Consumer squeeze leaves Coca-Cola little pinch room
Its chief executive, Terry Davis, said the trading environment in its core Australian business "remains challenging" although it had improved momentum in the lead-up to Christmas.
"Consumer spending levels continue to be soft, a continuation of the trend we have experienced over the past 18 months, while price-driven competitor activity during the second half has restrained volume growth," Mr Davis said.
Coca-Cola Amatil said it expected to record volume and revenue growth for the December half year and stuck to guidance of 4 to 5 per cent profit growth before significant items for the year to December 31, but analysts said there was little room for disappointment from the iconic consumer staple.
The stock fell more than 3 per cent during trading on Wednesday before closing 36¢ lower at $13.56.
"The valuation hasn't taken into account that there's natural risk around the weather for this stock," the UBS analyst Dan Hurren told Bloomberg.
"We've had a relatively cool start to the summer months in Australia."
Coca-Cola Amatil's business in Indonesia and Papua New Guinea continued to grow strongly but its New Zealand and SPC Ardmona businesses had negatively impacted on earnings growth for the second half.
The company also announced it had added to the range of alcoholic beverages it would offer when a non-compete clause with SABMiller, the new owner of Foster's, expires at the end of next year.
Coca-Cola Amatil has signed up to distribute Sweden's Rekorderlig cider as of January 1, 2014, giving it exposure to the fastest-growing category in the sector.
It said cider sales were growing 20 per cent a year and were worth $550 million.
Coca-Cola Amatil is prevented from selling beer or cider in Australia under the agreement but it has a spirits and ready-to-drink business in Australia with Beam Global.
It said another recent acquisition, the brewery and spirits business in Fiji it took over from Foster's, was performing ahead of expectations.
The company said it would also continue to invest heavily in Indonesia and PNG. It has acquired bottling facilities in Indonesia from San Miguel for $45 million and is completing the acquisition of a warehouse in PNG for $28 million.
Mr Davis said that as a consequence of the strong growth from Indonesia and PNG this year, and the promising outlook, the company had increased its capital expenditure in the region to about $150 million and had committed to "up-weight" its investment again next year.
Frequently Asked Questions about this Article…
Shares fell after the company said soft consumer spending and price-driven competitor discounting were hurting beverage sales and volume growth; the stock dropped more than 3% in trading and closed 36¢ lower at $13.56.
Yes — the company stuck to guidance of 4–5% profit growth before significant items for the year to December 31 and expects volume and revenue growth for the December half, though analysts warned there was little room for disappointment.
Coca‑Cola Amatil said consumer spending has been soft for about 18 months, and price-driven competitor activity in the second half has restrained volume growth across its core Australian business.
The company reported strong growth in Indonesia and Papua New Guinea, while its New Zealand business and SPC Ardmona operations have negatively impacted earnings in the second half.
Coca‑Cola Amatil signed to distribute Sweden’s Rekorderlig cider from January 1, 2014, giving it exposure to the fast-growing cider category; however, an agreement with SABMiller prevents it from selling beer or cider in Australia, though it already has spirits and ready‑to‑drink offerings with Beam Global.
The article says cider sales are growing about 20% a year and the segment is worth roughly $550 million, so adding Rekorderlig gives Coca‑Cola Amatil exposure to one of the fastest‑growing categories in the sector.
The company bought bottling facilities in Indonesia from San Miguel for $45 million, is completing a $28 million warehouse acquisition in PNG, and has increased regional capital expenditure to about $150 million with plans to up‑weight investment next year.
Analysts highlighted weather as a natural risk for the stock — UBS noted the valuation may not fully reflect weather exposure, pointing to a relatively cool start to the Australian summer that can dent beverage sales.
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