Mexican soft-drink bottler Arca Continental SAB (AC.MX, EMBVF) said Wednesday it expects that its profitability will improve this year from 2011 thanks to a more favorable exchange rate and negotiations for lower prices on raw materials.

The peso has strengthened about 9% from its end-2011 close of MXN13.9725, to MXN12.8290, which should help the company's foreign-currency-denominated raw material costs. Chief Executive Francisco Garza told analysts during a conference call that the company will adjust prices as necessary in order to boost profitability.

Jitters over debt troubles and sluggish economies in Europe and the U.S. drove the peso down 11.5% against the U.S. dollar in 2011. A sharply weaker peso contributed to a 1.4% decline in Arca Continental's fourth-quarter net profit, which came in at 974 million pesos ($76 million) on a pro forma basis for a net profit margin of 7% versus 8.6% in the year-earlier quarter. The company's cost of sales increased 24.4% on the year in the quarter while net sales grew 20.2% to MXN13.83 billion.

Embotelladoras Arca SAB and Grupo Continental SAB merged during the second quarter of 2011 to create the second-biggest bottler of Coca-Cola Co. (KO) products in Latin America. The company reports pro forma figures to reflect its operations as if Arca and Continental had always been one entity. The bottler also has operations in Argentina and Ecuador, and exports products to the U.S.

For the full year of 2011 Arca's net profit grew by 3.1% to MXN4.57 billion for a net profit margin of 9% compared with a margin of 10.1% in 2010. Sales increased 15.3% in peso terms to MXN50.80 billion.

Garza projected that Arca Continental will grow its volume sales by 4% this year, following an 8% expansion in 2011, when it sold 1.31 billion unit cases, including jug water.

The bottler expects to have captured more than MXN840 million in synergies from its merger by the end of this year, including savings from a stronger negotiation position for prices on raw materials.

The company plans to further reduce costs by cutting the amount of PET plastic it uses via the adoption of lighter-weight bottles and by incorporating more recycled plastic into its production processes, while also covering all of its sugar needs in Mexico from its own sugar mill.

The company ended 2011 with MXN3.32 billion in cash and cash equivalents on hand and debt of MXN11.67 billion, giving it the financial flexibility to consider more opportunities for consolidation in the industry, chief financial officer Adrian Wong said.

Coca-Cola Femsa SAB (KOF), Latin America's largest Coke bottler, announced this week that it is studying the purchase of Coke's bottling operations in the Philippines, which would represent that bottler's first foray outside of Latin America.

Last year Mexico-based Coca-Cola Femsa agreed to absorb three independent Mexican Coke bottlers in deals that valued each bottler at between MXN6.6 billion and MXN11 billion. Coca-Cola Femsa saved cash in the deals by issuing shares to stockholders of the independent bottlers.

There are now seven remaining independent Coke bottlers operating in Mexico. Two of the bottlers -- Corporacion del Fuerte and Bebidas Refrescantes de Nogales -- are engulfed geographically by Arca Continental's operations.

Garza said Wednesday that Arca Continental will continue looking for consolidation and investment opportunities that can create value. "We think we have good friends that would eventually like to join efforts with us," he told the analysts.

-By Amy Guthrie, Dow Jones Newswires; (5255) 5980-5177; amy.guthrie@dowjones.com