just On Call: Cott Corp eyes price hikes to offset cost increases
Cott Corp has already raised prices this year to offset rising costs
Cott Corp has said that it may have to raise its prices in 2012 to offset the rising cost of raw materials like apple juice concentrate and PET resin.
Speaking on the firm's nine-month earnings call yesterday (2 November), Cott Corp's CEO Jerry Fowden told analysts that, looking to the remainder of this year and next, managing the commodity cycle in 2012 remains its "most important task". He added that, it "seems clear" that higher commodity costs are inevitable for raw materials such as aluminum, corn syrup, sugar, energy, fruits and resin.
The company has already raised prices this year to offset rising costs. "Looking at commodities, especially resin in 2011, we now expect our post-budget adverse resin impact to be just short of US$50m," Fowden said. "This is at a slower rate than we and most forecasters expected.
"Additionally, as we look to 2012, we anticipate a further slight increase in resin, as well as increases in other commodities, although collectively, not as much as we have seen in 2011," he added. "Our latest estimate is for 2012 commodity inflation around the 5% to 7% range."
Fowden also pointed to apple juice prices as causing a problem both for Cott and across the beverage industry in the first nine months of 2011.
"The real pressure on juice volume has been in the apple [juice] category where we continue to see this reasonably close one-from-one relationship between price up and volume down," Fowden told analysts. "But from all the data we've seen, we don't think we've performed any better or worse than the juice category overall in that sense."
Despite the cost pressures, the company reported a strong rise in nine-month net sales and profits, thanks to consumer demand for private-label soft drinks and the group's acquisition of Cliffstar. The company purchased Cliffstar during the third quarter of 2010.
Stifel Nicolaus analyst Mark Swartzberg said the company's third-quarter earnings beat his expectations, but that gross margins of around 11% were around 2% lower than he had expected. Swartzberg said he remains positive about the company's prospects for growth next year.
"Our confidence here is based largely on management's focus on pricing and other measures to offset commodity pressures in an environment like the current one," he said.
This month, Ray Rowlands of Drinksinfo Ltd revisits the energy drinks category to see what has been going on in the evolution of what has been the soft drinks industry's star performer in recent years...
- Analysis - Remy's Cognac "dead-cat bounce"
- Comment - How Hand-Made is Tito's Handmade Vodka?
- Heineken to stay "active player" in beer M&A - CFO
- Focus - Pernod Ricard's Q1 sales by brand
- Time for Heineken to make a European break
- Moët Hennessy unveils first Travel Retail outlet
- United Spirits sees Q1 net loss
- Whisky downturn slows Diageo's Scotch spend
- Beam Suntory, Edrington part ways in Travel Retail
- Pernod Ricard sees sales lift in Q1