KO Coca Cola Company

By Mike Esterl and Jennifer Maloney 

After a rocky eight-year run atop the world's biggest beverage company, Muhtar Kent will step down as chief executive of Coca-Cola Co. and hand the task of reviving sales growth to his top deputy.

James Quincey, a 20-year Coca-Cola veteran who was appointed to the No. 2 job last year, will succeed Mr. Kent in May. Mr. Kent, who recently turned 64, will remain chairman of the $180 billion company, Coke said. The transition had been expected though the timing was uncertain.

Mr. Quincey, 51, who was born in Britain and spent most of his career outside the U.S., takes over at one of the most powerful global brands as it struggles with a consumer shift away from sugary sodas. Coke's revenue has declined in each of the past three years. Despite a diversification push into juices, bottled waters and other beverages, soda still represents about 70% of company sales.

One of Mr. Quincey's biggest challenges will be the increasing number of governments weighing special taxes on sugary drinks amid rising obesity and diabetes. The U.K. plans to introduce a levy in 2018, and countries including South Africa and Indonesia are mulling similar steps. In November, five U.S. municipalities, including Chicago's Cook County and San Francisco, approved sweetened-drink taxes.

"We'd like to go faster" in diversifying beyond core soda offerings that include Fanta, Sprite and the namesake cola, Mr. Quincey said Friday. Coke is expanding its selection of low-calorie and zero-calorie beverages, he said, and played down the prospect that it would expand beyond beverages, as rival PepsiCo Inc. has done. He said he still sees plenty of growth opportunities in soda and other nonalcoholic drinks.

Mr. Kent has tried to boost Coca-Cola's profits by divesting manufacturing and distribution in the U.S. and elsewhere to focus on its higher-margin concentrate business. Coke has made a handful of acquisitions of juice and dairy companies; last year, it bought a 17% stake in Monster Beverage Corp., a leading energy-drink maker.

But many investors have soured on the company. Coke's share price has gained 24% over the past five years, less than a third of the gain in the S&P 500. The stock rose 2.5% Friday to $42.

Mr. Kent won praise early in his tenure for boosting growth and stabilizing the U.S. market. Many credited the strong operational know-how he developed after starting with Coke in 1978. As CEO, he continued to focus on the smallest details, keeping a red paint chip in his wallet to make sure Coke trucks, packaging and store signs were Coke red.

He also helped expand Coke's presence in foreign markets. The son of a Turkish diplomat, he speaks several languages and mingled easily with business leaders and heads of state. He opened factories in the former Soviet Union and ran a major Coke bottler in Europe before becoming CEO in 2008.

Some company insiders and observers have questioned whether Mr. Kent moved quickly enough to diversify Coke's soda-heavy portfolio. Mr. Kent has long called the company's namesake cola its "oxygen."

On Friday, Mr. Kent noted that the company has made big strides in the past 30 years after relying on Coca-Cola for a century. Coke has 20 brands with at least $1 billion each in retail sales, including Simply fruit juices, Powerade sports drinks, Dasani bottled water and Gold Peak tea.

"I've always felt like from the very top level, starting with Muhtar, there has been tremendous support for what we are building," said Seth Goldman, co-founder of Honest Tea, an organic brand Coke acquired under Mr. Kent.

Mr. Kent's biggest move came in 2010, when Coke agreed to pay $12 billion to acquire the U.S. bottling and distribution assets of Coca-Cola Enterprises. The goal was to modernize the U.S. network so it would crank out new products more quickly, but the overhaul proved more difficult than expected.

Mr. Kent also unveiled a five-year, $3 billion cost-cutting plan in late 2014 that included thousands of layoffs and the introduction of zero-based budgeting, which requires managers to justify all spending plans rather than roll some over from year to year.

Under the "asset light"' strategy, Coke plans to cut bottling operations that it owns to 3% of output by the end of 2017, down from 18%. It has estimated that after the divestments, revenue will drop to $28.5 billion compared with $44.3 billion in 2015, and that staff will shrink to 39,000 from 123,000 over the same period. Coke also expects its operating margin to jump to 34% from 23% as capital-intensive factories, warehouses and trucks come off its balance sheet.

On Friday, Mr. Quincey said he plans to focus on completing Coke's efforts to divest bottling and distribution assets by the end of next year. Mr. Quincey put his stamp on the company in May 2016, when Coke replaced the heads of its Asia and Africa businesses with company veterans and close Quincey allies.

The CEO change comes after a Coke board meeting this week when Howard Buffett, the oldest son of billionaire Warren Buffett, chairman of Berkshire Hathaway Inc., Coke's largest shareholder, said he would leave the board. The elder Mr. Buffett on Friday praised Mr. Kent's leadership and the selection of Mr. Quincey as successor.

The son of a biochemist, Mr. Quincey studied electronic engineering at the University of Liverpool before becoming a management consultant and then joining Coke in 1996. He has led Coke's presence in both Europe and Latin America. The low-key executive is popular in Coke's management ranks, with a reputation of being a good listener and a calm problem solver. He often wears jeans to work, unlike the more formal Mr. Kent.

"He combines many things. He's strong in operations. He has a very good sense of marketing," Coca-Cola's chief marketing officer, Marcos de Quinto, said at an industry conference in New York Friday.

"We have a model that is very complex," he added. "You can be a very smart person but if you really don't know how to manage this system and the bottler partners, probably you will not succeed."

On Friday, the incoming CEO said the company can't be afraid to take risks. "The transformation plan that has been put in place under Muhtar's leadership serves us well, and now we have to accelerate it to the next level," he wrote in a blog post. "In short: be bold, be brave."

--Austen Hufford contributed to this article.

Write to Mike Esterl at mike.esterl@wsj.com

(END) Dow Jones Newswires

December 10, 2016 02:47 ET (07:47 GMT)

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