Is today a good day to buy Coca-Cola Amatil Ltd?

Coca-Cola shares have taken a thrashing. Could this be your opportunity?

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Following on from a disastrous run in 2013, shareholders of Coca-Cola Amatil Ltd (ASX: CCL) have been dealt yet another massive blow today with their shares plummeting $1.63 or 14.3%, this after new Managing Director Alison Watkins completed her initial review of the business.

Watkins, who replaced Terry Davis as head of the company in March, has flagged a 15% decline in the company’s first-half earnings, which it has attributed to challenges facing its Australian and Indonesian markets. This could indicate earnings before interest and tax (EBIT) of around $318 million compared to $374 million recognised in the first half of 2013.

With the first quarter of trading now complete, the company has admitted that conditions have yet to pick up from last year in its Australian business, with weak consumer confidence and spending continuing to affect earnings. Further, the company is still struggling against the aggressive discounting being undertaken by competitors such as Schweppes, while supermarket giants Woolworths Limited (ASX: WOW) and Wesfarmers Ltd (ASX: WES) are also pressuring prices downwards.

Things aren’t going so well in Indonesia either. Although volume growth in the region is still expected to top 10% in 2014, it is being offset by a 20% depreciation of the Rupiah (Indonesia’s currency) which is causing heavy cost inflation. While Indonesia has for a long-time been one of the company’s strongest divisions, the Indonesia & PNG region (the two form one operating segment) is now only expected to contribute modestly to the group’s overall earnings for the half.

In light of the company’s struggles, Watkins has implemented a strategic review to explore ways to drive growth, boost productivity and cut costs. She said: “Over the next few months, we will challenge and review our business plans and strategies across the group to drive growth and value while targeting a step-change in our fixed costs and productivity.”

On a more positive note, the New Zealand division continues to perform strongly while the company’s embattled SPC Ardmona business is on track to improve earnings.

Foolish takeaway

Shareholders have every reason to be disappointed with the company’s performance and, to a large extent, today’s plunge is justifiable. The good news however, is that the problems appear to be short-term in nature. Volumes will more than likely continue to climb in Indonesia, costs will be improved and the pricing war with Schweppes will inevitably come to an end.

Although shares will likely remain volatile over the coming weeks and could fall even lower than they have today, they are looking delicious from a long-term perspective with Coca-Cola Amatil remaining one of Australia’s strongest corporations. Today’s plunge in price could most certainly be the opportunity you’ve been waiting for to buy.

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

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

asx share price competitions represented by businessmen arm wrestling
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

person reading news on mobile phone
⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »