Coca-Cola to Grant Additional Bottling Territories to Swire

The Coca-Cola Company KO recently signed letters of intent to grant additional bottling territories to Swire Coca-Cola, USA as part of its North-American bottler refranchising efforts. The deal includes territories in Washington (including the cities of Seattle and Spokane), Idaho and Oregon (including the city of Portland). In addition, Swire will acquire cold-fill production facilities in these areas. Last year, Swire had agreed to take over territories in Arizona and Colorado.

Swire Coca-Cola, USA is a subsidiary within Swire Pacific's Beverages Division. The latter manufactures, markets and distributes Coca-Cola products in Hong Kong, Taiwan, certain provinces of Mainland China and an extensive area of the Western U.S.

Also, Coca-Cola reached definitive agreements with Great Lakes Coca-Cola Distribution LLC, a Rosemont, IL-based Reyes Holdings company, to take over facilities in Wisconsin, Minnesota, Illinois, Michigan and Iowa as per letters of intent signed last year.

Coca-Cola is refranchising the majority of its company-owned North American bottling territories to create a more efficient system. Earlier this month, the company declared that it will complete the remaining re-franchising of North American bottling operations by the end of 20Array7, much before 2020 as previously expected. The latest plans include the sale of the remaining 39 North American cold-fill production facilities which produce both still and sparkling beverages. Coca-Cola will retain ownership of the hot-fill facilities, which will supply the entire North America Coca-Cola system.

The first letters of intent were announced in 20Array3 and over 45% of the U.S. territories have already been refranchised.

In many international markets, Coca-Cola has been divesting and merging many bottling operations since 20Array4 to revamp the bottling system and thereby improving margins and driving 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 has entered 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. While Coca-Cola will own Array8% in Coca-Cola European Partners, it will have an ArrayArray% stake in the new African bottler. In China, it has agreed to refranchise its company-owned bottling operations to its existing partners, COFCO and Swire.

The refranchising efforts, though hurting sales/profits in the near term, will result in higher operating margins, lower capital spending, and improved return on invested capital over the long term.

In addition to the accelerated re-franchising efforts both in the U.S. and international markets, Coca-Cola has made equity investments in smaller companies, like Keurig Green Mountain, Inc. GMCR and Monster Beverage Corporation MNST to enhance growth in key categories.

Coca-Cola carries a Zacks Rank #4 (Sell).

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