Coca-Cola continues its transformation

by Monica Watrous
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Bottles of Coca-Cola sodas: Coca-Cola, Coca-Cola zero, Diet Coke, Sprite
The Coca-Cola Co. IS planning big moves in 2016 after exceeding last year's expectations.

ATLANTA — The Coca-Cola Co. has made meaningful progress against five strategic growth initiatives announced at the end of 2014. In what executives called a “transition year,” the Atlanta-based beverage maker set out to drive revenue growth through segmented market roles, make disciplined brand and growth investments, drive productivity and continuous improvement, streamline and simplify, and focus on the core business model. As part of these priorities, Coca-Cola has committed to accelerating the pace and scale of its refranchising efforts, with plans to refranchise 100% of its bottling territories in North America, including cold-fill production, by the end of 2017.

Muhtar Kent, Coca-Cola
Muhtar Kent, chairman and c.e.o. of Coca-Cola

“This is a critical step for our entire system in North America,” said Muhtar Kent, chairman and chief executive officer, during a Feb. 9 earnings call with financial analysts. “It will not be easy and will require the hard work and dedicated efforts of our entire team and close collaboration with our bottling partners. But we have a clear plan in place, and are confident that this is essential for our future success.”

Additionally, the company said it has entered into a non-binding letter of intent to refranchise its China bottling operations to its existing partners China Foods Ltd. and Swire Beverage Holdings Ltd.

“These new announcements, combined with the pending creation of Coca-Cola European Partners and Coca-Cola Beverages Africa, as well as our investment in our Indonesian bottler, will strengthen our global bottling system for the coming decades,” Mr. Kent said. “To put it in perspective, adjusting for these transactions, the per cent of our 2015 volume sold through company-owned bottlers would have decreased from 18% to 3%.”

Other strategic actions taken by Coca-Cola in the past year contributed to top-line growth in 2015, despite macroeconomic challenges in emerging markets. North America delivered its strongest annual performance in three years with 4% organic revenue growth, supported by increased marketing efforts and a disciplined approach to volume, price and mix management, the company said.

Coca-Cola bottling plant

Much of the Coca-Cola's plans revolve around the company's bottling facilities.

For the fiscal year ended Dec. 31, 2015, net income attributable to shareowners of Coca-Cola was $7,351 million, equal to $1.67 per share on the common stock, up 4% from income of $7,098 million, or $1.60 per share, for the prior year. Net operating revenues for the year fell 4% to $44,294 million from year-ago revenues of $45,998 million, but organic revenue rose 4%.

For the fourth quarter, net income attributable to shareowners of Coca-Cola increased 61% to $1,237 million, or 28c per share, from $770 million, or 17c per share, for the comparable period. Net operating revenues declined 8% to $10,000 million from $10,872 million. Organic revenue declined 1%, primarily due to the unfavorable impact of six fewer days in the reporting calendar, the company said.

Coca-Cola grew global volume by 3% in the quarter and 2% for the year. Global price/mix grew 2% in the quarter and full year. The company gained global value share in nonalcoholic ready-to-drink beverages in the quarter and full year.

Full-year sparkling beverage volume growth was led by 6% growth in Coca-Cola Zero, 3% growth in Sprite and 1% growth in Coca-Cola, which was partially offset by a 6% decline in Diet Coke and Coke Light.

Coca-Cola cans of soda - Coca-Cola Zero, Sprite, Coca-Cola
Full-year sparkling beverage volume growth was led by 6% growth in Coca-Cola Zero, 3% growth in Sprite and 1% growth in Coca-Cola.

For the still beverage portfolio, global volume growth for the full year was driven by 8% growth in packaged water, 4% growth in ready-to-drink tea, 3% growth in ready-to-drink coffee and 2% growth in sports drinks.

“In addition to internal innovation, we look externally for bolt-on opportunities to expand our still beverage portfolio and capabilities,” Mr. Kent said. “Just last week we announced an investment in Chi Ltd., Nigeria’s leading value-added dairy and juice company. This adds to our other recent investments, including Monster, Suja, and Fairlife, expanding our presence in the energy, juice, and value-added dairy categories.”

Looking ahead, Coca-Cola expects full-year currency neutral earnings per share growth of 4% to 6%, including the impact of accelerated refranchising plans. The company remains committed to its previously announced $3 billion productivity initiative. Additionally, the company is targeting 4% to 5% organic revenue growth.

“We recognize we still have much work to do, but we have a clear path to transform the company, becoming more focused on our core business of building brands and leading our system of bottling partners, thereby giving us even greater confidence to achieve our long-term growth targets,” Mr. Kent said.
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