The Coca-Cola Amatil Ltd (ASX: CCL) share price has been amongst the worst performers this morning following the release of its half-year results.
At the time of writing the beverage company's shares are down almost 4% to $8.14.
Key takeaways from the release include:
- Total half-year revenue down 3.8% to $2,474.4 million.
- Earnings before interest and tax (before non-trading items) down 4.3% to $312.7 million.
- Net profit (before non-trading items) declined 4.1% to $190.1 million.
- Net profit down 29.3% to $140.1 million.
- Earnings per share (before non-trading items) of 25.1 cents.
- Interim dividend of 21 cents per share, 70% franked.
- Outlook: FY 2017 underlying NPAT to be broadly in line with FY 2016.
Australian Beverages EBIT declined 13.2% to $182.9 million during the half due largely to a challenging trading period which saw competitive pressures in the cola and water categories. Furthermore, a channel mix away from operational accounts, combined with higher cost of goods sold, also weighed heavily on the segment's results.
The segment saw an overall 3.9% drop in volume. This was driven by a 3.8% decline in sparkling beverages volumes and an 8.5% decrease in still beverages volumes. While cost optimisation projects have continued, they were not enough to offset the decline in earnings.
New Zealand & Fiji EBIT increased 4.6% to $45.7 million during the half. Although Fiji saw lower volume, improved pricing and a positive performance in sparkling beverages delivered growth on consistent volumes in New Zealand.
The company's Indonesia & Papua New Guinea segment saw EBIT grow 37% to $50.7 million. Despite soft economic conditions and lower volume in Indonesia, a focus on cost improvement led to the impressive result. Papua New Guinea achieved double-digit volume and EBIT growth on a constant currency basis.
Alcohol & Coffee EBIT grew 10.3% to $21.5 million. This strong performance was driven by solid spirits and premix sales. Furthermore, the addition of Molson Coors' Miller Genuine Draft and Miller Chill brands at the end of 2016 drove significant volume growth in beer.
Finally, the company's Corporate, Food & Services EBIT decreased 25.2% to $11.9 million due partly to a smaller contribution from the services division following the sale of its Quirks business.
Should you invest?
Whilst this was a reasonably underwhelming half-year result, I do believe that there are signs of improvement within it. Especially in the fledgling Indonesia & Papua New Guinea markets.
I believe these two markets could provide Coca Cola Amatil with significant growth in the next decade, supporting its medium-term target of mid single-digit EPS growth.
Based on today's result, the company's shares are changing hands at approximately 16x annualised normalised earnings. I believe this is a fair price to pay to own its shares and could make it a good long-term buy and hold option for patient investors.
