Coca-Cola Amatil: Things Going Better

Australia | Jul 24 2020

Coca-Cola Amatil’s sales trend improved in the month of June, but the future remains uncertain

-Better than expected sales improvement
-Indonesian assets written down
-Outlook for Coca-Cola Amatil remains virus dependent

By Greg Peel

Brokers were surprised by the news in Coca-Cola Amatil’s ((CCL)) June quarter update that the month of June saw a vast improvement on the earlier months in the quarter. Group volumes fell -9% in June (year on year) compared to -26% in May – a better result than analysts had expected.

Australian sales fell -4% compared to -20% in May. New Zealand – where they know how to handle a virus – saw sales increase by 4% compared to a -10% May fall. In Indonesia – where they simply can’t control a virus – sales fell -23% compared to -40%.

The company has announced an impairment on Indonesian assets will be taken in the interim accounts to the tune of -$160-190m. There was no reason given, but we might be able to draw our own conclusions.

The better than expected June sales numbers clearly reflect the reopening of Australia and New Zealand. While sales of fizzy drinks and other beverage offerings at supermarkets remained strong during the lockdowns, “on-the-go” sales, from anywhere there’s a vending machine, such as servo, or post-mix, such as a bar, obviously collapsed in April-May.

The bad news is one does not offset the other in earnings terms, given “on-the-go” is high margin and supermarket sales low margin, particularly for multiple can/bottle “value packs”. Further bad news is that in the star geography of New Zealand, that margin spread is lower.

Analysts call this “channel mix”.

The major bad news is, of course, that unlike New Zealand, parts of Australia are now back in lockdown, other parts have been told to pretend they’re in lockdown, and the risk of other states, meaning NSW, going back into lockdown increases every day.

The good news is the company has announced significant cost-cutting worth -$140m, and a reduction in planned capex spend to $200m from $300m.

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