Analysis - Concentrate price jumps undermine Coca-Cola HBC's rally
CCHBC released its full-year results last week
Coca-Cola HBC does not have its problems to seek, and profits at the company have more than halved since FY2007. But having already suffering through Europe's financial crisis and softening demand for CSDs, the company can now add rising concentrate prices to its list of headaches.
According to analysts Noumra, concentrate costs jumped by EUR40m (US$55m) in CCHBC's full-year results, released last week. As Nomura points out, this is just 0.5% of sales. However, with CCHBC still digging itself out of a financial hole - it has moved its headquarters from Athens to Switzerland and embarked on a cost-cutting programme to remedy the situation - the increase is big enough to worry investors. Nomura described the jump as “unhelpful” and warned that CCHBC's premium rating is at risk.
What it undoubtedly means is that CCHBC's attempts to boost its EBIT margin - which is currently bumbling along at 6.7% compared to 10.9% back in those heady days of FY2007 - will take longer than expected.
It is a blow for a company that declared itself "cautiously optimisitc" after last week's results and a strong Q4 that lifted it into full-year profits growth.
Nevertheless, analysts UBS said in a note today it expects CCHBC's EBIT margin in FY2014 to creep up to 7.1%, which is 20 basis points more than last year's increase - which itself was CCHBC's first EBIT margin rise in three years.
At last, some good news for a company that has had no difficulty of late attracting the other kind.
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