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Coca-Cola profit surprises, announces U.S. bottler deal

All aluminium bottles of Coca-Cola products are pictured in this photo illustration photographed in Burbank, California October 16, 2012. RE
All aluminium bottles of Coca-Cola products are pictured in this photo illustration photographed in Burbank, California October 16, 2012. RE

By Martinne Geller

(Reuters) - Coca-Cola Co reported a slightly higher-than-expected quarterly profit on Tuesday and announced a deal to unload some distribution territory to five independent U.S. bottlers, sending its shares up more than 5 percent in morning trading.

The move by the maker of Sprite, Fanta and Minute Maid is "a major step in the transformation of its U.S. production and distribution," said Stifel Nicolaus analyst Mark Swartzberg.

It is not a surprise, but comes earlier than expected.

Coke bought the North American operations of bottler Coca-Cola Enterprises Inc in October 2010, following a similar move by PepsiCo Inc aimed at cutting costs and streamlining innovation and decision-making.

Coke Chief Executive Muhtar Kent said at the time that he still believed in the so-called franchise model - where Coke sells syrup to independent bottlers who package and distribute the drinks - suggesting that the company would eventually return to it. Coke had generally laid out a timeline of three to five years for that transition.

As for performance in the first quarter, the world's largest soft-drink maker said net income was $1.75 billion, or 39 cents per share, down from $2.05 billion, or 45 cents per share, a year earlier. Earnings were hurt by a calendar shift that resulted in two fewer selling days in the quarter compared with last year.

Excluding one-time items, earnings were 46 cents per share, topping analysts' average estimate of 45 cents, according to Thomson Reuters I/B/E/S.

Revenue slipped 1 percent to $11.04 billion, hurt by currency exchange rates and sales lost through the refranchising of some other bottler assets. Sales by volume rose 4 percent.

By region, volume rose 1 percent in North America, 4 percent in Latin America, 3 percent in the Pacific region and 15 percent in Eurasia and Africa. Volume was flat in Europe, but improved from last year's fourth quarter.

"It was a good start to the year," said Edward Jones analyst Jack Russo.

With the announced changes to the North American distribution, the amount of volume handled by the company itself will be reduced 5 percent.

The five bottlers that stand to expand their territories in upcoming transactions with Coke are Coca-Cola Bottling Co Consolidated , Coca-Cola Bottling Co United Inc, Swire Coca-Cola USA, Coca-Cola Bottling Co High Country and Corinth Coca-Cola Bottling Works Inc.

Depending on the situations, the deals might include an outright territory sale, a territory swap or a sub-bottling arrangement by which the bottler would make ongoing payments to Coke in exchange for operating rights.

The agreements are subject to the parties reaching definitive deals by the end of 2013, with closings expected in 2014. Financial terms were not disclosed. Neither was Coke's intended use of the proceeds.

Coke's shares rose 5.2 percent, or $2.08, to $42.18 on the New York Stock Exchange.

(Reporting by Martinne Geller in New York; Editing by Gerald E. McCormick and Maureen Bavdek)

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