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Why the Coca-Cola Amatil Ltd share price is plunging today

The Coca-Cola Amatil Ltd (ASX: CCL) share price is down nearly 10% today after the group warned investors that 2019 would be another “transitional” year for investors.

The group that reports on a calendar year basis also warned investors that the second half of 2018 had also seen a few problems across its core Australian business, with the bottler of fizzy drinks, juices, and mineral water also operating in New Zealand, Fiji, PNG and Indonesia.

As anticipated, FY18 is being impacted by our accelerated reinvestment of approximately $40 million of cost savings in Australia. This funding has supported marketing, execution, cold drink equipment and digital technology to drive growth initiatives, and price to drive competitiveness,” commented its CEO Alison Watkins.

The CEO also warned that “volumes” in Australia in 2018 were also “tracking slightly below 2017” which is a bad sign given the increased investment the business is making in trying to grow volumes.

The group has attempted to diversify and product innovate in recent times, but its key product remains the Coca-Cola fizzy drink that is losing popularity with more health-conscious consumers who want to avoid the high sugar content found in the drinks.

This is potentially a structural problem for the group, depending on your point of view, and one probable reason why the share price is now down around 24% over the past 5 years.

The warning for another soft year in 2019 is not going to help the patience of investors, after Ms Watkins suggested a further $10 million would be invested in the Australian business “to increase our salesforce in the state intermediate consumption channel”.

The CEO stated that the group remained committed to its mid-single-digit earnings per share growth target in the medium term, but the share price falls suggest investors doubt the group will be able to meet its targets.

In fact, for the first half of 2018, both underlying EBIT and underlying profit went in the opposite direction in delivering mid-single digit falls.

Motley Fool contributor Yulia Mosaleva has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Coca-Cola Amatil Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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