UPDATE 4-Coca-Cola's lower profit meets Street view
* Q1 adj EPS 65 cents matches Wall Street's view
* Int'l sales hurt by forex, weak economies in Europe
* CEO affirms belief in franchise bottling system
* Coke shares down 2.4 pct; CCE off 2.9 pct (Recasts; Adds comments from CEO, analysts)
NEW YORK, April 21 (Reuters) - Coca-Cola Co (KO.N) reported a lower quarterly profit on Tuesday that met Wall Street estimates and sought to quell speculation that it may have to acquire its largest bottler following a similar move by archrival PepsiCo Inc (PEP.N).
A day after Pepsi bid for Pepsi Bottling Group Inc (PBG.N) and PepsiAmericas Inc (PAS.N), Coca-Cola Chief Executive Muhtar Kent affirmed his confidence in the decentralized bottling system, in which Coke and Pepsi sell beverage concentrate to independent bottlers that in turn sell the drinks.
"I fundamentally believe the franchise model is the best way to continue to win in the marketplace," Kent said on a conference call. [ID:nN20475061]
Shares of Coke bottler Coca-Cola Enterprises Inc (CCE.N), which jumped as much as 7.6 percent on Monday as investors pondered a possible takeout, were down 2.9 percent on Tuesday afternoon following Kent's comments. Coke shares were down 2.4 percent.
Shares of Pepsi's bottlers, which both soared on Monday, were down roughly 2 percent, but still above Pepsi's offer price, illustrating investors' belief that Pepsi may raise its bid.
Kent dismissed the competitive threats of a consolidated PepsiCo and pointed to several Coke initiatives to improve results in North America, where both companies' sales are suffering amid changing consumer tastes and the recession.
The initiatives include the formation of Coca-Cola Supply, which should shave $150 million per year in supply chain costs by 2011 and a new concentrate pricing system meant to reduce tension between Coke and its bottlers.
Morningstar analyst Philip Gorham said Coke was unlikely to "stand still" in a market where Pepsi becomes able to push its drinks harder with more aggressive pricing.
"I suspect he (Kent) is playing a wait-and-see game because if Pepsi do manage to come through with some kind of competitive advantage, then Coke's hands may be forced," Gorham said.
Coke said North American sales volume fell 2 percent in the first quarter, while Pepsi's domestic drink volume fell 6 percent.
TROUBLE IN EUROPE
Coke said net income was $1.35 billion, or 58 cents per share, in the first quarter ended on April 3, down from $1.5 billion, or 64 cents per share, a year earlier.
Excluding items, Coke earned 65 cents per share, meeting analysts' average forecast, according to Reuters Estimates.
Operating revenue fell 2.8 percent to $7.17 billion, as the impact of the stronger U.S. dollar overshadowed a benefit from extra selling days in the quarter.
The stronger dollar, which decreases the value of overseas sales, hurt operating revenue by 10 percentage points and operating income by 17 percentage points. Coke forecast currency fluctuations to hurt operating income by 14 to 16 percentage points in the second quarter.
Coke, which gets the bulk of its sales from abroad, said international sales by volume rose 3 percent, which is lower than last year's growth rates which were in the 5 percent to 7 percent range.
"The surprise in the quarter, if I'd even call it a surprise, is that international (growth) slowed a little bit," said Edward Jones analyst Jack Russo. "But I think there had to be some expectation that that was going to be the case."
Sales by volume rose 31 percent in India, 10 percent in China and 6 percent in Mexico.
Volume fell 2 percent in Central and Eastern Europe, driven by an 18 percent drop in Russia.
Overall worldwide volume rose 2 percent, a feat that Gary Bradshaw of Hodges Capital Management called "not great but OK" given the dismal economy in the United States and around the world.
Atlanta-based Coke does not provide specific earnings forecasts, but said it was looking to meet its long-term target of 3 percent to 4 percent volume growth and high single-digit earnings-per-share growth this year.
Coca-Cola shares were down $1.05 at $43.28 in afternoon trading on the New York Stock Exchange. (Reporting by Martinne Geller; Editing by Dave Zimmerman and Tim Dobbyn)
