Bloomberg News

Pepsi 33% Cheaper Than Coke Drives Amatil Down Most Since 1991

April 11, 2014

Coca-Cola Amatil Plant

A worker inspects glass Sprite bottles at a Coca-Cola Amatil Ltd. plant in Medan, North Sumatra province, Indonesia. Photographer: Dadang Tri/Bloomberg

Coca-Cola Amatil Ltd. (CCL), Australia’s largest listed beverage company, fell the most in 23 years after saying profit will drop 15 percent amid competition with Pepsi, as consumers look for alternatives to carbonated drinks.

The shares slumped 14 percent, headed for the biggest decline since May 1991, to A$9.85 at 2:17 p.m. in Sydney. With Pepsi as much as 33 percent cheaper in supermarkets, according to Chief Financial Officer Nessa O’Sullivan, the company has started a “comprehensive review” to cut costs and look at new products including bottled water and non-carbonated drinks.

The forecast for the fastest fall in earnings since 2011 emphasizes the challenges facing new Managing Director Alison Watkins, who took over March 3 and says the company faces low growth and competitive markets. Asahi Group Holdings Ltd.’s Schweppes Australia unit, which sells Pepsi in the country, intensified competition by cutting prices for two years up to January, according to Citigroup Inc.

“They have an uncompetitive price position in the Australian beverage market, which is really their core market, and an underperforming food business,” Peter Esho, chief market analyst at Invast Financial Services Pty. in Sydney, said by phone.

Shares of Coca-Cola Amatil, 29 percent owned by Atlanta-based Coca-Cola Co., have fallen 32 percent over the past year, compared with an 8.4 percent gain in the S&P/ASX 200 benchmark.

Seeking Choices

“The consumer is these days increasingly looking for a lot more choice,” Watkins said. “That’s a challenge for us, in order to make sure we can participate effectively in some of those smaller niche brands rather than the large brands.”

Earnings before interest and tax will fall 15 percent from a year earlier in the six months to June, the Sydney-based company said in a regulatory statement today.

Coca-Cola Amatil posted Ebit of A$373.9 million ($351 million) in the same six months last year, so the forecast would be equivalent to a result of about A$318 million.

That compares with the A$369 million estimate of Andrew McLennan, an analyst at Commonwealth Bank of Australia in Sydney who’s ranked second-best by Bloomberg for the accuracy of his coverage of the company.

The company also has excess capacity, and its fixed costs are too high, Watkins said on a call with investors today.

Bottled Water

The strongest growth in Australian supermarket drinks sales over the past two years has been in own-brand bottled water, followed by Schweppes water and HJ Heinz Co. juices, Larry Gandler, an analyst at Credit Suisse Group AG in Melbourne, wrote in a Feb. 19 note to clients.

Private label water had risen 82 percent to hit volumes of 184 million liters, he wrote. Sales of Coca-Cola Amatil’s carbonated drinks weren’t growing significantly, Watkins said today.

“We are not participating effectively enough where the growth is occurring,” she said. In water, “there is a lot of volume there which for a company of our size and scale is volume that we can’t ignore.”

To contact the reporters on this story: David Fickling in Sydney at dfickling@bloomberg.net; David Stringer in Melbourne at dstringer3@bloomberg.net

To contact the editors responsible for this story: Stephanie Wong at swong139@bloomberg.net Dave McCombs


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