manufacturing
facilities will be transferred to the bottlers between 2016 and
2018.
Atlanta-based Coke began divesting U.S. distribution assets
including delivery trucks and warehouses in 2013 in a bid to cut
costs and boost profit amid weak soda sales. It accelerated those
plans last October, saying it aimed to refranchise the majority of
its U.S. distribution by the end of 2017 instead of 2020.
Thursday's announcement is the first time Coke confirmed it also
intends to shed U.S. manufacturing assets, signaling that it will
exit at least some of its low-margin, capital-intensive businesses
to refocus on selling beverage concentrate and marketing. It
wouldn't say how much of its manufacturing it plans to sell.
The company has been coy about whether it would sell its
manufacturing as part of the refranchising. The sale of additional
production facilities to bottling partners "will be considered in
due course," it said in a statement. A spokesman said Thursday that
the nationwide supply group will be collectively managed.
Thursday's refranchising deals are subject to the companies
reaching definitive agreements. Coke expects to receive the net
book value of the nine plants, estimated at $380 million, in cash
at closing.
Coke paid $12.3 billion in 2010 to buy the U.S. assets of
Coca-Cola Enterprises Inc., then its biggest U.S. bottler, securing
control of most production and distribution in its home market.
Coke said at the time the move would lower costs and allow it to
negotiate directly with major national retailers.
But the deal also hurt Coke's North American operating margin,
which fell to 11.4% in 2014 from 20.7% in 2009. Chief Financial
Officer Kathy Waller acknowledged last year that Coke likely
wouldn't book a positive return on its U.S. bottling investment
this decade.
Coke Chief Executive Muhtar Kent said in a news release on
Thursday that the company will tap the strengths of the bottling
partners "to operate as one highly aligned and highly competitive
national product supply system."
Coke says it currently has 71 plants in the U.S. after
shuttering several in recent years.
Tom Haynes, an industry consultant and former Coke executive,
said he expects the company will sign more deals to divest U.S.
manufacturing plants. "Coke's primary expertise is sales and
marketing," said Mr. Haynes, who headed the Coca-Cola Bottlers'
Association from 2002 to 2012.
Publicly traded Coca-Cola Consolidated will acquire six
production facilities in Sandston, Va., Baltimore and Silver
Spring, Md., Indianapolis and Portland, Ind., and Cincinnati after
striking earlier deals to expand its distribution territory.
Closely held Coca-Cola United will acquire a production facility
in New Orleans, and Swire will acquire production facilities in
Phoenix and Denver.
Coke also has been divesting bottling assets abroad and
consolidating its global manufacturing and distribution footprint.
Last month it agreed to merge its German bottling unit with
publicly traded Coca-Cola Enterprises and Spain's closely held
Coca-Cola Iberian Partners SA to create a bottler with $12 billion
in revenue across 13 European countries.
The maker of Minute Maid juices, Dasani water and its namesake
cola has warned it expects to fall short of long-term growth
targets for a third straight year in 2015 amid slowing consumption
of soda, which still represents about 70% of the company's sales
volume.
Last October it expanded a cost-cutting program, promising to
deliver $3 billion in annualized savings by 2019. In January it
began cutting at least 1,600 white-collar jobs globally.
---
Chelsey Dulaney contributed to this article.
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(END) Dow Jones Newswires
September 24, 2015 20:00 ET (00:00 GMT)
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