Coca-Cola to Slim Down Divisions

Zacks

The Coca-Cola Company (KO) recently announced plans to streamline its operating structure and make certain management changes.

Coca-Cola currently reports its operating results under six segments, broadly geographical, save one: Eurasia & Africa, Europe, Latin America, North America, Pacific, Bottling Investments and Corporate. Effective from January 1, 2013, the company will cut down its operating segments to three, namely Coca-Cola International, Coca-Cola Americas and Bottling Investments Group (BIG).

The Coca-Cola International business will consist of the current Europe, Pacific and Eurasia & Africa segments. The Coca-Cola Americas will consist of the company’s North America and Latin America operations, and the BIG group will comprise the company-owned bottling operations outside North America.

As regards the management changes, Ahmet Bozer and Steve Cahillane have been given much larger responsibilities to serve as presidents of the Coca-Cola International and Coca-Cola Americas segments, respectively. Irial Finan will continue serving as the president of the BIG group. Ahmet Bozer is currently serving as the president of the Eurasia & Africa group and Steve Cahillane is right now the president and chief executive officer of Coca-Cola Refreshments (:CCR) in North America.

Our Recommendation

We currently have a Neutral recommendation on The Coca-Cola Company. The stock carries a Zacks #4 Rank (a short-term Sell rating).

We are encouraged by the company’s global reach, strong brand power, expanding presence outside the U.S. and its solid cash position. Moreover, the company’s acquisition of Coca-Cola Enterprises’ (CCE) Bottling business and its productivity initiatives are expected to result in significant cost savings.

However, Coca-Cola needs to ramp up its advertising spending to match arch competitor PepsiCo Inc.’s (PEP) increased focus on North American beverages. Moreover, rising costs of inputs have hurt the company’s margins.

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