Coca-Cola Co. (KO:US) jumped the most in more than four years after reporting first-quarter profit that topped analysts’ estimates and announcing a deal to sell some bottling distribution rights in North America.
The shares rose 5.7 percent to $42.37 at the close in New York for the Atlanta-based company’s largest gain since Feb. 12, 2009. The volume of shares traded was higher than the three- month daily average by more than threefold.
Net income fell 15 percent to $1.75 billion, or 39 cents a share, from $2.05 billion, or 45 cents, a year earlier, Coke said today in a statement. Excluding some items, profit was 46 cents a share, compared with the 44-cent average of 14 analysts’ estimates (KO:US) compiled by Bloomberg. The results were helped by higher Latin America sales volume.
Chief Executive Officer Muhtar Kent has introduced new package sizes in Latin America and emphasized Coca-Cola branded soft drinks, Del Valle juices and Powerade. In North America, where Kent has worked to streamline distribution, the company said today it will retain manufacturing under the new agreement while selling and swapping some distribution rights among five smaller franchise bottlers.
“This is a first step in their eventual divestment of much of the U.S. bottling operations,” Thomas Mullarkey, an analyst for Morningstar Inc. (MORN:US) in Chicago, said today in a telephone interview. “They don’t want all those capital-intensive distribution assets sitting on their balance sheet in perpetuity.”
Kent is reversing a decades-old model in which Coca-Cola sold franchises in the U.S. to bottlers who handled everything from production to distribution, buying beverage concentrates from franchisor Coca-Cola. The new structure would pull together manufacturing plants nationally under Coca-Cola’s management.
The deals announced today begin a transfer of warehousing and distribution to bottlers. Those distributors also may be given a chance to “own a piece” of the national manufacturing system, Kent said today in a telephone interview.
“We will ensure that the production is no longer franchised out,” Kent said. “It will be kept centrally managed coast to coast. It will be best practice.”
Coca-Cola shares have increased (KO:US) 17 percent this year, compared with a 10 percent gain for the Standard & Poor’s 500 Index.
In the first quarter, beverage volume for Latin America increased 4 percent, led by Mexico and Brazil.
“We expect Latin America to continue growing strongly, remaining an outsized contributor to Coke’s global revenue and profit growth,” Mark Swartzberg, an analyst at Stifel Financial Corp. in New York, said in an April 12 note. He has a hold rating on the shares.
Beverage volume at the company’s Eurasia and Africa region rose 15 percent in the quarter, helped by a partnership with Aujan Industries, the Middle East’s largest independent drinks company.
Total Revenue declined 0.9 percent to $11 billion. Analysts estimated $10.9 billion, on average.
Currency fluctuations reduced earnings per share by 4 percent in the quarter, Chief Financial Officer Gary Fayard said during a conference call.
Coca-Cola is fully hedged on the euro, yen and sterling for 2013 and into 2014, Fayard said without elaborating on the timing next year. The company has “near-term” hedges in place for several additional currencies, he said. Currency fluctuation will lower earnings by 3 percent in the second quarter and 2 percent for the full year, Fayard forecast.
Volume in Europe was little changed in the period amid poor weather and “ongoing weakness in consumer confidence and spending,” the company said.
“We expect Europe to remain Coke’s weakest developed market,” Swartzberg said before the results were announced.
The five bottlers getting new, expanded territories are Coca-Cola Bottling Co. Consolidated, Coca-Cola Bottling Company United Inc., Swire Coca-Cola USA, Coca-Cola Bottling Company High Country and Corinth Coca-Cola Bottling Works Inc. More expansions could come later, the company said.
Coca-Cola didn’t disclose financial terms of the transactions, which the company said will close in 2014. After, Coca-Cola would distribute about 75 percent of its U.S. sales volume.
Last month, Coca-Cola announced plans to fire 750 employees in its U.S. division following a February decision to pare its distribution regions.
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