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Coca-Cola Chilean Arm to Buy Novaverde, Diversifies Portfolio

Zacks

In line with its strategy to invest in newer revenue generating platforms, The Coca-Cola Co.’s KO affiliate in Chile and local bottlers of the brand entered into an agreement to buy Comercializadora Novaverde SA. The company specializes in juices, canned fruits and vegetables, mainly under the brand Guallarauco.

Details of the Deal

Embotelladora Andina, Embonor, Coca-Cola del Valle New Ventures, and Coca-Cola de Chile entered into a stock purchase agreement under which 100% ownership of Comercializadora Novaverde shares will be transferred.

On completion of the deal, while Coca-Cola del Valle New Ventures will own 2,999,994 shares, Coca-Cola de Chile and Embotelladora Andina will own three and two shares, respectively. Embonor will gain the ownership of one share. Embotelladora Andina’s direct and indirect ownership in Novaverde will be approximately 35%, as it is already a shareholder of Coca-Cola del Valle New Ventures.

The deal is valued at $80 million, according to a Reuters report.

Can Diversification Counter Weak Sales?

Sales of Coca-Cola’s carbonated beverages continue to remain weak due to increasing health consciousness among consumers. The cola segment has been particularly facing challenges, as consumers are opting for alternatives. Also, fresh taxes levied on sugar-sweetened beverages and growing regulatory pressures are affecting carbonated soft drinks or CSD sales.

The challenges in the CSD category have been felt by all major soft drink makers — Coca-Cola, PepsiCo Inc. PEP and Dr Pepper Snapple Group Inc. DPS — leading to lower volumes and weak sales.

Although Coca-Cola has increased marketing investments and is driving package and product innovation to boost carbonated beverage business, the efforts are yet to result in any meaningful improvement. Sparkling beverage unit case volume declined 1% in the first quarter of 2017. The same remained flat both in the second and the third quarter.

Coca-Cola therefore is investing in newer revenue generating platforms to boost long-term sales and profits. The beverage giant made an important addition to its portfolio beyond sparkling soft drinks with the acquisition of Topo Chico premium sparkling mineral water brand in the United States in the third quarter of 2017. Also, in March 2017, Coca-Cola and its largest Latin American bottler Coca-Cola Femsa SAB closed the proposed acquisition of AdeS soy-based beverage business from consumer products giant Unilever Plc UL.

The Novaverde takeover is expected to boost Coca-Cola’s portfolio in Chile enabling it to increase the number of nutritious and delicious products it offers.

We believe the company’s efforts to offer diversified products to cash in on the shifting consumer preference toward healthier products will bode well in the years to come.

Shares of the company have gained 11.5% over a year, compared with the industry’s growth of 16.4%. However, the earnings estimates for 2018 have moved north over the last 30 days, reflecting analysts’ optimism. Earnings estimates for this Zacks Rank #3 (Hold) stock inched up 0.5% for 2018. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.



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