By Amy Guthrie
MEXICO CITY--Latin America's second-biggest bottler of Coca-Cola
Co. (KO) products, Arca Continental SAB (AC.MX), said Monday it
expects that Mexico's proposed soda tax will accelerate
consolidation among bottlers in the system.
Arca Continental Chief Executive Francisco Garza told analysts
during a conference call that his company has plenty of tools at
its disposal to reduce the impact of the tax increase on
profitability should the Mexican Congress sign off on the proposal
of one Mexican peso (eight U.S. cents) per liter.
But he said smaller bottlers that lack scale and flexibility to
adapt may soon find themselves looking to partner with the
country's two main bottlers, Monterrey-based Arca Continental and
Mexico City-based Coca-Cola Femsa SAB (KOF). The tax could also
hurt the independent bottlers' valuations, he ventured.
Arca Continental said Monday it has reached an agreement to
purchase a minority stake in Bebidas Refrescantes de Nogales, a
Coca-Cola bottler in Northern Mexico and one of just six
independent bottlers not affiliated with Mexico's two big
bottlers.
Mexican President Enrique Pena Nieto proposed taxing heavily
sweetened soft drinks in an effort to fight the country's weight
and diabetes problems. The Senate is expected to vote on the
measure, which already passed the lower house, in the coming days.
The left-leaning Party of the Democratic Revolution, or PRD, is
pushing for the tax to be doubled to two Mexican pesos per
liter.
Mr. Garza said that sweet beverages account for less than half
of his company's Mexican sales. Arca Continental also has room to
raise its use of cheap high fructose corn syrup, which accounts for
about half of its current sweetener mix. Coca-Cola Femsa Chief
Financial Officer Hector Trevino said last week that his company is
currently maxed out on HFCS, at about 60% of its sweetener mix,
with the rest coming from cane sugar.
Arca Continental's third quarter net profit rose 15% on the year
to 1.72 billion pesos ($133 million) while sales expanded 8% to
$15.85 billion, with much of that growth coming from snacks.
In December, the company purchased Berwick, Pa.-based Wise Foods
and Ecuador's Industrias Alimenticias Ecuatorianas for undisclosed
sums. Arca Continental estimated at the time that the purchases
would raise its annual snack sales to $400 million in 2013. Arca
Continental also operates in Argentina.
Mr. Garza said that while the company continues to see much
opportunity for snack acquisitions, which are easier to find and
pursue than beverage deals, Arca Continental remains very committed
to bottling.
Beverages are "our core business, it's our reason to live," he
said.
Write to Amy Guthrie at amy.guthrie@wsj.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires