just On Call - The Coca-Cola Co plays down rising commodity costs
Coca-Cola said it expects to realise synergies of up to US$150 in 2011
Speaking on an investor call this week (14 December), Coca-Cola's executive vice president and CFO Gary Fayard said that the soft drink giant's "bigger balance sheet" will help it to avoid large price hikes for consumers, despite a jump in commodity costs.
"I was looking at commodity costs yesterday and between the date of when we announced the transaction and 1 October, when we closed the transaction, commodities in total jumped about 15%," Fayard said.
He added: "It has been a huge spike. Orange juice futures yesterday hit a high because of weather in Florida, so you are seeing much higher commodity costs, which is to be expected.
"We will start actively hedging commodities and a lot of that will be mark-to-market, and we can do that because we have got a bigger balance sheet than CCE, so we will do a lot more of that."
Orange juice futures have gained 24% this year amid concern that adverse weather could damage Florida's citrus groves. Earlier this week, prices surged again.
Coca-Cola said that it is wary of knee-jerk reactions on pricing in response to commodity costs.
"We want to give the right balance of price as well as volume and we want to do that in a way that we continue to create value for our customers, for our business, as well as not shocking the consumer," Fayard said. "You take pricing over a period of time and don't react to short-term commodity swings and I think that's what we're seeing over time."
He added: "What we'll be doing with our pricing will be much more of what we've been doing in North America around our revenue growth management strategies, around different packaging alternatives, to be able to take different pricing on packaging in different channels. It's a pretty rational pricing environment within the industry and we would expect to continue to see a rational pricing environment."
Coca-Cola announced the acquisition of the North American operations of its largest bottler, Coca-Cola Enterprises (CCE), in February. The deal gives Coca-Cola direct control over around 90% of its North America drinks volumes.
Fayard said the integration process is "well on-track" and added that it still expects to achieve synergies of $140-$150m in 2011 and "at least" $350m by 2014.
"We can confidently reiterate our outlook that the fourth quarter will be slightly dilutive to our 2011 results but accretive in 2012," Fayard added. "We are committed to building on a solid North American business and we are are focused on building strong brands and putting in place system-wide capabilities to drive and sustain our commitments."
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