Coca-Cola Amatil share price sinks lower after bleak trading update

The Coca-Cola Amatil Ltd (ASX:CCL) share price is dropping lower on Tuesday after the release of a disappointing trading update…

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In morning trade the Coca-Cola Amatil Ltd (ASX: CCL) share price is trading lower on the day of its annual general meeting.

In early trade the beverage company's shares fell 4% to $8.61.

What did Coca-Cola Amatil announce at its annual general meeting?

As well as releasing its traditional presentation with speeches and a breakdown of its performance over the last 12 months, it also released a trading update.

According to the update, Coca-Cola Amatil has been battling some particularly tough trading conditions during the pandemic.

Last month the company warned investors that conditions were difficult, this morning management revealed the full extent of the "unprecedented disruption" it has faced.

In Australia the company experienced a ~30% decline in volume of its non-alcoholic ready to drink category during April compared to the prior corresponding period. This decline reflects lockdown restrictions impacting on the go (OTG) volumes and also changes in buying patterns in the grocery channel.

During April, Australian OTG volume was down 55% on the prior corresponding period and grocery channel volume fell 10%. The latter was driven by retailers reducing their inventory levels and cancelling promotional activities during the traditionally peak Easter and ANZAC Day trading periods.

The Australian alcohol business was also out of form. It posted a 35% decline in volume due to on-premise closures and softer Easter trading.

Things weren't any better for its New Zealand or Indonesia businesses. Both posted sharp declines in volume during April due to the negative impacts of the pandemic.

Combined, total volume across the company during April declined by approximately 33% compared to the same period last year.

Another disappointment is that the shift in channel mix for its sales means that its margins have narrowed during the pandemic, putting extra pressure on its profits.

What now?

With lockdown restrictions starting to ease, the company notes that its volumes have started to recover slightly.

During the first three weeks of May, Coca-Cola Amatil's overall volumes were down 26% on the prior corresponding period.

However, Managing Director Alison Watkins warned that conditions could remain tough for a little while to come.

She commented: "Looking ahead, whilst it is encouraging to see lockdown restrictions gradually being eased and some green shoots of improvement in trading conditions emerge, the reality is that economic recovery will take time and uncertainty remains. We anticipate we will have a clearer view that we can share with the market at our 2020 half year results in August."

Nevertheless, Ms Watkins remains optimistic on the longer term.

"We have a clear path forward to weather the current conditions, noting that the fourth quarter trading conditions will be imperative to our FY2020 financial performance. We are confident that our strong balance sheet, ample liquidity, robust cashflows and solid credit ratings place us in a strong position financially and operationally to trade through this period and emerge a stronger and better business," she concluded.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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