For Immediate Release
Chicago, IL – July 6, 2012 – Today, Zacks Equity Research discusses the U.S. Consumer Staples, including The Coca-Cola Company (KO), PepsiCo Inc. (PEP), Altria Group Inc. (MO) and Reynolds American Inc. (RAI).
A synopsis of today’s Industry Outlook is presented below. The full article can be read at
In an effort to boost long-term growth and reduce the effects of inflating commodity costs, most consumer staples companies have undertaken several strategic initiatives like divesture of low-margin brands, improvement of supply chain and implementation of cost-reduction initiatives.
The Coca-Cola Company (KO) is undertaking various productivity initiatives to streamline its cost structure and boost profitability. In February 2012, it launched a four-year productivity and reinvestment program, which includes initiatives like optimization of global supply chain; improving effectiveness of global marketing and innovation; operating expense leverage; standardization of information systems and integration of Coca Cola Enterprises’ North America business that was acquired in 2010. The program is expected to generate incremental annualized savings of $550 to $600 million phased over a four-year period starting in 2012 through the end of 2015.
PepsiCo Inc.’s (PEP) restructuring program is expected to result in more than $1 billion in productivity in 2012 and a total of $3 billion over the next three years. The program will include leveraging new technologies and processes across operations, consolidating facilities, simplifying organization structures, lowering layers of management, workforce reduction of 3% and many more efforts. The program is expected to lower the company’s cost structure, thereby freeing up resources to invest in innovation and brand building.
Altria Group Inc. (MO) completed the cost reduction plan for the period of 2007 to 2011 very recently. It further initiated a new $1 billion cost reduction program in the third quarter of 2011, which is expected to deliver $400 million in annualized cost savings by the end of 2013. The company also reduced its workforce by 700 employees in February 2012 as a part of its restructuring program to reduce cost.
Another tobacco seller, Reynolds American Inc. (RAI), recently completed its business analysis and in the process has identified resources to reinvest in the businesses to sustain their growth momentum. The business analysis was focused on the ways to reduce cost, and the company has decided that by eliminating surplus labor the company will be able to generate savings of about $25 million associated with the workforce restructuring by year-end 2012. Those savings will increase to about $70 million annually in 2015.
The world’s largest saucemaker, Heinz, invested in productivity initiatives in the just-completed fiscal year by increasing manufacturing efficiency, reducing overcapacity and streamlining its operations. In addition, the company is also investing in Project Keystone, a multi-year program aimed at increasing Heinz’s competitiveness by adding capabilities, improving processes and systems through SAP.
Management believes the project, which is focused primarily in Europe, will optimize the company’s sales mix, increase manufacturing efficiencies and improve costs. Cost-saving endeavors like these would help counter the impact of rising commodity costs and prepare the foundation for long-term growth.
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