New York, Oct 23 - Coca-Cola Enterprises Inc revealed a rift with Coca-Cola Co on soft drink prices, helping to send the bottler's shares to a 12-year low on fears the tensions could hurt its business.
Coke owns about 35 percent of Coke Enterprises, its largest bottler, and sells it the concentrate, or syrup, used to make bottled drinks.
Coke Enterprises warned on Thursday that Coke had cut funding to its operations by $35 million and raised concentrate prices more than expected. The bottler cut its full-year profit forecast as a result.
The warning came a day after Coke removed its chief financial officer from Coke Enterprises' board, raising fears of an all-out battle between the bottler and the world's largest soft drink maker.
"When you have this kind of ... public disagreement between CCE and Coca-Cola, I think it's pretty easy to figure out what side to place your bets on," said Steve Dixon, manager of the Global Beverage Fund at Arnhold & S. Bleichroeder in New York.
This is not the first spat for the companies, whose interests are not always aligned despite their mutual dependence.
"But it is the loudest and the most public," Dixon said.
Shares of Coke Enterprises fell 19.4 percent to $8.90, while Coke dropped 5.5 percent to $42.89 on the New York Stock Exchange shortly before the close.
COKE'S RESPONSE
Coke's decision to pull funding and raise concentrate prices followed a price increase the bottler took in September on the soft drinks it packages and sells, to offset soaring costs of fuel, corn, and other commodities.
The increase, which the bottler admitted would hurt sales volume, was larger than what the two companies had agreed on going into 2008.
Coke Enterprises Chief Executive John Brock justified the move by pointing out how high commodity costs had since jumped and said the bottler could not continue to absorb them.
"So we had ongoing discussions with them, as I'm sure you would expect, and in the end, we made the decision that we thought was absolutely the right one for us, and then they made a corresponding decision that they thought was appropriate for them," Brock said on a conference call.
"If you want any more perspective on it than that, you should talk to the Coca-Cola Company," he added.
A Coke spokesman said Coke's global policy is to take concentrate pricing in line with what bottlers can achieve in the market and that Coke plans to allocate the funds it had cut to marketing efforts.
Morgan Stanley analyst William Pecoriello said Coke will likely offer promotions or discounts to effectively negate the bottler's price increase.
Pecoriello said discounts from Coke could force other bottlers to follow suit to maintain market share. Shares of Pepsi Bottling Group Inc fell 10 percent and Dr Pepper Snapple Group Inc dropped nearly 5 percent.
Credit Suisse analyst Carlos Laboy said the departure of Coke's CFO from the bottler's board may show continued friction in their relationship or a conflict of interest in Coke's role as both a supplier to and an investor in Coke Enterprises.
Coke is "aligned with CCE on a basic framework for our 2009 strategies and plans," said Coke spokesman Dana Bolden.
In the past, Coke has said it had no plans to acquire Coke Enterprises, which bottles and sells about 80 percent of all Coke drinks sold in North America and is the sole distributor in Britain, France and the Benelux countries.
PROFIT FALLS
Coke Enterprises net income fell to $214 million, or 44 cents per share, in the third quarter, from $268 million, or 55 cents per share, a year earlier.
Excluding items, the bottler earned 46 cents per share, matching analysts' forecasts, according to Reuters Estimates.
Revenue rose to $5.74 billion from $5.41 billion a year ago, helped by a 2.5 percent increase in volume and a 3.5 percent increase in pricing per case.
The company said it it is still reviewing its North American operations and will give an update in December.
Coke Enterprises also lowered its full-year earnings per share outlook, saying it now expects 2008 profit of $1.25 to $1.29, excluding items. That is down from a prior forecast of $1.40 to $1.45 per share.