-- Coca-Cola Amatil warns 1H earnings may fall 9%
-- Rival Pepsi initiated price war, says director
-- Shares slump more than 10%
By Rhiannon Hoyle and Caroline Henshaw
(Adds managing director's remarks from fourth paragraph.)
SYDNEY--Coca-Cola Co.'s (KO) distributor in Australia said
first-half earnings may slip for the first time in seven years
after the company found itself dragged into a costly discounting
war with PepsiCo. Inc. (PEP).
The disclosure by Coca-Cola Amatil Ltd. (CCL.AU), 29%-owned by
the U.S. soft-drinks giant, unnerved some investors, sending the
Sydney-based company's shares down 11% to a six-month low.
Coca-Cola Amatil also faces continuing pressure from Australia's
strong currency, which has made the products of some rival food and
beverage importers cheaper.
Coca-Cola Amatil said first-half profit may be as much as 9%
lower than a year earlier when the company reported earnings before
interest, tax and one-off items of 402.1 million Australian dollars
(US$412.4 million).
Managing director Terry Davis told reporters after the company's
annual meeting that it had been cutting prices for its soft drinks
sold through Australian retailers by between 1% and 2% on average
to compete with Pepsi Next, which was launched here in February
2012.
Mr. Davis said the new low-sugar drink from Pepsi started out
winning a 7% share of Australia's carbonated-soft-drinks market
through heavy discounting, adding that the level had since fallen
closer to 2%. Pepsi declined to comment on Coca-Cola Amatil's
statement.
"We believe Pepsi is losing money at the pricing they're at
today," Mr. Davis, who is set to leave the drinks manufacturer in
August 2014 after more than a decade heading up the group, told
reporters Tuesday.
Coca-Cola Amatil produces and distributes the flagship Coke
brand in Australia, as well as throughout New Zealand, Fiji,
Indonesia and Papua New Guinea. It also distributes the
premium-spirits portfolio of Beam Global Spirits & Wines, which
includes Canadian Club whiskey, and owns the SPC Ardmona
fruit-processing company.
While saying it expected earnings growth in the second half,
Coca-Cola Amatil forecast that profit in the full year before
interest, tax and one-off items would only be broadly in line with
the A$895.5 million reported last year.
An Ebit decline in the first half of fiscal 2013--if it
materializes as the company expects--would be the first in any
six-month period for Coca-Cola Amatil since 2006.
Australia's high dollar has taken a toll on manufacturers from
all sectors of the economy, but Coca-Cola Amatil has faced the dual
pressure of cheaper imports and more Australians holidaying
overseas to take advantage of the exchange rate--which remains
close to historical highs against the U.S. dollar.
The drinks company has taken a further knock from weakness in
Australia's economy, which has prompted consumers to spend less on
discretionary products. It's also been vulnerable to a discounting
war between Australia's two main supermarket chains, Woolworths
Ltd. (WOW.AU) and Coles, owned by conglomerate Wesfarmers Ltd.
(WES.AU).
Still, Mr. Davis said the outlook for Coca-Cola Amatil's
overseas business looked promising, with its Indonesian unit in
particular looking at double-digit revenue growth despite
challenges from cheaper local products.
Coca-Cola Amatil also plans to lower its costs by A$10
million-A$15 million this fiscal year and reduce annual capital
spending to A$300 million in 2014 and 2015, down from A$400 million
in 2013.
"Hopefully lower interest rates will also be a tipping point to
bring down the value of the Australian dollar, that would be my
significant hope," said Mr. Davis, who may take heart from the
central bank's decision Tuesday to cut interest rates to a
record-low 2.75%, adding to six reductions since late 2011.
Write to Rhiannon Hoyle at rhiannon.hoyle@wsj.com
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