Coca-Cola earnings fall 20%, company to reduce corporate workforce by 1,200

by Keith Nunes
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Coca-Cola
The Coca-Cola Co.’s net income during the first quarter fell 20%.

ATLANTA — The Coca-Cola Co.’s net income during the first quarter, ended March 31, fell 20% to $1,182 million, equal to 27c per share on the common stock. In conjunction with the earnings announcement, the company said it would be reducing its corporate workforce by 1,200 starting later this year and into 2018.

Sales for the quarter fell 11% to $9,118 million when compared to the same period of the previous year.

Net income was lower "primarily due to charges associated with the refranchising of bottling territories in North America," the company said. Changes in foreign currency exchange rates and "structural items," mostly related to the refranchising of bottling territories, also factored in the lower profits. Adjusted for special items, net income was down about 4%.

James Quincy, The Coca-Cola Co.
James B. Quincey, c.o.o. of Coca-Cola

“Our first quarter had two fewer days this year, impacting growth by about 2%, and of course, Easter shifted into the second quarter,” said James B. Quincey, chief operating officer who will take over as chief executive officer on May 1, during an April 25 conference call with financial analysts. “Additionally, there was a time lag between our unit cases sales and concentrate shipments.

“Price/mix, meanwhile, was a healthy 3%, with good performance across our operating segments. So the way I think about it is we delivered even unit case volume growth and 3% price/mix, so we’re running at around a 3% trajectory, in line with our full-year organic revenue guidance.”

The reduced workforce is a part of an effort described by Mr. Quincey as creating a new operating model.

“As we create a more focused, lean corporate center and broadened, enabling services, we expect this will result in approximately 1,200 job reductions beginning in the second half of 2017 and carrying into 2018,” he said. “While these necessary changes are always very difficult, they will help us do fewer things better to lead and support our operating units while upholding best-in-class corporate governance.”

Coca-Cola facility
Coca-Cola's educed workforce is a part of an effort to create a new operating model.

As a consequence of the workforce reductions, Mr. Quincey said it will create additional productivity opportunities and lead to incremental savings of approximately $800 million. A little more than half of the $800 million additional savings will be reinvested, according to the company. Specifically, Mr. Quincey said the reinvested money will be focused on some newer categories to drive growth. In the past, monies from the efficiency program have been invested in the company’s sparkling platform.

Mr. Quincey said going forward that the company needs to look at its total portfolio and “not to run from one side of the ship to the other,” as it deals with changing consumer purchasing patterns related to sparkling and still beverages.

“So we need to manage the total portfolio effect, which is not just across categories but across the life-stage development of any one brand and category across the world because they’re not equally developed every way,” he said. “So there’s a portfolio management thing. Of course, our objective, whatever the category, is to build brands and positions that are inherently profitable once we get to the appropriate scale. So we’re not trying to build things that will never arrive. We’re trying to build brands in categories, whether it’s inherent in the brand or inherent in the package side that can be profitable for us and the bottling system.”

Coca-Cola bottling facility
Part of Coca-Cola's workforce reduction may be contributed to the refranchising of its bottling operations.

He also attributed the workforce reduction to a number of factors, most notably the refranchising of its bottling operations.

“ … We’re going to go from well over 110,000 employees to under 40,000 employees by some point next year,” Mr. Quincey said. “There’s just physically less stuff that needs to get done at the corporate center to support that organization.

“Secondly, technology keeps advancing, and what is possible to anticipate and get done using technology and change the way work can be done is a lot more today than it was a number of years ago. We need to embed that in the organization. And then the third thing is the ongoing efforts to define new ways of doing the same thing with less resources or getting more bang for the buck because we can be innovative in the way we run our processes.” 
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