Coca-Cola Co. and one of its largest bottlers updated Wall Street this week on their expected financial performance next year. The news was mostly good.
Coca-Cola, which acquired the North American assets of bottler Coca-Cola Enterprises in October, now expects to cut more costs as a result of the deal. Coca-Cola originally estimated it would cut between $120 million and $125 million next year. Executives upped those estimates on Tuesday, saying cost savings will be closer to $140 million to $150 million.
But the bigger savings will be offset next year by higher costs for commodities such as orange juice, diesel fuel, aluminum and corn. "It's been a huge spike" in commodity prices since the transaction on Oct. 1, Coca-Cola chief financial officer Gary Fayard said.
Coca-Cola has said most costs savings will come from areas such as the merged companies' supply chains rather than from layoffs. Company representatives say the large majority of employees will stay in their current jobs or similar positions, with a small percentage of employees leaving the company.
Since acquiring CCE's North American assets, Coca-Cola has hedged its exposure to commodities to protect itself from prices swings, much as it does with currency. Coca-Cola said it could not hedge CCE's exposure until the transaction closed.
Also this week, Coca-Cola Enterprises said earnings per share will grow 10-12 percent next year, with sales rising by mid- single-digit percentages. CCE plans to spend about $1 billion to repurchase its shares by the end of 2012's first quarter. The company does business exclusively in European markets, including Belgium, France, Great Britain, the Netherlands, Norway and Sweden.
CCE's guidance was generally in line or slightly better than expected, said J.P. Morgan analyst John Faucher. "As expected, 2011 should be a strong year for CCE," he wrote to investors.
John Brock, chief executive of the bottler, said CCE has "excellent operating plans in place for 2011," built around Coke, Diet Coke, Coke Zero and non-carbonated drinks.
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