The stock picker's guide to Coca-Cola Amatil Ltd

What do investors need to know before the release of full-year results?

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It was a year to forget for shareholders of beverage giant Coca-Cola Amatil Ltd (ASX: CCL) as shares plunged as low as $11.46 in 2013, from their high of $15.43.

This was the result of a profit warning due to pricing pressures from key competitor Schweppes as well as supermarket giants Woolworths Limited (ASX: WOW) and Wesfarmers Ltd (ASX: WES). A lower-than-expected post-election uplift in consumer spending was also a contributing factor behind the group lowering full year guidance for earnings before interest and tax (EBIT) to 5% to 7% below last year's result.

Despite this setback, there are certainly positive signs for the iconic beverage maker.

Strength of the brand

First and foremost, it should be recognised that CCA's products are amongst the most popular and well-recognised across the globe, with Warren Buffett once describing its parent company, The Coca-Cola Company (NYSE: KO), as a 'forever' brand, stating that "No business has ever failed with happy customers". With 2013 as the exception, CCA has delivered investors with consistent gains since 2008, and in the long-term, the strength of the company should prevail.

An Indonesian growth story

While CCA's Australian beverage business accounts for around 70% of the group's overall earnings, there is substantial room for growth in overseas markets – particularly in Indonesia where the population is 250 million people – roughly 10 times the size of the Australian market.

While citizens of these developing nations are increasing their consumption levels, the average Indonesian still consumes just 14 Coke products per year. As a comparison, the average Australian consumes over 250 Coke products per year while the average American consumes 403 a year. Although sales in the region have risen over 60% since 2008, it seems that the real Indonesian growth story is just beginning.

However, investors should note that demand from the region did slow during the year as the nation adjusted to higher levels of inflation.

Re-entry into the beer market

Following a two-year hiatus, CCA finally re-entered the Australian beer market in December, which is estimated to be worth $11 billion in sales and up to $1 billion in profits annually. While it will be distributing brands such as Carling, Coors Light and Cobra, it is anticipated that CCA will grasp the third spot amongst Australian beer companies which should boost earnings for years to come.

Foolish takeaway

The company will announce its full-year result on February 18. While stocks are not necessarily in bargain territory, trading at $11.86 a share, the company should deliver investors with impressive gains over the long-term – particularly with its trailing 4.8% dividend yield.

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

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