Share price falls as Cott lowers sights on 2008 earnings
Cott three-month chart
Toronto-based Cott Corp., a struggling giant in the business of making house-brand soft drinks, saw its share price fall another 16 per cent Tuesday after it lowered a 2008 earnings target and withdrew a target it had set for 2009.
As recently as July 31, Cott said it expected its adjusted operating profit, as calculated by management, to increase by 50 to 70 per cent this year.
The new 2008 target is between 28 per cent below the 2007 level and 5 per cent above.
Cott shares closed at $2.17, down 41 cents, on the Toronto Stock Exchange. That compares with prices near $12 a year ago. The stock dipped as low as $1.74 in March.
"Faced with recent disappointing results including steeper than expected volume declines and higher than expected increases in PET [polyethylene terephthalate] resin costs, we initiated a comprehensive financial review of our business," Cott chief financial officer Juan Figuereo said in a statement.
"It has now become clear that our previously announced target is out of reach."
Cott keeps its books in U.S. dollars.
The earnings measure Cott executives favour ignores such negatives as restructuring charges, management severance costs and items related to trademark and inventory writeoffs, among other things.
Last year, Cott had an operating loss of $57.1 million and a bottom-line loss of $73.1 million by conventional accounting. Both were duly reported to shareholders.
But in a supplementary tally offered by management, the losses turned into an adjusted operating profit of $33.7 million. "Management believes that certain charges are not pertinent to day-to-day operational decision making in the business," a company statement explained.
Tuesday's statement delivered bad news from near and far:
"In North America, volume is declining at a higher rate than previously expected, mainly due to heavier than anticipated national-brand promotional activity," it said.
"At the same time, packaging costs are increasing more than previously anticipated, driven by PET resin costs and the impact of the recent rapid strengthening of the U.S. dollar against its Canadian counterpart.
"Additionally, higher than anticipated start-up costs and shipment delays associated with the North American water project have lowered the expected profit contribution from this project for the balance of 2008."
Elsewhere, poor weather dimmed the volume outlook in Britain and soft supermarket sales did the same in Mexico, while costs increases were worse than expected, it said.
"We are no longer on track to deliver our targets," interim CEO David Gibbons said in the statement.
"Our focus for the remainder of 2008 is to implement our plans to refocus Cott on its private label business. We believe this remains the best path to improved profitability."
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