Coca-Cola Amatil Ltd (ASX: CCL) started its business restructuring program last year, making cuts to operational costs, reducing workforce numbers and working out a deal with US-based The Coca-Cola Co to inject capital into Coca-Cola Amatil's flagging Indonesian operations.
The initial impact of these steps will be seen when the company reports full year results in mid-February. Could the stock jump back up above $10 a share, where it was before the licensed Coca-Cola bottler and distributor announced an expected 15% drop in first half earnings in April 2014?
Here are four reasons why Coca-Cola Amatil's share price could stabilise and provide long-term value investors a good entry point.
Lower petrol prices and interest rate cuts
The company released a market update in December stating Australian trading conditions were still challenging. The retail environment could possibly improve due to lower petrol prices and the possibility of further interest rate cuts. With consumers retaining more money, supermarkets and convenience stores may see some increase in revenues of small ticket items.
Earnings may stabilise
Coca-Cola Amatil management stated it still expected earnings before interest and tax (EBIT) in the second half to exceed $316.7 million before significant items. That was the first half EBIT value reported in August, so if the expectation is correct, the company may have stopped the bleeding in earnings – at least for now.
That result could set a firm floor in the stock's price, as well as act as a springboard for investors to lift the stock back above $10 a share.
Coca-Cola Life
Coca-Cola's new soft drink Coca-Cola Life came onto the market in November, so investors will want to hear about initial consumer reaction and sales. Advertised as having 30% less sugar, it contains stevia, a natural sweetener. Coca-Cola is trying to adapt to changes in consumer preferences, which are moving towards low-sugar refreshment and natural ingredients.
The green-labelled drink could give a boost to sales while Australia's economy is still not firing on all cylinders and competition puts pressure on pricing.
Indonesian division investment
The Coca-Cola Co, owner of a 29% stake in Coca-Cola Amatil, agreed to invest US$500 million into Coca-Cola Amatil's Indonesian business over 3-4 years. Although sales volumes increased 22% in the first half, heightened market competition and a weakening Indonesian currency laid low segment earnings.
The capital injection will help Coca-Cola Amatil conserve funds for beefing up its Australian operations. In return, The Coca-Cola Co will get new shares in the Indonesian operation subsidiary equal to a 29.4% stake.
Coca-Cola Amatil a value buy now?
Given these new developments, I think Coca-Cola Amatil may have a sturdy share price bottom for value investors. Currently, the stock pays a big 5.0% yield partially franked, which could attract more dividend investors if bank term deposit rates fall any further from RBA interest rate cuts. If half-year earnings results boost the full-year earnings, then I believe this is a good time to add to your Coca-Cola Amatil position.