Coca-Cola trying to slim down business, not just drinks

Atlanta-based company said its profit fell 55% as global sales volume dipped

Coke is trying to slim down its business, not just its sodas. The Atlanta-based company said its profit fell 55 per cent as global sales volume dipped and it booked charges related to getting out of the manufacturing and distribution of its drinks.

Coca-Cola Co has been selling those operations back to independent bottlers around the country and plans to complete the process by the end of this year. That frees up the company to focus on the more profitable work of burnishing its brand, while selling concentrates to bottlers.

“Basically, you’re becoming a branding company and selling a little syrup on the side,” said Ali Dibadj, a Bernstein analyst.

The structural shift comes as the world’s biggest beverage maker also looks change the type of drinks it offers amid competitive pressure and changing tastes. As it faces criticism for marketing sugary drinks, the company has said that it is working to adapt its offerings and push more lower-calorie beverages. Another way Coke is trying to drive profitability is through different types of packaging for sodas, not just 12-ounce cans and 20-ounce bottles. Coca-Cola has been marketing mini-cans and aluminium bottles, which it says fetch more money per ounce. In the meantime, the company has also been refranchising bottling operations overseas.

The structure is comparable to companies such as McDonald’s Corp. and Yum Brands Inc., which make most their money from taking a cut of the sales at restaurants run by franchisees. Industry experts said investors like to see Coke ‘asset-light’. That dovetails with shifting trends, including the growth of bottled water.

Habits are tough to change, however. Although Americans have been cutting back on traditional sodas for years, Coke and Pepsi still rely on their namesake drinks for huge portions of their revenues. For 2016, Coke said sales of its carbonated beverages in North America was flat, as growth in Sprite, Fanta and energy drinks offset a decline in Diet Coke. Non-carbonated drinks rose 3 per cent, boosted by its new milk drink.

For the quarter ended December 31, Coca-Cola’s global sales volume dipped 1 per cent, dragged down by a 4 per cent drop in Latin America. Volume rose 1 per cent in both North America and Europe.

Coca-Cola earned $550 million (Dh2 billion), or 13 cents per share Adjusted for one-time costs and asset impairment costs, it earned 37 cents per share. Total revenue dropped to $9.41 billion from $10 billion, dragged down partly by a strong dollar, acquisitions and divestitures.

For the current year, the company expects earnings to fall below 2016’s earnings of $1.91 per share.