Understanding Coca-Cola’s business segments

The Coca-Cola Company’s (KO) business is organized into six operating groups:

1. Eurasia and Africa
2. Europe
3. Latin America
4. North America
5. Asia Pacific
6. Bottling Investments

The Bottling Investments operating segment includes all company-owned or consolidated bottling operations, excluding the bottling operations managed by Coca-Cola Refreshments (or CCR), which is part of the North America operating segment. The company’s operating structure also includes the corporate segment.

The company’s North America business and bottling operations derive most of their revenues selling finished beverages. In contrast, Coca-Cola’s international operations derive most of their revenues from manufacturing and selling beverage concentrates and syrups, which generate higher operating margins compared to bottling and finished product operations.

Despite a 1.0% decline in unit case volume, the European segment’s 2013 revenues benefited from the consolidation of the juice and smoothie business Fresh Trading Ltd. as well as price increases in certain markets.

The Eurasia and Africa group’s revenues increased by 2.4%, driven by double-digit volume growth in the Middle East and North Africa.

Latin American revenues increased by 4.1% due to favorable pricing. Asia Pacific revenues declined by 5.4%, as higher volumes were offset by an unfavorable price mix and currency fluctuations. North American revenues were flat, as volume growth in still beverages was offset by a decline in sparkling beverages.

The Bottling Investments operating segment’s revenues declined significantly in 2013. The fall was primarily due to a 17% decline in unit case volume caused by the deconsolidation of bottling operations in the Philippines and Brazil. In a later part of this series, we’ll discuss why Coca-Cola is refranchising its bottling network.

Overall, in 2013, still beverages performed better than sparkling beverages across all the segments except for Europe. Sparkling beverage volumes have been declining over the past few years due to an increase in consumer awareness about the negative effects of sugary drinks.

Coca-Cola’s peers, like PepsiCo, Inc. (PEP), Dr Pepper Snapple Group, Inc. (DPS), and Monster Beverage Corporation (MSNT), are also facing challenges in their carbonated drinks portfolios. You can invest in these companies through exchange-traded funds (or ETFs) like the Consumer Staples Select Sector SPDR ETF (XLP).