The largest global producer and marketer of beverages, The Coca-Cola Company (KO) recently acquired Sacramento Coca-Cola Bottling Company Inc., the sixth-largest independent Coca-Cola bottler in the United States, primarily serving Northern California. The financial terms of the deal remained undisclosed.
Founded in 1927, Sacramento Coca-Cola Bottling Company has strengthened its presence in nine California counties over the years by distributing Coca-Cola products. We believe, this large network as well as brand building made it a lucrative acquisition target.
A peer of Dr Pepper Snapple Group (DPS), The Coca-Cola Company already holds ownership interests in Coca-Cola Enterprises Inc., Coca-Cola Hellenic Bottling Company SA, Coca-Cola FEMSA, and Coca-Cola Amatil Ltd.
Coca-Cola has been on an acquisition spree for quite some time. In June 2012, Coca-Cola acquired bottling operations in Guatemala, which was preceded by similar acquisitions in Vietnam and Cambodia from Coca-Cola Sabco Limited (Sabco) in February 2012. In December 2011, the company had acquired Coca-Cola Great Plains Bottling Company.
Earlier, in October 2010, the company had acquired Coca-Cola Enterprises Inc.’s North American bottling and distribution operations. The acquired business forms a part of the company’s North American segment.
The bottling partners produce, sale and distribute the final product from the concentrates produced by The Coca-Cola Company. The Coca-Cola Company acquires these partners in order to improve efficiency and optimize the use of resources.
Overall, we are encouraged by Coca-Cola’s global reach, strong brand power, expanding presence outside the U.S. and its solid cash position. Moreover, the company’s acquisition of bottling business and its productivity initiatives are expected to result in significant cost savings. Though the expected moderation in commodity cost inflation is a relief in the near term, soft economic conditions and tough currency environment going ahead concern us.
Currently, we have a Neutral recommendation on The Coca-Cola Company over the long term. The Coca-Cola Company carries a Zacks #4 Rank in the near term (Sell).
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