Coca-Cola Amatil shares have sunk to levels not seen for two years as the company again provided disappointing news about its sales and financial performance.
The company yesterday blamed the fall in earnings and revenue on that the continuing weakness in Australian sales of its cola and fizzy drinks and pricing pressure on its high cost big name water brands.
As a result, the company delivered a 29.3% drop in half-year profit to $140.1 million for the six months to June 30, including $50 million in one-off restructuring costs in its Australian beverages business.
Despite the weakness company declared an unchanged half-year dividend of 21 cents as it sort to keep shareholders happy.
Investors marked the shares down nearly 2.6% to $8.25, a level not seen since September 2015. The shares are now down more than 18% for the year so far thanks to the continuing weaknesses in Australia, its core market.
Driving the decline was a 3.8% fall in fizzy (Coca-Cola, Fanta etc) drinks in Australia. And sale volumes in its local brands of still beverages – which includes Mount Franklin water – slumped 8.5% in the six months to June, driven lower by pricing pressures and cheaper water brands from rival companies.
That saw revenue from the group’s Australian beverages business down 5.1% on a 3.9% drop in volumes (cases of drinks sold) in the half year, especially around Easter.
Earnings from Australian beverages fell 13.2% as a result of the drop in sales volumes and value in the half. Those falls more than offset strong profit growth in Indonesia and Papua New Guinea and in alcoholic beverages and coffee (its Grinders brand).
Coca-Cola Amatil CEO Alison Watkins said the company was diversifying its portfolio of products to offset the challenging conditions in Australian beverages.
"Our April 21 trading update identified challenging conditions in Australia and their impact on the overall group result for the year," Ms Watkins said.
Coca-Cola Amatil is sticking to its aspirational target for mid-single-digit earnings per share growth despite the slide in sales volumes, revenues and earnings in the first half year.
With a flat outlook for the year, the target will take a big surge in sales this half, especially of the profitable water and Coca Cola products..
On top of the weak trading performance, investors have also been fretting about the impact of container deposit schemes due to come into effect in 2017 and 2018 in NSW, Western Australia and Queensland (There is already schemes in South Australia and the NT for over 35 years and the world hasn’t collapsed).
Analysts have estimated that CCA’s Australian beverage volumes could fall to cover the cost of the schemes and don’t believe the company will find it easy to pass on the costs to consumers, not with supermarket sales weaker than expected.
Woolworths for example has declined to stock the bottler’s new Coca-Cola No Sugar variant and to delete several lines of Mt Franklin bottled water. Recovering the cost of the NSW deposit scheme from that retailer alone via price rises will be much harder.
