Updated from 7:56 a.m. ET
Wash down those Pringles with a quick swig of Minute Maid. That's what an ad could look like for a new partnership of
Procter & Gamble
. The two heavyweight food and beverage companies announced Wednesday they are forming a stand-alone company to sell their juices, juice-based drinks and snacks, with expected annual sales of up to $5 billion in two years.
Despite the announcement, Coke shares were off $2.99, or 5.1%, to $55.48 in morning trading on the
New York Stock Exchange
following downgrades issued by
. P&G shares were up marginally, 54 cents, or 0.7%, to $76.25.
The two companies named Don Short, a 24-year veteran of Coke, as chief executive officer of their venture, which will have about 40 brands, 6,000 employees and 15 manufacturing plants. A management team will be named soon, and Coke brings its global distribution system to the table, while P&G boasts research expertise, the companies said.
The combination is not expected to impact earnings of either company in the first year of operation, and should add to earnings in the second year and beyond. Coke and P&G say they expect sales revenue gains and cost savings equal to $200 million in pre-tax earnings annually by 2005.
From the start, the companies will have annual sales of $4 billion, which they expect will grow to $5 billion within two years. For example, Coke and P&G said they expect Pringles sales to double to $120 million once they are available through Coke's 16 million outlets globally, a 10-fold increase over the number of outlets in which Pringles are now available. Cost savings through reduced manufacturing, distribution and administrative costs and combined purchasing should total $50 million, they said.
The yet-to-be-named company "multiplies our respective strengths, creating something better than either of our companies could do alone -- it's the perfect combination," the companies said in their joint statement Wednesday morning.
downgrade came from analyst Marc Cohn who changed his rating on Coke to market outperformer and removed the shares from Goldman's U.S. recommended-for-purchase list. In addition, Cohn lowered his 2001 earnings-per-share estimate to $1.60 from $1.71 and his 2002 estimate to $1.90 from $1.93. Wall Street analysts are currently calling for 2001 earnings of $1.72 and 2002 earnings of $1.94, according to
First Call/Thomson Financial
also slashed its investment ratings on Coke and competitor
to market perform from market outperform.
The firm cut Coke's 2001 earnings-per-share estimate to $1.58 and its 2002 estimate to $1.85 from $1.92, citing "uncertainty" regarding Coke's added spending in order to fund its volume growth targets of 7% to 8%. Bernstein, which lowered its 12-month price target for Coke to $65 from $70, believes Coke will likely spend another $250 million in 2002 to reach its volume growth targets.
The firm downgraded Pepsi to reflect the short-term potential impact of Coke's stepped up spending as well as the uncertainty surrounding the Coke/P&G joint venture.
Shares of Pepsi fell $1.30, or 2.7%, to $47.20 Wednesday on the Big Board.