|
|
NEW YORK (CNNfn) - Coca-Cola Co.'s new leadership made a
radical change in course Wednesday, announcing plans to cut
more than a fifth of its work force, including almost half
of its headquarters' staff, and scaling back goals for
future growth.
On a day it announced slightly
better than expected earnings,
the Atlanta beverage giant said the job cuts are aimed at
giving managers around the world more authority and ability
to deal with local markets and conditions.
"We believe if we're going to grow
the business effectively, we need to focus our resources on
marketing," said Jack Stahl, executive vice president of the
company, in an interview on CNNfn.
"If we tailor our message much more
effectively and much more locally, we think we'll make
better and stronger connections with the people who drink
our products," said Stahl, who is slated to become chief
operating officer in April. (451K
AIFF)
(451K
WAV)
But the announcement of 6,000 job
cuts, including 2,500, or 40 percent, of its Atlanta
headquarters staff, come as top officials said they believe
past growth targets were not realistic and would be scaled
back over the next six months.
Change
in growth strategy
Analysts said the job cuts show Coke
will no longer be a growth-at-all costs company.
"This company has been winding up to
gear down for a long time," said Roy Bury, analyst at Brown
Brothers Harriman, in an interview on CNNfn.
"They must learn how to have
strategies and growth targets that fit the environment,"
Bury said. "The old growth targets and the old strategies
are no longer going to work. The layoffs here are only part
of the major changes that are going to take place at the
Coca-Cola." (429K
AIFF)
(429K
WAV).
Bury said in the past the company's
goal was to grow sales volume at a 7-to-8 percent annual
rate, and improve earnings per share in the 15-to-20 percent
range. Doug Daft, the company's president who is set to
become chief executive in April, told analysts he believed
the company could occasionally, but not consistently, hit
those growth targets.
Bury said he expects the company
will now shoot for 5-to-6 percent volume growth and 12-to-14
percent improvement in earnings per share. He said that
while the stock could be hit by the lowered goals, it makes
sense for the company to aim a bit lower.
"Damn right it's a good idea. They
can't do the old ones," he said.
The moves by Coke's new leadership
also drew praise from Jennifer Solomon, analyst with Salomon
Smith Barney, who has a 12-month price target for the
company of $70 a share.
"It's definitely a big deal for them
to be cutting back that many employees," she said in an
interview on CNNfn. "Daft is swift and decisive. If these
things are going to have happen, if you're going to have
broad change, it's better to do it sooner rather than
later."
Comfortable with 2000
projections
The company said it is comfortable
with earnings forecasts for 2000. Analysts surveyed by First
Call were expecting $1.53 a diluted share.
The company identified a number of
charges planned for the first half, however. First, it will
take an $800 million pre-tax charge to cover the
layoffs.
Coke also surprised analysts by
saying that it would take a charge of 11-to-13 cents a share
to account for bottling companies cutting back on their
inventory of concentrate. Both charges are due in the first
half of the year.
The concentrate is the major product
for Coke, and the bottling companies that ultimately sell
the product are its major customers. The move to cut
concentrate inventories from 40 days of supply to 34 days is
part of a move to improve efficiency and free up capital,
according to company officials.
In addition to the 2,500 job cuts in
Atlanta, 800 jobs will be cut elsewhere in the United
States; the other 2,700 positions will be from overseas. The
company has 29,600 employees worldwide.
Besides decentralizing
decision-making in the company, the moves will be
accomplished through outsourcing of some non-core functions,
such as payroll, employee benefits and building management,
according to company spokesman Chuck Reece.
Quarterly
report beats Street
The announcements came as the Dow
Jones industrial average component announced improved
results for the fourth quarter, edging past analysts'
estimates for the period.
In its earnings
report, Coke said it made 31 cents a diluted share in the
quarter before non-recurring items, although it did not
release the total dollar figure. Analysts surveyed by First
Call had forecast a profit of 30 cents a share.
In the year-earlier period Coke had
net income $597 million, or 24 cents a share.
Charges in the most recent period
include an expected $813 million write-down of assets,
primarily in Russia and the Baltic states, as well as Japan.
The company said this was a requirement of accounting rules
and did not reflect any changes in operations in those
markets.
It also had charges related to the
withdrawal of some products from European markets, as well
as taxes associated with some equity investors. The company
was plagued last year by tainting scandals related to
bottling plants in France and Belgium.
Including all charges, the company
had a net loss in the period of $45 million, or 2 cents a
diluted share.
Revenue for the quarter rose 11
percent to $4.9 billion from $4.5 billion a year
earlier.
For the year, the company's net
income including all charges and items came to $2.4 billion,
or 98 cents a diluted share, down 31 percent from the $3.5
billion, or $1.42 a diluted share, it reported for 1998.
Revenue rose 5 percent to $19.8 billion from $18.8
billion.
In trading Wednesday morning, shares
of Coke
(KO)
were down 2-5/16, or 3.5 percent, to 63-9/16.
|
