Coke accelerates efforts to re-invigorate growth
The world’s leading beverage company is intensify efforts to generate high single digit earnings per share growth after strategies introduced earlier this year have been slow to take hold and third quarter earnings fell 13%.
Coca-Cola Company CEO Muhtar Kent unveiled a new slate of actions to reinvigorate growth and cut expenses in conjunction with the release of disappointing third quarter results. Revenues were essentially flat with the prior year at $12 billion during the quarter ended Sept. 26 while earnings per share declined 13% to 48 cents from 53 cents.
“We are taking decisive action to position The Coca-Cola Company to continue delivering long-term value for our shareowners,” Kent said. “We have taken a hard look at our progress to date and realize that while the strategies we laid out at the beginning of the year are on the right track, the scope and pace of our actions must increase. In addition to announcing an expanded productivity program, we are streamlining our operations and further aligning our incentive plans to deliver against our growth objectives.”
Kent said the company expects the macroeconomic environment to remain challenging through 2015 while expressing confidence in the company’s ability to return to sustainable growth over the long term. He said the confidence was warranted by the attractive long-term dynamics of the industry in which the company operates and the unparalleled reach of brands and its global system. There are 17 brands in the Coca-Cola portfolio with annual sales greater than $1 billion.
Specific key initiatives he said the company would pursue include streamlining and simplifying its operating model to speed decision making and enhance local market focus. These organizational changes, along with the previously announced changes being made to long-term incentive metrics, will empower employees and link line-of-sight accountability to business results, according to the company.
In addition, Kent said the company would expand its current productivity program by targeting annualized savings of $3 billion per year by 2019. The productivity program will focus on four key areas including: restructuring the company’s global supply chain, including manufacturing in North America; implementing zero-based budgeting across the organization; streamlining and simplifying its operating model; and driving increased discipline and efficiency in direct marketing investments.
Other changes announced include refranchising the majority of company-owned North American bottling territories by the end of 2017 and a substantial portion of the remaining territories no later than 2020.
Marketing is also in for a change. Kent said Coca-Cola will strategically target brand and growth investments that leverage its global strengths. This includes previously announced plans to improve the quantity and quality of marketing, as well as making future investments that will target markets and categories where brands remain underfunded relative to the opportunity. Another key change involves incentivizing local operations by adding revenue growth as a new metric in incentive plans.
“While investments made in recent months are yielding early signs of progress, we recognize that our five strategic priorities and the initiatives announced today will take time to produce results,” Kent said. “We remain confident in the vibrancy of the nonalcoholic ready-to-drink beverage industry and are determined to make the necessary changes to sustainably meet or exceed our long-term growth targets. At the same time, we are cautious in our near-term outlook given challenging macroeconomic conditions. In this context, our 2020 Vision will remain focused on delivering value growth ahead of the industry for our system.”
The Company expects to be below its long-term earnings per share growth target in 2014 and, based on the current outlook, does not expect comparable currency neutral earnings per share growth in 2015 to be significantly different from 2014.