Coca-Cola Amatil might expect to post high single digit profit and earnings growth for the second half of 2009 after delivering a 10.4% lift in first half earnings, but the market wasn’t that impressed.
The company posted net profit after tax of $189.8 million in the six months to June 30, 2009.
It declared an interim dividend of 18.5 cents, fully franked, up from 17 cents during the previous corresponding period.
That ticked all the relevant boxes, along with a confident outlook, and yet the shares rose just 2 cents to $9.27, a rise of just 0.2% on a day when the market bounced 2.1% and will go higher today.
So why the under whelming reaction?
Like retailers, CCA is a consumer defensive stock, a share for the tough times when all those growth stocks get ignored and safety is in.
Now that growth and risk are back in vogue and the country is confident the recession has gone recession, what recession), defensive stocks are yesterday’s shares.
The shares are up less than 1% so far this year, compared with the 19% rise in the ASX 200: all that under performance has happened since May as investors regained their nerves and started looking for growth and not safety.
So the company isn’t a stock for the current mood, unless things go sour again.
Coca Cola Amatil said lower mortgage interest rates and petrol prices relative to last year, as well as the ‘cash splashes’ drove consumer demand and spending, but this may end if unemployment rises.
The company said however that assuming current economic conditions hold, and summer trading in Australasia is similar to last year )very warm to hot), it expects it will deliver high single digit growth in earnings before interest and tax (EBIT) and net profit over the second half of 2009.
Coca-Cola’s first half EBIT increased by $30.9 million, or 10%, to a record $339.8 million.
The interim dividend increased by 8.8% to 18.5 cents per share over the previous corresponding period.
CEO, Terry Davis, said the Australian, Indonesian and PNG beverage businesses were the standout performers, and New Zealand and Fiji as delivering modest growth in local currency earnings in challenging economic conditions.
"Demand for higher value single-serve products benefited from the favorable summer weather in the first quarter," Mr Davis said in yesterday’s statement.
"Strong price discipline and mix management, combined with efficiency gains and cost savings generated from CCA’s infrastructure development program, as well as the increase in earnings from the manufacture and distribution of alcoholic beverages, all contributed to the excellent result for the Australian beverage business."
"Although CCA has experienced tougher trading conditions, it has delivered another record result.
“Excellent performances from the Australian and Indonesian & PNG beverage businesses, as well as a much improved result from the Food & Services division, continues to reinforce the success of CCA’s organic growth strategy.
"The highlight for the half was the performance of the Australian Beverage business which delivered strong revenue and earnings growth,” Mr Davis said.
Coca-Cola’s trading revenue rose 9.9%t to $2.044 billion in the half year, driving total revenue up by 7.6% to $2.1 billion.
Higher sugar costs and foreign exchange movements against the US dollar, and commodity price increases in Indonesia, pushed beverage costs up 12.2%. Sugar costs have bounced higher since balance date.
CCA expects future earnings and profit growth to be driven by revenue-generating and cost-saving capital projects, an increase in production capacity and new product development.
"Lower mortgage interest rates and petrol prices relative to last year, as well as the July income tax cuts, are all having a positive effect on consumer demand and spending," the company said.
"However, this positive sentiment may be impacted by the forecast of higher unemployment in the second half.
"As a consequence, assuming current economic conditions prevail and a normal summer trading season in Australia and New Zealand over the last quarter of the year, CCA expects to be able to deliver high single digit growth in both earnings before interest and tax and net profit after tax for the second half."
Coca-Cola also expects to maintain its dividend pay-out ratio at between 70 and 80 per cent "for the foreseeable future".
Capital spending during the first half of 2009 rose by $8.8 million to $127.1 million, or 6.2 per cent of trading revenue.
Capital expenditure for the full year is expected to rise to between 7%-8% of trading revenue as a result of another $40 million in spending in Australia to take advantage of 2009 budget tax incentives.
As well, the company’s full year 2009 capital investment in Pacific Beverages is expected to be around $40 million.
