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Coca-Cola Amatil’s new beer deal

As part of its strategy to re-enter the $11 billion beer market, Coca-Cola Amatil (ASX: CCL) has struck a deal that will see it distribute a number of Molson Coors’ brands in Australia, including Carling, Coors Light and Blue Moon.

The company has been keen to re-enter the market since selling its stake in the Pacific Beverages joint venture with SAB Miller in 2011, with the market holding a $1 billion profit pool and enormous margins.

However, while these brands only account for small sales volumes in Australia, analysts and investors could be skeptical if the deal is overplayed when the company releases its profit result today. This is because the deal could take a very long time to produce substantial results for CCA.

As highlighted by The Australian Financial Review, Merrill Lynch is particularly skeptical of the company’s push back into the beer market, suggesting that the move could reflect past results achieved by the company when it was with one of the world’s largest breweries. Earlier this year, an analyst from the group said “It took Coke nearly five years to establish a little over 1% market share in Australian Beer”. In comparison, Molson Coors is the world’s seventh largest brewer.

However, CCA’s CEO Terry Davis is confident of the company’s return back into the market. Whilst the new deal should not be played too heavily in the group’s profit report today, it could at least divert some of the attention away from what many expect will be a 8% or 9% fall in earnings before interest and tax (EBIT) when compared to the previous corresponding period.

Analysts are expecting EBIT to fall to $220 million – compared to the $247.1 million reported for the June half last year – which would be the result of increased competition and immense pricing pressures from supermarket giants Wesfarmers (ASX: WES) and Woolworths (ASX: WOW).

Foolish takeaway

Coca-Cola Amatil’s products are amongst the most well-known in the world, and the business has consistently delivered strong results. Shares in the business are trading at an attractive price, and whilst a lower profit is anticipated from today’s report, it could be an excellent opportunity to add this company to your portfolio.

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Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned in this article.

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