Coca Cola to refranchise bottling in US

AP
April 17, 2013

DRINKS giant Coca-Cola has reported first-quarter results above expectations and said it struck deals to start refranchising its US business.

The world’s biggest beverage maker, which makes Sprite, Dasani and Powerade, had purchased the bulk of its North American bottlers in 2010 with the goal of streamlining production under one roof. CEO Muhtar Kent has suggested that the company would eventually refranchise the territories to independent bottlers.

A franchising model lowers overhead costs for Coca-Cola because it means regional bottlers take on the responsibilities for delivering its drinks to supermarkets, gas stations and other retailers. But the details on how exactly Coca-Cola plans to structure its franchise business in the US over the long term are still not clear.

Under the deal announced on Thursday, for instance, Coca-Cola would still own the production plants in the affected territories. The bottlers, which are independent companies, would buy trucks and other equipment and deliver to expanded areas.

According to the industry tracker Beverage Digest, the deals mean Coca-Cola will end up handling about 74.5 per cent of its US bottling business, down from 79.4 per cent.
Meanwhile, Coca-Cola said that global volume during its first quarter rose 4 per cent, with Thailand, India and Russia posting strong gains. In its flagship North American market, volume rose 1 per cent, fueled by growth in non-carbonated drinks such as Honest Tea and Simply Orange juice.

But soda declined 1 per cent in the region, reflecting a continued movement away from soft drinks in developed countries such as the US.

For the three months ended March 29, the company said it earned $1.75 billion ($A1.69 billion), or 39 cents per share. That’s down from $2.1 billion, or 45 cents per share, a year earlier.

Not including one-time items such as restructuring charges, however, the company says it earned 46 cents per share. That’s better than the 45 cents per share analysts expected.

Net revenue declined to $11.04 billion, from $11.14 billion a year ago, hurt by foreign currency exchange rates and two fewer selling days in the period. Analysts expected $10.97 billion, according to FactSet.

Shares of Coca-Cola Co. rose almost 3 per cent at $41.23 in premarket trading.