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Coca-Cola Amatil Ltd disappoints as profits plunge 82.5%

Coca-Cola Amatil Ltd’s (ASX: CCL) shares plummeted to a fresh 52-week low this morning following the release of the group’s full-year results that revealed a massive 82.5% drop in full-year profits, which the company attributed to the difficult trading conditions in the grocery channel as well as the massive writedowns on its struggling SPC Ardmona (SPCA) cannery business.

Shares fell as low as $11.04 on Tuesday which resembles a 6.8% drop for the day after net profit came in at just $79.9 million for the year to 31 December 2013, down from the $457.8 million recorded last year.

This figure was heavily impacted by $404 million in writedowns on its SPCA business which has struggled to compete with cheap imported fruit and vegetables due to the strong Australian dollar. It was reported just last week that CCA and the Victorian Government will invest a combined $100 million into the SPCA division to help improve efficiency and innovation.

Meanwhile, trading conditions in the Australian grocery channel (the group’s largest market) also proved difficult with beverage earnings declining by 9.3% for the year. Its performance was heavily impacted by aggressive competitor pricing by Schweppes as well as pressures from supermarket giants Wesfarmers Ltd (ASX: WES) and Woolworths Limited (ASX: WOW). Higher levels of promotional activity also impacted earnings and therefore profitability.

The positives

It was difficult to find many positive outcomes for the 2013 year, but the company did experience a strong return to growth in both New Zealand and Fiji. The company recognised 18% earnings growth in the two regions which were bolstered by the successful launch of numerous new products as well as improved economic conditions in the region. Sales also benefited as a result of the appreciating New Zealand dollar.

Meanwhile, the company also returned to the beer and cider market in December. CCA managed to extend the Beam partnership agreement to a new 10-year term which will end December 2023. The re-entry into the market is expected to boost earnings for years to come in what CEO Terry Davis said was a $1 billion a year industry.

The company maintained its 32c final dividend, franked to 75%.

Outlook

While investors had written 2013 off as a year to forget, they had been hoping for an optimistic outlook for 2014. Unfortunately that wasn’t found in the report with the company stating that they remain concerned regarding the generally weak consumer confidence, while Schweppes’ pricing in the grocery channel has actually declined further since January. The company will be undertaking a comprehensive review of its operating costs structure in order to adapt to a more competitive landscape.

In regards to its Indonesian business (which is one of the company’s greatest growth prospects), the company is expecting to again deliver volume growth of over 10% for the coming year. The group will continue to invest in production and distribution capacity to meet increasing demand.

Foolish takeaway

Investors were hoping for some positive news following a rather disastrous 2013. Instead, a rather bleak short-term outlook saw shares plummet, adding to the nightmare for short-term investors. However, those focused on the long term could see this as an opportunity to buy shares at a more attractive price.

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

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