The sell off in Coca-Cola Amatil (CCL) shares slowed on Monday after the 10% plus slump last Friday off the back of yet another profit downgrade. The shares fell 1.5% on Monday, closing at $9.465, taking the loss since Friday morning to 12% after it blamed weak trading at its Australian beverages business for the earnings downgrade.
It was yet another violent share market reaction to bad news that has been repeated on four or five occasions since late 2015 as the company has battled to stabilise its weakening Australian fizzy drinks operations.
In that time CCA has gone from being a well-regarded fast moving consumer products player, to a wounded giant with seeming intractable problems in its most important business.
Directors say they now expect underlying net profit to decline in the first half of 2017, while full-year underlying profit is expected to be flat on 2016’s $417.9 million which was up 6.2% from $389.4 million in 2015.
After one off items – of which there was just one, a $171.8 million impairment of the SPC Ardmona business – statutory profit was down 37% at $246.1 million from $391.4 million in 2015.
The heart of the company is its Australian beverages business, which is where the latest problem is concentrated (as it has been off and on for the past five years or more). It accounted for 6% of the total underlying earnings before interest and tax of $683 million.
While CCA does not release a breakdown of profits from what describes as “sparkling beverages”, it does publish the composition of the volume of products and these sparkling beverages (or fizzy drinks like cola) accounted for 67% of total volume of product sold as measured by millions of cases.
The volume of fizzy drinks sold by the company in the key Australian market has been falling now for a decade and dipped 4.7% in 2016. This year looks like seeing a repeat of that fall as problems in the Australian heartland refuse to go away.
At its full year profit announcement in February CCA said it was targeting earnings per share growth in the mid-single digits this year, and on Friday said it continues to maintain that target over the medium term, although near-term performance will be affected.
“Trading in Australian Beverages for the year-to-date has been weaker than last year with all channels experiencing volume and price pressure due to competition and category trends," it said in a statement on Friday.
To try and cut costs in its Australian operations, it announced the shutdown of its South Australian manufacturing plant and said it would invest in growing new market segments as more consumers turn away from full sugar soft drinks.
Analysts pointed out that the problems in the Australian operations emerged just weeks after Barry O’Connell, the head of its Australian beverages unit, left the company in March as part of a leadership overhaul that seems to be never ending.
Coca-Cola said trading in New Zealand & Fiji, the alcohol & coffee business, as well as its SPC fruit processing and canning business remained in line with expectations for the year-to-date.
Trading in Indonesia continued to be impacted by soft market growth, but the business was delivering to expectations.
