Coca-Cola Amatil warns on 2013 profit

The good news in Coca-Cola Amatil's third-quarter trading update is that sales of its carbonated beverages to Australian supermarkets have returned to growth and regained some market share. The bad news is that this has been achieved through price cuts in the face of continued 'aggressive competitor pricing activity'. The company also complained that it hadn't seen 'the expected post-election uplift in consumer spending'.

Overall, the bad news outweighed the good, and the company downgraded its full-year guidance to an earnings before interest and tax decline of 5–7%, from 0–4% at the interim result. The stock fell 5% on Monday following the announcement.

New Zealand has continued to perform well, with 'improved volumes, earnings and market share gains', while demand slowed in Indonesia 'as the economy adjusted to higher levels of inflation which impacted consumer spending'. Alcohol, Food and Services is performing in line with expectations. SPC Ardmona has secured a commitment from its customers to convert to 100% Australian-grown produce for multi-serve packaged fruit and the Anti-Dumping Commission has imposed penalties for dumped Italian tomatoes.

But Australian beverages is the key to Coca-Cola Amatil's performance and it continues to struggle in an increasingly competitive supermarket sector. The prospective price-earnings ratio of 17 doesn't appear to allow for this and, with the price down lightly since we downgraded to Sell on 21 Aug 13 (Sell – $12.30), we continue to recommend that you SELL.