Coca Cola Amatil shares fell yesterday, despite the company maintaining earnings guidance for 2011 in a presentation for an investment conference.
The shares fell 2.5% at one stage before a small bounce saw them end the day down 2.2%, or 28c, at $12.34.
A small, but surprise provision for the impact of the stronger Australian dollar and remarks about how trading conditions were tougher in the third quarter, saw the shares sold off.
The company said it was still looking for high single-digit growth in earnings before interest and tax for the second half of 2010.
The worry for the market was the revelation that the guidance includes a $7 million to $9 million hit due to the appreciation of the Australian dollar since September.
The company said the stronger dollar has hit translation moves from US dollars into Australian currency and lower export earnings from its SPC Ardmona fruit-and-vegetable processing business.
CEO Terry Davis said in his presentation that while the company "will benefit from a sustained stronger Australian dollar over the medium-term as a result of the lower cost of US dollar denominated inputs, there is an earnings impact from the translation of offshore earnings into Australian dollars and from reduced export earnings by the SPC Ardmona business".
The biggest US dollar-denominated input is the cost of the syrup and other ingredients it buys from the US Coca Cola Company.
CCA’s Group Managing Director Mr Terry Davis said, “Trading conditions in the third quarter have been challenging with unseasonal weather across Australia leading to lower demand for beverages, particularly in the convenience channel, as well as more aggressive market pricing for beverages in the grocery channel.
"Australian consumers are continuing to spend cautiously as they deal with the cumulative effect of increases in interest rates and utility costs over the past 12 months.
"Despite the tougher trading environment, we remain confident of meeting our earnings guidance with current trading tracking at 7-8% EBIT growth for the second half.”
And some investors wondered yesterday if they were being softened up for more bad news from QBE.
The insurance group’s chief financial officer Neil Drabsch spoke at the same conference yesterday that Mr Davis of CCL did.
He had a mixed message, a hint of optimism about possible acquisition opportunities emerging (but some analysts already don’t like the spate of purchases by QBE and their lack of a meaningful contribution to earnings).
But the rest of the commentary wasn’t optimistic, with talk of continuing softness in the market, downward pressure on market returns from low interest rates and the continuing uncertainty.
He said the insurer sees medium-term pressure on earnings from low yields, inflation and diminishing provision releases.
That’s code for times are tough and we can’t see any upside at the moment.
"Medium-term pressure on earnings continues to build from low investment yields, diminishing prior year claims provision release, inflation concerns and increased regulation," he said.
"Reinsurance rates generally soft, with increases only on event driven criteria e.g. marine and energy risks; insurance markets remain competitive but resistant to more fundamental change despite conditions of weak economic recovery and low investment yields
"Continuing investment market volatility for fixed interest and equity investments," Mr Drabsch said.
The reason why investors wondered about the comments is that they were the factors that helped cut QBE’s June 30 interim profit 39%.
That was the first fall in nine years, but the company still maintained a full-year insurance margin of 16% to 18%.
There’s been little change in the second half, so QBE is looking challenged to improve on the first six month result.
QBE shares fell 1.7% in early trading to as low as $16.73 before recovering ground to end down 2c at $16.99.
