When Will Coca-Cola Sell Its Rebuilt Bottlers? CEO Muhtar Kent Explains

Muhtar Kent, CEO of Coca-ColaInvestors reacted with mild favor on Wednesday to Coca-Cola's (KO) strong fourth-quarter results, bidding the stock up barely 0.5%, or 28 cents, to $63.15. One reason for their tepid response could be the iconic beverage company's go-slow approach to unloading bottling operations across the globe that it has finally shaped up after several years of rebuilding.

Indeed, some investors are beating the drum for Coke to sell off these bottlers. One Wall Street analyst demanded to know earlier this week: "Why aren't deals happening faster?"

In an interview with DailyFinance shortly after Coke's earnings conference call, CEO Muhtar Kent noted the need for the stars to be perfectly aligned before Coca-Cola will sell its company-owned bottlers. "When the time is right," said Kent, "we will find the right home at the right financial conditions. We continue to adhere to that philosophy." He added that the company is a strong believer in its franchise system.

Bringing Bottlers Under One Roof

That's quite a turnaround from just a few years ago, when Coke faced a revolt among its bottling partners who felt out of step -- and sometimes felt in the dark -- with the supplier of the famous secret carbonated sauce. At times they were loath to invest in their bottling operations.

That hurt Coca-Cola, whose fortunes are closely tied to the bottlers and their ability to distribute Coke's beverages to customers. So, in January 2006, Coca-Cola formed its Bottling Investments Group to bring all of its company-owned bottling operations under one roof and serve as a clearinghouse of sorts to acquire bottlers' broken operations and fix them up for future sale.

Two years ago, CEO Kent was talking about the need to turn around bottling operations the beverage maker acquired in the Philipines, Germany, India, China, Uruguay and parts of Brazil. But today, his talk is more about finding the right buyer for these assets.

Coca-Cola's bottling operation in Germany, for example, posted a 1% increase in shipments this year -- its first rise since 2007. The bottler in the Philipines hiked shipments by more than 10% this year over last year. Brazil posted 11% growth, India rose at a staggering 17% rate, China 6% and North America 1%, says a Coca-Cola spokesman.

Looking for the Proper Fit

During the earnings conference call, Credit Suisse analyst Carlos Laboy noted that Coke is showing tremendous improvement in its company-owned bottling territories. He asked company execs whether there's a new urgency in 2011 to prioritize or refranchise some of its repaired bottling operations over the next couple of years.

But Kent told DailyFinance: "The right owner will be a geographic fit, a cultural fit, a political fit and a financial fit."
Then he added: "And most importantly, a management [fit]."

Kent stressed that Coca-Cola is looking for a buyer that provides these attributes and a fair purchase price. He notes that the company is looking for more than just someone with the highest offer. "This is a very closely aligned system. It's not like selling another product, or a car, or a factory," Kent said. "It's a very different set of circumstances."


An example of the sort of alignment Kent is referring to occurred last year, when Coca-Cola announced it was acquiring the North American operations of one of its largest bottlers, Coca-Cola Enterprises (CCE). That move was designed to make Coca-Cola more nimble with a unified business system in its core North America market, where it was losing share as Americans shifted to noncarbonated drinks, which many consumers view as healthier.

Booking a Nifty Gain

As part of that largely cashless deal, however, Coca-Cola gave Enterprises its bottling operations in Norway and Sweden, as well as the right to acquire Coca-Cola's majority stake in its German bottling operations.

And because Coca-Cola was carrying its Norwegian and Swedish bottling operations on its books at the fixer-upper price, once it completed the transaction to Coca-Cola Enterprises at the higher market-value price, the beverage company ended up posting a $5 billion gain on the deal.

If you take this example and apply it to Coca-Cola's other rebuilt bottling operations around the world, those transactions carry the potential to be the gift that keeps on giving as the company sells those assets and also improves their profit outlook with fewer facilities to pour capital into.

"It's Not About a Quarter"


For Wall Street, those sales couldn't come soon enough. But Kent offered this comment:

"We are here to generate long-term sustainable growth for our shareholders. It's not about a quarter or a year. It's about achieving our 2020 vision, which is creating another Coca-Cola company in 10 years what it took to create in 125 [years]."

That may be so. Still, lots of investors would be happy to see Coke bottle up some big gains by selling off these operations.


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16 Comments

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Iselin007

Coke must by it's competitor's bottlers then shut them downn without notice!

February 11 2011 at 3:46 AM Report abuse rate up rate down Reply
silas

PEPSI!

February 10 2011 at 11:07 PM Report abuse rate up rate down Reply
ken

beer me please

February 10 2011 at 4:57 PM Report abuse rate up rate down Reply
1 reply to ken's comment
Iselin007

Iron City Beer in quarts!

February 11 2011 at 3:52 AM Report abuse rate up rate down Reply
dterraman

word is out on the aspertame....

February 10 2011 at 3:02 PM Report abuse rate up rate down Reply
Summer

The company needs to check their plastic bottle's for leaks, some due leak and it tastes horrible. Flat......The glass was safer.

February 10 2011 at 2:13 PM Report abuse -1 rate up rate down Reply
Summer

I wish coke would go back to the glass bottle it tasted better, can't stand the can or the larger plastic bottles, only the small ones have the Real Thing. People, check it our for yourselves. Seems to me if they made it taste better they'd get better sales. Plus I liked the cardboard packing better then that plastic stuff, go back to paper and glass and save jobs.

February 10 2011 at 2:08 PM Report abuse +4 rate up rate down Reply
desertruck

More corporate greed.Shareholders first,executives next,workers last.Oh,I forgot,these new republican politicians the tea party helped to elect,will make sure that workers will never have any jobs that pay anything.

February 10 2011 at 12:48 PM Report abuse -2 rate up rate down Reply
playallday38

coke keeps telling their people they want to put families first and take care of the workers and let them spend more time with their families. I guess costing people their jobs gives them more time to spend with their families, and for the ones that are kept they loose time off this year and are told they will be fired if they miss more that 6 days in a 12 month time period, you work sick and thats that is what is said face to face. In public they tell how much they care. I say HA HA HA what crap. Shareholders and management are the only people that coke takes care of in the areas that don't have unions. And thats a large area.

February 10 2011 at 11:54 AM Report abuse -1 rate up rate down Reply
pozboys

As usual, shareholders over workers! When these plants are sold, how many people lose their source of income? I guess if their smart, they'll buy Coke stock,and not feed their family's!

February 10 2011 at 11:45 AM Report abuse +5 rate up rate down Reply
xraybrain

In sept of 2010 I stopped buying Coca-Cola. I had been drinking 5 to 6 cans of it a day for 45 years. Suddenly the Coke from the Needham, Massachusetts bottling plant had an odd taste to it, an after taste. I believe they messed with the sweetener. My wife noticed how weird it tasted too. I looked up on the internet and other people have noticed it as well. I wrote to the Needham, Massachusetts plant....no reply. I wrote an email to their main office in Atlanta....no reply. So coke....you can go to hell.....I am buying PEPSI now

February 10 2011 at 10:51 AM Report abuse +5 rate up rate down Reply
1 reply to xraybrain's comment
Summer

If you're drinking the platic bottles tip them up side down I found the odd tasting ones to be leaking due to poor seals.

February 10 2011 at 2:10 PM Report abuse +2 rate up rate down Reply