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Saturday, Dec. 12, 1998 Associated Press

Coke choked by economic woes

Company buys overseas rights to market Schweppes brand products

By DAN SEWELL
Associated Press

   ATLANTA - Coca-Cola, its sales pinched by overseas economic problems, issued another warning about its earnings but also announced a $1.85 billion deal to sell Cadbury Schweppes brands in more than 120 countries.
   The company announced in London it was buying the overseas rights to market Dr Pepper, Crush and other beverages. Hours later, chairman and CEO M. Douglas Ivester told analysts that fourth-quarter earnings likely will be 24 to 25 cents per share, falling short of Wall Street estimates of 30 cents and a 1997 fourth-quarter performance of 33 cents per share.
   Coke's stock fell $3.19 to $62.88 a share on the New York Stock Exchange, adding to a steady decline in the second half of this year after hitting a 52-week high of $88.94 per share.
   "The fundamental strengths of our business model and our long-term opportunities and strategic approach remain intact throughout the world," Ivester said.
   "However, during the fourth quarter, we have seen a pattern of volatility in many markets that has resulted from continued economic and political activity."
   Ivester's gloomy projection for analysts was the second straight quarter of bad news from the Coke chief, who's in his 14th month at the top after succeeding the late Roberto C. Goizueta.
   

Global economic woes

   After a strong first half of the year for Coke, global economic problems that started in Southeast Asia and spread to other previously growing overseas Coke markets such as Russia, Japan and Brazil have taken their toll. Coke estimated Friday that besides double-digit drops in volume in some countries, currency problems in volatile markets are cutting results 10 percent.
   Analysts in New York quizzed Ivester about the Cadbury Schweppes acquisition, which received generally good reviews as a way for Coke to build up overseas business. The deal doesn't affect Cadbury Schweppes brands in the United States, France and South Africa.
   John Sicher, editor-publisher of the trade publication Beverage Digest, called it a good deal for both companies.
   "Critical mass is very important in the soft-drink business," Sicher said. "Cadbury Schweppes has some very good brands outside the U.S., but their business is very small. This gives them a substantial amount of money ... and it gives Coke the opportunity to build some good brands through its worldwide bottler system."
   John Sunderland, chief executive of Cadbury Schweppes, said the company might use the funds for acquisitions.
   "It creates immediate and substantial value for shareholders and gives us enormous flexibility at a time of uncertainty in world markets," he said.
   

Widening diversity

   Sunderland said the company decided to sell the brands because it lacked distribution systems needed to make a multinational beverage operation succeed, and wanted to focus on expanding its worldwide candy interests and improving its 15 percent share of the $55 billion U.S. soft-drink industry.
   The deal also widens Coke's beverage diversity, with Schweppes and Canada Dry tonic waters, club sodas and ginger ales included.
   "These agreements will allow the Coca-Cola Co. to participate in segments of the beverage business where it currently does not have meaningful entries," Ivester said.
   Completion of Friday's deal is subject to regulatory review in a number of countries, but is expected by the middle of next year, Coke said.
   Rival PepsiCo Inc. said it was watching Coke's moves. "Clearly, we're going to have to take close look at every impact," Pepsi spokesman Brad Shaw said of the Coke-Cadbury Schweppes deal. He declined further comment, but said Pepsi volume growth continues to be solid overall, boosted recently by the launch of its Pepsi One diet cola.
   

Rival Pepsi

   Pepsi has claimed recent domestic gains on Coke, which had 44 percent of the 1997 soft-drink market.
   Ivester told analysts introductory discounts on Pepsi One had caused some market distortion. He also said global impacts are expected to continue into 1999 before eventually beginning a gradual upturn.
   "This is a company that knows how to keep growing and to take advantage of opportunities that are ahead of us," he said. "In fact, in our 113-year history, there is scarcely a time or place where we haven't weathered economic storms and emerged in a better position than before."
   A shareholder agreed Friday.
   "I love it when Coke has bad news, because the stock goes down and I buy some more," said Donald Wesley-Brown, a Rockmart, Ga., real estate broker. "As the world gets smaller, more people will drink Coke. It's a law of nature."
   

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