$1.2 Billion Bill at Coke Raises Eyebrows
By CONSTANCE L. HAYS
n 1998, a grim year for the Coca-Cola Co., one bright spot was the United States, where case volume sales rose a healthy 6 percent. But that appears to have come at a high price.
In its annual report, distributed last week, Coca-Cola disclosed that it spent more than $1.2 billion on "direct support for certain marketing activities" for its largest bottler, Coca-Cola Enterprises, which handles the bulk of Coca-Cola's volume in the United States in addition to sales in several countries in Western Europe. Coca-Cola controls about 42 percent of Coca-Cola Enterprises, which was spun off as a separate, publicly traded company in 1986.
The expenditure, nearly twice what Coca-Cola spent on the bottler the year before, included $899 million for marketing and $324 million for vending machines and other equipment. It far outstripped the $640 million spent last year for marketing at all other bottlers in which the company holds equity stakes, the report noted.
The amount takes on added significance when compared with Coca-Cola Enterprises earnings for 1998: just $141 million, on revenue of $13.4 billion. Operating income was $869 million, but that dwindled rapidly once the company paid $701 million in interest and $56 million in taxes.
James S. Chanos, who runs Kynikos Associates, a money management fund in New York, said the marketing expenses that Coca-Cola has absorbed for Coca-Cola Enterprises were "an increasingly important part of the revenue for C.C.E."
nytimes.com
I've always liked Chanos' work. The stocks don't always go the way he expects, but the analysis is definitely interesting.
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