Despite all the hoopla over Coca Cola Amatil’s plunge deeper into alcohol, the most important news for shareholders was that earnings for the first half to June and the full 2007 financial year, are expected to grow modestly but consistently.
That and the news of the review, boosted the shares 21c to $9.31, making up all but 18c of Tuesday’s 39c loss.
Unlike 2006 when the company had a poor first half and then a second half recovery, this year will see price rises and earnings growing in ‘the high single digit range’.
Earnings before interest and tax will rise in the ‘high single digit range’ in the 12 months to next December 31, the company said in a statement yesterday.
That compares to the 1.7 per cent rise in the 2006 EBIT to $580.5 million.
In the statement CCA said it has “experienced solid trading conditions across most markets for the first quarter.
“Both Australia and New Zealand have maintained volumes in line with last year, a significant achievement given both countries are cycling the Q1 2006 launch phase of Coca-Cola Zero.
“Revenue per unit case growth has been driven by improvements in both mix and rate. Indonesia has enjoyed an excellent start to the year driven by continuing strong volume growth combined with solid recovery of cost of goods increases.
“South Korea has maintained good price discipline during a period of reduced demand. An insurance claim relating to the July 2006 extortion is being processed and is expected to be finalised no later than the second half of 2007. Insurance proceeds will be recorded as a credit to significant items.
“SPC Ardmona has experienced a solid start to the year and expects to generate modest earnings growth in the first half. This is despite the impact of a short fruit season for 2007, a result of the frost damage incurred in 2006, and higher tinplate costs.
“Pacific Beverages beer sales showed encouraging momentum during the Easter period with results well ahead of last year.
“The key focus for the business continues to be the recovery of the estimated 5-6% increase in cost of goods sold per unit case for beverages across all markets.
“For the first half of 2007, CCA expects to deliver high single digit EBIT growth and based on a continuation of current trading conditions believes that a similar EBIT growth rate is achievable for the 2007 full year.
“It is expected that the full year effective tax rate will be in the range of 27-30% with the first half expected to be lower.”
That lower tax rate will worry some analysts who don’t like companies achieving EBIT growth and then boosting it on an after tax basis by a lower tax charge. They claim it indicates lower quality profits compared to earnings where the main drivers to any improvement should be in the performance of the business.
But with world sugar prices weak and the prices of many commodities still lower than a year ago, the outlook seems better for CCA compared to this time in 2006.
