CANADA: Cott Corp revises outlook as troubles worsen
Cott Corporation has revised its outlook downwards, warning it will fall "substantially short" of its expectations for this year.
The troubled soft drinks company, which last month posted a slide in sales and a net loss for its latest quarter, said yesterday (26 August) that it now expects full-year 2008 adjusted operating profit to come in between 28% below and 5% above its 2007 adjusted operating profit, which was $36.3m. The company also withdrew the previously communicated adjusted operating profit target for 2009.
In a gloomy trading update, Cott said that North American volumes are declining "at a higher rate than previously expected", due primarily to heavier than anticipated national brand promotional activity. At the same time, packaging costs are increasing more than previously anticipated, driven by PET resin costs and the impact of the recent rapid strengthening of the US dollar against its Canadian counterpart. Additionally, higher than anticipated start-up costs and shipment delays associated with the North American water project have lowered the expected profit contribution from this project for the balance of this year, Cotts said.
In the International unit, poor weather in the UK lowered the volume outlook, while in Mexico the worsening impact of softness in the supermarket/mass channel, and the new credit policy had a similar impact on the volume outlook. As in North America, ingredients and packaging costs are trending higher than anticipated driven by PET resin costs and the negative impact of a stronger US dollar.
"Faced with recent disappointing results including steeper than expected volume declines and higher than expected increases in PET resin costs, we initiated a comprehensive financial review of our business," said Cott's CFO, Juan Figuereo. "It has now become clear that our previously-announced target is out of reach."
David Gibbons, Cott's Interim CEO, added: "We were encouraged by improving volume and cost trends in the second quarter, including positive feedback received from some of our valued customers. However, the disappointing results we have seen over the past few weeks, at the beginning of our most critical quarter, indicate we will fall substantially short of our expectations for 2008. We are no longer on track to deliver our targets.
"Our focus for the remainder of 2008 is to implement our plans to refocus Cott on its private label business. We believe this remains the best path to improved profitability."
In July, Cott said that sales in the three months to the end of June slipped by 6.4% year-on-year to US$466.5m, due to lower volumes in North America. Cott also reported a net loss of $1.8m compared to a profit of $4.7m in the corresponding period a year earlier. Operating profit fell to $5.3m from $6.2m.
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