Coca Cola Amatil’s investors want more

Within hours on 27 June, CCA’s shares had dropped 23 cents or 2.48 percent to AUD 9.04, despite a company forecast of 12 percent growth in earnings before interest and tax (EBIT) for the first half of 2007.

It is a funny old world. What does it take for a company to win investor support if not increased earnings? Is 12 percent too little? Or how greedy have the markets become?

According to Australian news reports, it appeared that expectations had grown faster than Coca Cola Amatil’s own earnings forecast.

In its announcement, CCA said strong trading conditions in Australia and New Zealand had combined with continuing improvements in Indonesia to support an earnings upgrade. The company was enjoying good trading conditions across most markets, it said, and the key priority for the business was the recovery of commodity-driven price rises in products.

Coca-Cola Amatil said the momentum created by its Australian business in the second half of 2006 had continued, maintaining solid price per unit case realisation. Volumes had also been maintained in line with 2006, which the company said was a strong outcome after the launch of Coke Zero a year ago.

So what made the investors dump CCA’s shares? To all appearances it was CCA’s failure to boost volumes significantly that became a source of disappointment for investors.

CCA’s Chief Executive, Terry Davis, maintained a second-half earnings guidance of ‘high single digit’ growth as commodity-price increase squeezes profits. He is currently overseeing expansion of the group’s beer sales through the joint venture with SABMiller. Rumour has it that CCA’s planned expansion of warehouse facilities at Eastern Creek in western Sydney includes a site for a green-field brewery.