Shares tumble 10% on news of decline in earnings

Coca-Cola Amatil shares plunged on Tuesday after the group revealed it would report its first earnings decline in seven years for the six months ending June 30 as competition in the grocery aisles from Pepsi, and imported package fruit, took their toll.

CCA said the strong performance from its other business units — Indonesia, New Zealand, Fiji and Australia's non-grocery sector — would not be sufficient to offset the impact of difficult trading conditions for its beverages in supermarkets and the decline in SPC Ardmona's earnings.

"In Australian beverages, the grocery channel has experienced a very difficult start to the year due to the continuation of higher levels of competitor discounting and the impact to volume from lower retailer inventory levels," managing director Terry Davis told investors at the annual meeting.

The beverage weakness is expected to be short term, partly reflecting the competitive discounting CCA engaged in as Pepsi launched Pepsi Next, but the poor performance of SPC Ardmona reflects the weak fundamentals of the business against cheap foreign imports.

"The shelf prices of many imported private label products are being sold at levels well below the cost of Australian grown packaged fruit and should the retail trading outlook not improve in the second half, the SPCA earnings decline is expected to lower group earnings by between 2 [per cent] to 3 per cent for 2013," Mr Davis said.

CCA said it expected a fall in earnings before interest and tax (EBIT) of 8 per cent to 9 per cent for the first half, before significant items.

The stock fell more than 10 per cent, down $1.52 to $12.93.

A return to earnings growth on higher volumes is expected in the second half of the year, with full-year EBIT before significant items expected to be "broadly in line" with the previous year.