Coca-Cola Amatil MD Terry Davis was pleased with the results

Coca-Cola Amatil MD Terry Davis was pleased with the results

Coca-Cola Amatil has beaten analysts' expectations with a 12% rise in profits in the first half of its fiscal year. just-drinks details the results in more detail and examines market reaction.

For the six months to 2 July, Coca-Cola Amatil's net profits after tax rose by 12% on the same period of 2009 to A$212.7m (US$190.2m), while sales climbed by 4% to reach A$2.13bn.

The results came on the back of a strong performance in the manufacturer’s business in Indonesia and Papua New Guinea, as well as in its domestic Australian market.

Coca-Cola Amatil's share price fell by 2% yesterday (12 August), following the results announcement, but recovered lost ground today (13 August).

According to Dow Jones Newswires, analysts were expecting net profits of A$209m. Andy Bowley, an analyst at Citigroup, told Bloomberg that the company remains a “best-in-class operator”.

“The standout interim result highlights the strength of Coca-Cola Amatil’s (CCA) domestic beverage franchise,” Bowley said. He rated the firm's stock as “hold”.

EBIT in Australia, which accounts for about two-thirds of CCA annual sales, delivered a record result, with EBIT growth of 9.6% to A$272.8m for the half-year.

The business continued to benefit from successful new product and package innovation and increased availability due to additional cold drink cooler placements, it said.

Efficiency gains from Project Zero – the firm’s infrastructure capital investment programme - and earnings from CCA’s alcoholic drinks venture with SABMiller, Pacific Beverages, contributed around 30% of the earnings growth.

"CCA has a robust franchise that has demonstrated strong operating performance…over the last several years including through the recent major downturn,” Ian Lewis, a Moody's vice president/senior analyst said. “CCA has a strong business profile with resilient earnings, robust cost management and an ability to pass through cost increases to consumers via innovative marketing, product mix and packaging initiatives.”

Managing director Terry Davis was pleased with the results: “Cycling the very strong first half of 2009 in Australia was always going to be challenging, so to deliver volume growth of 1.5%, with revenue growth of 5.5%, was a very good outcome.

“In the year-to-date, I am pleased that the strength of our business model in effectively balancing pricing, volume growth and market share has provided the platform to improve our profitability and market position in each of our territories,” Davis added.

However, Lewis believes the company’s strengths might well be balanced by challenges in the consumer operating environment due to volatility in demand, as well as cashflow pressures due to increasing capital expenditure.

“Potential execution risk associated with strong growth plans in emerging markets such as Indonesia is present but should remain manageable for the ratings", he added.

CCA said that it was confident of achieving high single-digit growth for EBIT in the second-half, assuming a normal trading season for Australia and New Zealand.

Davis said the second-half was off to a good start, with some signs of a retail revival. "There has been an uptick in volume and sentiment over the past six weeks, and now that interest rates have held steady for the past two months, maybe it's bottomed," he said.