Profit warning triggers biggest share rout in 20 years

JANE HARPER
APRIL 11, 2014
HERALD SUN
COCA-Cola Amatil has suffered its biggest single-day market rout in more than two decades after warning of a $56 million hit to first-half earnings.
Investors sent the group’s shares plummeting 14.6 per cent on Friday — the heaviest drop for any trading session since the early 1990s. They closed at a four-year low of $9.74.
It came as the company announced it would launch a strategic review on the back of weak performances in Australia and Indonesia.
Coca-Cola Amatil expects earnings before interest, tax and “one offs” for the six months to June will tumble 15 per cent, from $373.9 million in the same period last year.
The only bright spot was the wave of public support for the group’s troubled Victorian fruit processing business SPC Ardmona.
Sales in the division surged 10 per cent in the three months to March.
Coca-Cola Amatil managing director Alison Watkins, who took up the role six weeks ago, said heavy discounting from supermarket giants Coles and Woolworths made it difficult for the group to offset rising costs.
“The grocery channel continues to be challenging with aggressive pricing activity, which has limited Coca-Cola Amatil’s ability to recover cost increases,” Ms Watkins said.
She said the company also needed to better capitalise on growing areas of the market, such as bottled water.
Analysts said the earnings downgrade was disappointing.
“They have an uncompetitive price position in the Australian beverage market, which is really their core market,” Invast chief market analyst Peter Esho said.
Ms Watkins said the group’s Indonesian business expected volume growth of more than 10 per cent this year, but faced significant cost increases driven by unfavourable exchange rates, rising wages and fuel prices.
“We remain excited by longer-term opportunities for Indonesia, but it’s a developing market and we will undoubtedly go through periods of volatility,” she said.
Closer to home, there was a groundswell of support from consumers and retailers for Shepparton-based SPC.
At its full-year results in February, Coca-Cola Amatil wrote $404 million off the value of the fruit cannery.
SPC was at risk of closure after the Federal Goverment refused to provide a $25 million bailout earlier in the year.
But it was thrown a lifeline by the State Government, which agreed to tip $22 million in return for a $78 million injection from the parent company to upgrade its production line.
Cementing its future, SPC struck a $70 million five-year supply deal with Woolworths last month.
Ms Watkins said the business was moving fast to leverage the surge in support from consumers and retailers with plans to launch new products in the snack and health markets.
“You can see the wonderful passion that SPC as a brand ignites in many of us,” she said.
“The sales growth has been in no small part thanks to the great support we have seen right across Australia.