US: Soft drinks makers can absorb cost rises - research
Soft drinks makers in the US and Europe can stave off soaring input costs with higher prices and more innovation, a new report has claimed.
Most major soft drinks firms should see solid earnings and cash flow growth in 2008, investment group Standard & Poor's said late last week.
"Pricing gains and new product contributions should outweigh rising input costs," it said, rating the soft drinks industry as "neutral" for the year.
It warned that firms could ill afford to relax, however. "We expect energy and raw material costs to remain a significant concern, especially for bottlers, which are heavy users of aluminium and PET resins in packaging. Also, price spikes in high fructose corn syrup could materialise."
European businesses are likely to be hit worse than the US, due to weaker market conditions, it added.
Britvic, the UK's leading soft drinks maker, announced in July that year-to-date still drinks volumes were up 7%, compared to a 1.2% market decline. Carbonated volumes were up 2.6%, against market growth of 2.2%.
In the US, S&P predicted higher prices may cut volume growth for CSDs. "For the longer term, we believe volume trends will benefit from increased penetration into non-traditional distribution channels and growing consumer demand for non-alcoholic products (soft drinks, ready-to-drink teas, juices, bottled water and sports drinks)."
It added that bottlers would face a tougher time in the short-term.
Coca-Cola Bottling Co. said last week that net profit fell from US$16.3m to $10.8m in the first half of 2008. William Elmore, president and COO, said: "In the face of continued extraordinary raw material cost increases, we are working diligently to redesign our brand/package/channel pricing architecture as this is the key driver of both revenue and gross margin."
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