Coca-Cola to Slim Down Divisions

The Coca-Cola Company (KO - Analyst Report) recently announced plans to streamline its operating structure and make certain management changes.

Coca-Cola currently reports its operating results under six segments, broadly geographical, save one: Eurasia & Africa, Europe, Latin America, North America, Pacific, Bottling Investments and Corporate. Effective from January 1, 2013, the company will cut down its operating segments to three, namely Coca-Cola International, Coca-Cola Americas and Bottling Investments Group (BIG).

The Coca-Cola International business will consist of the current Europe, Pacific and Eurasia & Africa segments. The Coca-Cola Americas will consist of the company’s North America and Latin America operations, and the BIG group will comprise the company-owned bottling operations outside North America.

As regards the management changes, Ahmet Bozer and Steve Cahillane have been given much larger responsibilities to serve as presidents of the Coca-Cola International and Coca-Cola Americas segments, respectively. Irial Finan will continue serving as the president of the BIG group. Ahmet Bozer is currently serving as the president of the Eurasia & Africa group and Steve Cahillane is right now the president and chief executive officer of Coca-Cola Refreshments (CCR) in North America.

Our Recommendation

We currently have a Neutral recommendation on The Coca-Cola Company. The stock carries a Zacks #4 Rank (a short-term Sell rating).

We are encouraged by the company’s global reach, strong brand power, expanding presence outside the U.S. and its solid cash position. Moreover, the company’s acquisition of Coca-Cola Enterprises’ (CCE - Analyst Report) Bottling business and its productivity initiatives are expected to result in significant cost savings.

However, Coca-Cola needs to ramp up its advertising spending to match arch competitor PepsiCo Inc.’s (PEP - Analyst Report) increased focus on North American beverages. Moreover, rising costs of inputs have hurt the company’s margins.