In contrast to the the almost ‘kind’ treatment meted out to Primary Health Care shares yesterday (see separate story) after its confirmation of downward pressure from high costs on 2017-18 earnings by the market, shares in Coca Cola Amatil fell to a near decade low yesterday after it revealed to an investor day function on Wednesday that 2017 and 2018 will see profits also under pressure from a series of higher costs.
The company indicated that earnings will be hit by $40 million of extra spending in its Australian drinks business aimed at building sales, and by the cost of the container deposit scheme from next year.
The company’s shares hit a low of $7.59, their lowest price since mid-2008 when the GFC was erupting. the shares are down more than 30% so far this year. The shares ended the session down more than 4% at that low.
Managing director Alison Watkins said on Wednesday that $40 million of investments planned for 2019 and 2020 will be now be brought forward to 2018, to increase marketing, lower prices, add new drink machines and improve technology.
As a result Ms Watkins said the company’s earnings in the next two to three years will be impacted by the new investment plans, and the impact of a new container deposit scheme in NSW remains uncertain.
She said Coca-Cola Amatil still expects to achieve an underlying net profit in line with the $418 million underlying net profit made in 2016 – which means no profit growth for the next two to three years.
Underlying earnings in Coca-Cola’s Australian beverages division (its core sales and earnings business), which includes the Coca-Cola, Mount Franklin and Monster Energy brands, dropped 13% in the first half of 2017 (the company has a calendar financial year).
Sales volumes fell 3.9% as the company battled rising competitive pressure in the cola and water categories(especially the latter where cheap water brands are making a mess of sales of its Mount Franklin and other labels).
“Despite these impacts, we remain committed to our target of mid-single digit earnings growth per share in the medium term,” Ms Watkins said on Wednesday.
"Delivery will depend on the success of revenue growth initiatives in Australia; economic factors in Indonesia and regulatory conditions in each of our markets."
