Coca-Cola Amatil warns on full-year earnings

Business Times

STRUGGLING Australian food and beverage company Coca-Cola Amatil Ltd (CCA) warned yesterday it expects to post a second consecutive drop in full-year earnings amid weak consumer confidence and thanks to a few management “own goals”.

CCA is scrambling under new chief executive Alison Watkins to address the changing tastes of its core market, launching a smaller, cheaper Coke can and promising more sugar-free products.

Still, those introductions will be too late for the current year, when it expects full-year profit to be “materially lower” than last year.

In its first set of results under Watkins, the company revealed on Monday that first-half net profit slid 15.6 per cent to A$182.3 million (RM535 million), from A$215.9 million a year ago.

Watkins, who took the post in March, conceded the poor operational result was not entirely due to external factors like domestic price competition from Asahi Group Holding Ltd’s Pepsi.

“Some of that is due to market forces, some is due to what we can only describe as own goal factors,” Watkins said on a conference call.

Decisions by the company last year to cut its sales staff and stand back from promotional activity in Australia were poorly made in hindsight, she said.

CCA in February booked an 83 per cent decline in annual net profit, its worst profit in 20 years.

Watkins is overseeing a strategic review that seeks to restore brand value and save the company A$100 million in costs over the next three years partly by streamlining its supply business.

The company is drawing up plans for more low and no-calorie drinks and yesterday unveiled a new 250ml, A$2 coke can — an attempt to gain leverage in Australia’s price wars. Further initiatives would be coming in the summer, Watkins said.

“As a business, we have been slow to adapt to these changes in market conditions and shifting consumer trends,” Watkins said.

Analysts said the first-half results were extremely disappointing and wanted to see more detail on the review, which is not expected until a scheduled analyst day in October.

“Management is still in rebase mode and we recommend caution until it is clear this has come to an end,” Citi analyst Gino Rossi said in a note to investors.

First-half earnings before interest and tax in Australia, which generates more than 80 per cent of profits, fell 14.1 per cent to A$226.5 million, while earnings in Indonesia plummeted 83.4 per cent to A$5.2 million.

There has long been speculation that CCA’s 30 per cent shareholder, The Coca-Cola Co, was keen to buy the business back from CCA.

CCA shares were 2.9 per cent lower at A$9.45 in mid-afternoon trade on the Australian stock exchange. Shares have fallen around 22 per cent since the start of the year, compared with an 4.8 per cent rise in the S&P/ASX 200. Reuters

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