KO Coca Cola Company

   (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.

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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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