- Bottling plants have combined book value of $380 million
- Beverage giant to create group for coordinating production
Coca-Cola Co. plans to sell nine U.S. production facilities with a combined book value of about $380 million to three bottling companies that help make its drinks, part of a plan to cut costs and streamline operations.
The beverage company said it has preliminary agreements to sell the plants to Coca-Cola Bottling Co. Consolidated, Swire Coca-Cola U.S., and Coca-Cola Bottling Company United. The deals, expected to take effect from 2016 to 2018, are subject to the companies reaching definitive agreements, Atlanta-based Coca-Cola said Thursday in a statement.
Coca-Cola Chief Executive Officer Muhtar Kent has been working to cut $3 billion in annual expenses as changing consumer tastes in the U.S. hurt soda sales. Divesting the bottling operations lets Coca-Cola focus on the more profitable business of selling concentrates and syrups to the companies that manufacture, package and distribute the drinks.
“Bottling is a lower margin, capital-intensive business,” said Jack Russo, an analyst at Edward Jones. Coca-Cola “will continue to sell bottling assets to focus more on its higher-margin concentrate model.”
Coca-Cola also said Thursday that it will start a National Product Supply System with its bottlers. The organization will work on infrastructure planning, sourcing and cost controls, giving Coca-Cola the benefit of centralized bottling operations without the expense of actually owning them.
Coca-Cola shares gained 1 percent to $39.15 at the close in New York. They have fallen 7.3 percent this year.
The latest move marks a reversal from Coca-Cola’s strategy five years ago. Coca-Cola acquired North American bottling businesses in 2010, figuring it could improve operations if it owned them. In 2013, Kent began working to return those operations to franchise bottlers.
“The thought there was to bring the underperforming bottlers under their wings so they could improve performance of the bottlers and the entire Coca-Cola network,” Russo said. “They did tell us that once the bottlers were nursed back to health, they would sell them off.”
The new supply system Coca-Cola announced Thursday will be led by a group that includes Coca-Cola North America, the company’s Coca-Cola Refreshments in-house bottling unit, as well as the three bottlers that are buying the facilities ticketed for divestiture. The group’s members account for about 95 percent of Coca-Cola’s U.S. production volume.
"The NPSS structure allows us to leverage our significant system scale with the unique competitive advantage of being able to act with speed," Sandy Douglas, executive vice president and president of Coca-Cola North America, said in the statement. "This will be enabled by the outstanding commercial capabilities of a strong local bottling system.”
Swire Coca-Cola said in a separate statement that it will purchase expanded distribution rights in Arizona for $133 million. The deal, which the company expects to be completed in the third quarter of 2016, will add geographic areas including Phoenix and Tucson.