By Dow Jones Business News, October 28, 2013, 03:57:00 PM EDT
By Amy Guthrie
MEXICO CITY--Latin America's second-biggest bottler of Coca-Cola Co. ( KO ) products, Arca Continental SAB (AC.MX), said
Monday it expects that Mexico's proposed soda tax will accelerate consolidation among bottlers in the system.
Arca Continental Chief Executive Francisco Garza told analysts during a conference call that his company has plenty of
tools at its disposal to reduce the impact of the tax increase on profitability should the Mexican Congress sign off on
the proposal of one Mexican peso (eight U.S. cents) per liter.
But he said smaller bottlers that lack scale and flexibility to adapt may soon find themselves looking to partner with
the country's two main bottlers, Monterrey-based Arca Continental and Mexico City-based Coca-Cola Femsa SAB ( KOF ). The
tax could also hurt the independent bottlers' valuations, he ventured.
Arca Continental said Monday it has reached an agreement to purchase a minority stake in Bebidas Refrescantes de
Nogales, a Coca-Cola bottler in Northern Mexico and one of just six independent bottlers not affiliated with Mexico's
two big bottlers.
Mexican President Enrique Pena Nieto proposed taxing heavily sweetened soft drinks in an effort to fight the country's
weight and diabetes problems. The Senate is expected to vote on the measure, which already passed the lower house, in
the coming days. The left-leaning Party of the Democratic Revolution, or PRD, is pushing for the tax to be doubled to
two Mexican pesos per liter.
Mr. Garza said that sweet beverages account for less than half of his company's Mexican sales. Arca Continental also
has room to raise its use of cheap high fructose corn syrup, which accounts for about half of its current sweetener mix.
Coca-Cola Femsa Chief Financial Officer Hector Trevino said last week that his company is currently maxed out on HFCS,
at about 60% of its sweetener mix, with the rest coming from cane sugar.
Arca Continental's third quarter net profit rose 15% on the year to 1.72 billion pesos ($133 million) while sales
expanded 8% to $15.85 billion, with much of that growth coming from snacks.
In December, the company purchased Berwick, Pa.-based Wise Foods and Ecuador's Industrias Alimenticias Ecuatorianas
for undisclosed sums. Arca Continental estimated at the time that the purchases would raise its annual snack sales to $
400 million in 2013. Arca Continental also operates in Argentina.
Mr. Garza said that while the company continues to see much opportunity for snack acquisitions, which are easier to
find and pursue than beverage deals, Arca Continental remains very committed to bottling.
Beverages are "our core business, it's our reason to live," he said.
Write to Amy Guthrie at email@example.com
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