COKE FIGHTING LATIN FIZZ

Coca-Cola Femsa, based in Mexico, said in its third-quarter earnings release that Coke plans to charge the bottler tens of millions of dollars more for concentrate — the key "secret formula’’ ingredient that bottlers use to make finished beverages.

In 2007, Coke will charge Femsa an additional $20 million in Mexico. By 2009, the additional charge will be roughly $60 million. In Brazil, Femsa also will face increases. Femsa said it will retaliate by reducing its marketing spending on Coke brands.

Smaller bottlers in Latin America also are facing price increases from Coke.

Bear Stearns analyst Carlos Laboy downgraded its rating on Coke from "outperform" to "peer perform."

"Coke’s great unresolved issue... is that it has not given its partners clarity as to what its intended long-term split of system profits should be or discussed how recurring adjustments will preserve an agreeable balance," Laboy wrote in a report. "Successful partnerships require clarity of economic returns and splits.’’

Mexico is a key market for Coke. In Mexico, people drink more Coca-Cola products per capita than anywhere else in the world.

In Latin America, bottlers historically have gotten a bigger percentage of profits than they do in the United States and in many other developed countries. From Coke’s standpoint, the increase is simply an effort to bring bottlers in that part of the world in line with bottlers elsewhere.

Coke spokesman Ben Deutsch declined to discuss the details of the pricing arrangement.

"We do not provide specifics of our concentrate pricing with bottlers, for competitive and confidentiality reasons,’’ Deutsch said. "In general, pricing is set in a manner to reflect the economics of doing business in varying markets.’’

Morgan Stanley’s Bill Pecoriello, who didn’t change his "equal weight’’ rating on the stock, called Femsa’s statement "the declaration of a public battle."

Pecoriello wrote in a report, "It certainly looks like tensions will rise and other bottlers will be watching this carefully."