CHICAGO--(BUSINESS WIRE)--According to a new report issued by Fitch Ratings today, recent commodity cost headwinds should not have an impact on U.S. beverage companies' credit profiles.
Fitch anticipates $450 million in commodity cost increases for the recently acquired North American bottling operations of both The Coca-Cola Company (Coca-Cola) and PepsiCo, Inc. (PepsiCo) in 2011. Fitch projects the operating margin effect would be less than 110 basis points for Coca-Cola and less than 90 basis points for PepsiCo, which is benign given the high operating margins of both companies.
Fitch recognizes Coca-Cola and PepsiCo have significant levers to offset the effects of commodity prices. PepsiCo is forecasted to achieve annual synergies of $400 million in 2011 due to its acquisition of its anchor bottlers, The Pepsi Bottling Group, Inc. (PBG) and PepsiAmericas Inc. (PAS). Coca-Cola is expected to realize $140 million to $150 million of synergies in 2011 from its acquisition of Coca-Cola Enterprises, Inc.'s North American bottling operations. In addition, Coca-Cola and PepsiCo have ongoing productivity initiatives which are expected to yield measurable cost savings.
Coca-Cola and PepsiCo also can pass increasing commodity costs onto consumers. Branded beverage companies, such as Coca-Cola and PepsiCo, are likely to recoup at least some commodity cost increases through pricing without significant private-label share gain.
The special report 'Commodity Cost Headwinds Are a Light Breeze for Beverage Industry: Coca-Cola and PepsiCo Credit Profiles not Affected by Rising Commodity Prices' is available on Fitch's web site at 'www.fitchratings.com'.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research: Commodity Cost Headwinds Are a Light Breeze for Beverage Industry
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=611145
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