Supermarket price wars cost Coca-Cola
Coca-Cola Amatil has added its name to a growing list of supermarket suppliers to feel the earnings pinch of a relentless price war raging in the aisles, posting a 12.3 per cent slide in interim profits that will spill into weaker full-year results.
The soft drink maker's flagship Australian beverage operation, which contributes 60 per cent of group revenue and 70 per cent of pre-tax earnings, suffered from a discount war with new brand entrant Pepsi Next made worse by lower retailer inventory levels for its suite of soft drinks, energy drinks and bottled water.
But the company still had its eyes set squarely set on growth: it plans to re-enter the local beer market in December with a range of US brands through a new relationship with Molson Coors; and Indonesia again generated double-digit earnings growth, with volumes up 11.8 per cent and pre-tax earnings up 12.5 per cent to $31.4 million.
The supermarket price wars took the steam out of its local drinks business however, as it posted a 10.1 per cent decline in earnings, dragging the company to its first fall in group earnings in seven years.
CCA said interim profit fell 12.3 per cent to $215.9 million as trading revenue went backwards, down 3.5 per cent at $2 billion. The result was slightly above expectations while interim earnings before interest and tax of $373.9 million, down 6.9 per cent, was better than guidance given in May's general meeting, at which CCA warned pre-tax earnings could fall between 8 per cent and 9 per cent.
The interim dividend of 24¢ a share was kept and investors got a surprise 2.5¢ special dividend.
However, they were dealt a blow when chief executive Terry Davis provided a dour trading update which confirmed tough trading conditions in the grocery channel would strip back earnings this year.
Although November and December - when it makes the bulk of its profit - were still ahead, CCA expects group EBIT to be flat to 4 per cent down for the full year.
The market sold down on the warning, with CCA shares closing 70¢ weaker at $12.04.
Mr Davis said he hoped the price disruption caused by Pepsi Next would be a one-off, and that CCA would attempt to soften the pressure from supermarkets slashing prices by offering shoppers innovative packaging.
"The strength we have is the number of package options and tailoring those package options that we are able to give to the customer and have scale, pricing and margin," Mr Davis said.
This included innovations like new single-serve cans.
CCA is the latest supplier to see its earnings eroded by the supermarket wars. International players such as Nestle and Unilever have also had profit collapses recently.
"Certainly everybody is hurting," Mr Davis said. "Everyday you see the results, I saw Unilever, Nestle, and our results shine in that respect ... but we also have to be realistic."