Coca-Cola Amatil Shares Sink To Decade Low
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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."
Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.
At the AFR he was a finance writer, Finance Editor, News Editor and Chief of Staff. At the Nine Network he was supervising producer of Business Sunday for more than 16 years. He has also written for other online and analogue print publications here and overseas.