Coca-Cola Amatil shares have fallen after the drinks distributor brought forward $40 million in spending, which will dent its earnings.
November 23, 2017
Shares in Coca-Cola Amatil have hit their lowest level in almost a decade after the drinks distributor warned its earnings will be impacted by $40 million of spending aimed at driving growth in its Australian drinks business.
The company’s shares dropped 4.9 per cent to $7.59 on Thursday, their lowest price since mid-2008.
Managing director Alison Watkins said on Wednesday that $40 million of investments planned for 2019 and 2020 will be now be made in 2018, to increase marketing, lower prices, add new drink machines and improve technology.
Citi markets equities director Karen Jorritsma said the share price fall was a reaction to the cost of the new investment.
“The issue is definitely the fact they’re having to reinvest in price, that is, cheaper prices to keep volume growth going,” Ms Jorritsma said.
Underlying earnings in Coca-Cola’s Australian beverages division, which includes the Coca-Cola, Mount Franklin and Monster Energy brands, dropped 13 per cent in the first half of 2017.
Sales volumes were down 3.9 per cent, as the company highlighted competitive pressure in the cola and water categories.
CMC Markets chief strategist Michael McCarthy said falling sales of Coca-Cola Amatil’s soft drinks was not surprising given changing dietary habits.
“People are being much more selective of where they get carbs,” McCarthy said.
“Fizzy soft drinks appears to be one of the losers of that shift in consumer thinking”.
Ms Watkins said the company’s earnings in the next two to three years will be impacted by the new investment plans, while the effect of a new container deposit scheme in NSW remains uncertain.
Coca-Cola Amatil still expects to achieve an underlying net profit in line with the $418 million underlying net profit made in 2016, Ms Watkins said.