Coca-Cola takes aim at Pepsi

Shares in beverage manufacturer and distributor Coca-Cola Amatil (ASX: CCL) have recovered slightly today, following yesterday’s 5.5% plunge after the company released its first-half results.

Investors heavily sold down the company when CEO Terry Davis warned that full-year earnings before interest and tax (EBIT) could fall by as much as 4%, compared to his previous guidance whereby he expected EBIT to be in line with last year’s result.

Earlier in the year, Davis had blamed heavy discounting by supermarket giants Woolworths (ASX: WOW) and Wesfarmers (ASX: WES) – as well as a high Australian dollar – for the tough trading conditions impacting the company. Whilst the grocery market earned a mention for its impact, Coca-Cola Amatil took aim at the company’s primary competitor Schweppes for its unprecedented levels of discounting.

In order to promote its new product Pepsi Next, Schweppes undertook an aggressive discounting strategy, whereby the price gap between Coke and Pepsi had widened from 38% to 48%, according to Warwick White, the head of Coca-Cola Amatil’s Australasian business. Davis also stated that Coke’s volumes in grocery stores had plunged by 14%.

These circumstances, amongst others, saw Coca-Cola Amatil’s beverage earnings in the Australian region fall by 10.1% for the half. Whilst Coca-Cola Amatil’s Australian business generates around 75% of the company’s profits, a fall of 10.1% was damaging on the overall result.

The company’s shares are currently sitting at $12.26, having regained 22c or 1.83% from its loss yesterday.

Foolish Takeaway:

Yesterday’s result was far from ideal and investors had every reason to be disappointed. However, the company’s prospects in Indonesia are looking very attractive, and it will re-enter the beer market later this year, offering yet another avenue for strong revenue. With shares now trading at what is nearly a 12-month low, investors are presented with an opportunity to add one of Australia’s strongest companies to their 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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