Coca-Cola Amatil Limited (ASX: CCL) shareholders haven't had a pleasant experience over the past few years with both profits and the share price suffering a significant decline since 2012.
The decline in profitability can be partially explained by a change in consumer tastes which has seen a shift towards healthier beverage options.
The decline can also be partially explained by major customers such as Woolworths Limited (ASX: WOW) and Wesfarmers Ltd (ASX: WES). These two supermarket giants have argued for better terms from Coca-Cola Amatil (CCA) which has led to a shrinking in CCA's profit margin and a shift in pricing of key products such as Coke and Mt Franklin water towards lower everyday prices.
Here's a look back at CCA's results over the past few years (note: CCA operates on a calendar year basis):
In 2012 revenues and earnings both hit record highs of $5.1 billion and $558 million respectively. The release of these results in early 2013 corresponded with the share price hitting an all-time high over $15.
In 2013 CCA reported a drop in revenue to around $5 billion and a fall in profit to $503 million. These results obviously displeased the market with the share price subsequently falling to under $10.
2014 turned out to be an even worse performance for the group. While revenues stayed roughly steady at $5 billion, profits sunk to just $375 million – a level not seen since around 2006.
Thankfully, 2014 appears to have represented the low point for earnings with CCL reporting a rebound in revenues to $5.1 billion and a higher profit result of $393 million in 2015 (source: CommSec; profits are before abnormals).
A brighter future?
With the company recently reporting interim profit growth of 7.8% to $198 million and a 5% increase in the interim dividend to 21 cents per share (cps) for the six months to June 2016, there is reason to believe that shareholders can expect a brighter future.
Management provided guidance that it is targeting a "return to sustainable mid single-digit EPS growth levels" which would certainly be a pleasing growth rate for this large company.
Attractively priced?
The improved earnings picture and more positive outlook has led to CCA's share price recently rallying to a 52-week high of $9.99. Currently the shares are trading at $9.85 with one analyst consensus estimate forecasting earnings per share for 2016 of 54 cps (source: Reuters).
This forecast implies a price-to-earnings ratio of 18.2 times. Management has provided guidance for a medium term dividend pay-out ratio of over 80%. Assuming an 80% pay-out ratio of the 2016 forecast would imply a dividend yield of 4.4%, partially franked.
These metrics, in my opinion, are relatively attractive considering the strong brand and potential turnaround in the group's fortunes.
