Coca-Cola to Grant Expanded US Territories to Three Bottlers

As part of its aggressive re-franchising efforts, The Coca-Cola Company KO announced the signing of letters of intent with three U.S. bottlers — Coca-Cola Beverages Florida, Viking Coca-Cola Bottling Company and Coca-Cola Bottling Company United ("United") — to grant expanded distribution territories in five U.S. states. The deals are subject to the companies reaching a definitive agreement.

While Tampa-based Coca-Cola Beverages Florida will get additional territories in south-eastern Florida, United will assume extra territories in north and central Georgia. Viking Coca-Cola Bottling Company will take more territories in parts of northern Minnesota.

Also, Coca-Cola reached definitive agreements with two independent bottlers — Clark Beverage Group and Chesterman Company — for territories per letters of intent signed earlier this year.

Thus far, Coca-Cola has transferred or signed agreements for territories covering over 40% of the U.S. bottle can volume.

Also Coca-Cola said it has also reached definitive agreements with three independent bottlers — Coca-Cola Bottling Co. Consolidated COKE ("Consolidated"), United and Swire Coca-Cola USA ("Swire") — to sell production facilities as per letters of intent signed in September. Consolidated will buy facilities in Virginia and Maryland; United will acquire plants in New Orleans while Swire will take over Arizona and Colorado facilities. These facilities will be transferred between 2016 and 2018.

Consolidated, United and Swire are members of a nationwide supply group, National Product Supply System (NPSS). It was formed by Coca-Cola and includes its owned bottler, Coca-Cola Refreshments CCR and the operating segment in North America. The NPSS aims to strengthen and streamline U.S. production volume as part of Coca-Cola's North American re-franchising program.

Coca-Cola has been re-franchising the majority of its company-owned North American bottling territories to create a more efficient system. It plans to refranchise two-thirds of the company-owned North American bottling territories by the end of 2017 and the rest no later than 2020 to boost margins and returns.

The cola giant has been divesting and merging many bottling operations since 2014 to revamp the bottling system and thereby improve margins and drive growth. Three of its European bottlers — Coca-Cola Enterprises, Inc. CCE Coca-Cola Iberian Partners and Coca-Cola Erfrischungsgetränke AG — will merge to form a new Western European bottler named, Coca-Cola European Partners.

Also, the company entered into an agreement with beer and beverage company, SABMiller, and partner Gutsche Family Investments, to merge their bottling operations in Southern and East Africa and form the largest Coca-Cola bottling entity in Africa.

The refranchising efforts, though denting near-term sales/profits, will boost operating margins, lower capital spending, and improve return on invested capital over the long term.

Moreover, Coca-Cola has made equity investments in smaller companies, like Keurig Green Mountain, Inc. GMCR and Monster Beverage Corporation, to enhance growth in key categories.

Coca-Cola carries a Zacks Rank #3 (Hold).

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