The Coca-Cola Company (KO) reportedly plans to lay off up to 1,800 employees to cut costs as it shifts to a more re-franchised model.
Per media reports, the Atlanta-based beverage giant plans to cut 1,600 to 1,800 jobs at its corporate headquarters, as well as the North American and international divisions. The company has already started notifying the employees from Thursday.
The layoffs are part of Coca Cola’s $3 billion restructuring plan, announced in October last year. The company is planning to cut costs as it is facing a decline in sales of soda due to rising health concerns, like peer PepsiCo, Inc. (PEP).
Coca-Cola’s current four-year productivity and reinvestment program was launched in Feb 2012. In Feb 2014, the company expanded the scope of the program to generate $1 billion of additional productivity savings by 2016. In Oct 2014, the company further extended this productivity initiative and is now targeting $2 billion in annualized savings by 2017 and $3 billion by 2019.
The program will focus on initiatives like restructuring of the global supply chain including optimization of the manufacturing footprint in North America, investing in technology to streamline operations and implementing a zero-based budgeting program. The resultant savings are expected to fund marketing programs and innovation which in turn will re-accelerate top-line growth, margin expansion and returns on capital.
Moreover, Coca-Cola is in the process of re-franchising the majority of its company-owned North American bottling territories by 2017-end. In Apr 2013, Coca-Cola announced plans to launch a beverage partnership model in the U.S., under which it will grant new expanded U.S. territories to its bottlers to distribute beverages.
The Zacks Rank #3 (Hold) company is also acquiring equity stake in other growing companies. Coca-Cola bought 10% stake in Keurig Green Mountain, Inc. (GMCR) in Feb 2014 for about $1.25 billion and subsequently announced its intention to increase its stake to up to 16% gradually. Coca-Cola also plans to purchase 16.7% stake in energy drink maker, Monster Beverage Corporation (MNST) for $2.15 billion. The new beverage partnership model should improve margins, going forward.
Management expects 2015 to be a “transition year” — a time to start implementing changes to create a new operating model to streamline and simplify its structure.
Though the initiatives sound encouraging, management remains apprehensive of the broader economic challenges in 2015. Management warned that earnings growth could miss the long-term target in both 2014 and 2015. Currency headwinds, a difficult operating environment in the U.S. and slower growth in some international markets have led to management’s bearish stance.
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