Coca-Cola announced plans to buy the North American operations of its largest bottler, Coca-Cola Enterprises , in a deal that would cut costs and increase flexibility in its distribution. What does the move mean for investors? David Silver, equity research analyst at Wall Street Strategies, shared his insights.
“This move is a complete 180 from even back at the analysts’ conference a few months ago, and even on the fourth-quarter conference call,” Silver told CNBC.
Coke's announcement comes just as rival PepsiCo is about to close its own purchase of its largest bottlers, Pepsi Bottling Group and PepsiAmericas .
Coke said it expected to generate cost savings of $350 million over four years and that the transactions, which are essentially cashless, should add to earnings by 2012.
“They’re going to be able to ship these directly to warehouses instead of going through the bottlers, which then has to go straight to the retailers,” Silver said. “So that’s where they’re going to be able to save not only the fuel cost, but distribution cost.”
In the short run, Silver said Coke’s move may even lower costs for consumers.
“I don’t think you’re going to see too much price-cutting, but it should help out Coca-Cola’s bottomline, specifically in the bottling area,” he said. “And if this model does works, Coke will be a little more active on the bottling front around the world.”
- Watch Silver's Previous Appearance on CNBC (Feb. 9, 2010)
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Silver does not own shares of KO or CCE.
Wire services contributed to this blog.