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Coke cutting 21% of jobs
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January 26, 2000: 2:50 p.m. ET
Soft drink firm beats fourth quarter forecast; will cut 6,000 jobs, inventories
By Staff Writer Chris Isidore
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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. 
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