Coca-Cola Amatil shares drop on forecast rising costs
Coca-Cola Amatil shares drop on forecast rising costs
Robert Fenner, Bloomberg, Sydney
Shares of Coca-Cola Amatil Ltd., Asia's biggest Coke bottler, had their largest slump in five months on concern costs of fuel, aluminum, sugar and plastic bottles are rising faster than expected.
Coca-Cola Amatil stock dropped as much as 5.2 percent after the Sydney-based company said "cost pressures have intensified in the second half." The cost of goods sold would rise 5 percent to 7 percent in 2006, the company told investors at a presentation in Sydney today.
The forecast "is higher than most people were looking at," said Matt Hoult, who helps manage the equivalent of US$1.7 billion at ABN Amro Asset Management Ltd. in Sydney. Some investors had anticipated an upbeat briefing "and that didn't happen today."
Chief Executive Terry Davis, whose markets include Australia, Indonesia and South Korea, is adding products including "Coca- Cola Zero" and "Fruitopia Alive" to stoke sales as he tries to limit the impact of higher costs on earnings. Today he reiterated a forecast for "low double-digit" profit growth in the second half, from A$152.6 million ($115 million) a year earlier.
Davis, who first made the forecast for profit growth in August, is also seeking to improve returns in Indonesia and South Korea to reduce dependence on the Australian market, where the company gets 60 percent of sales.
Earnings in the third quarter ended Sept. 30 were "in line" with the company's budget, he said, without being specific.
The company's shares fell 37 cents to A$7.59 at 2:21 p.m. in Sydney and earlier traded as low as A$7.55. The stock's 6.6 percent drop this year lags behind the S&P/ASX 200 index's 8.8 percent gain.
"Coca-Cola Amatil's strong new product pipeline demonstrates the Coca-Cola system's ability to respond to changing consumer needs," Davis said in a statement.
In Australia, consumer demand has been "softer" after the company raised prices to make up for increased fuel and raw material costs. Higher prices widened the gap with those of second-ranked soft-drink maker Cadbury Schweppes Plc, whose brands in Australia include Pepsi.
South Korean sales volumes of drinks such as Minute Maid juice and Coca-Cola have gained, the company said. The unit's second- half results will probably be similar to the year earlier in local currency terms.
South Korea had a second-half loss before interest and tax of A$2.2 million in 2004.
Indonesian earnings before interest and tax may rise at a similar rate to the 27 percent gain after the company increased advertising and marketing, boosting sales, it said.
Fruit canner SPC Ardmona, which Davis bought last year for A$500 million, has maintained market share amid higher oil prices and increased freight costs that have cut international profit margins, the company said.