Why Coca-Cola Amatil Shares Dropped 9% Friday

Coca-Cola Amatil Ltd [ASX:CCL] ran down as much as 9.22% this morning, to $9.74 per share. The drop wiped $687.8 million from CCL’s market cap.

Now, this isn’t the company that makes Coke. That’s The Coca-Cola Co. [NYSE:KO]. What CCL does is manufacture, distribute and sell ready-to-drink beverages.

What happened to Coca-Cola?

This morning, CCL released their post-Easter trading update. As you might have already guessed, beverage sales were weak.

As CCL notes:

Trading in Australian Beverages for the year to date has been weaker than last year with all channels experiencing volume and price pressure due to competition and category trends.

‘…Trading in New Zealand & Fiji, Alcohol & Coffee and SPC is in line with expectations for the year to date.

Management now expects net profit after tax for the first half of FY17 to decline.

What now for the CCL share price?

While poor trading performance isn’t what shareholders want to see, it’s not something to sell your holdings over. One-off costs and volatility in the business cycle are part and parcel of the ups and down of investing.

Earlier this year, in February, CCL announced their on-market share buyback. Generally, when a company announces buybacks, it’s good for investors.

It’s good for investors because it increases their earnings per share as more shares are taken out of the market. But, of course, you would prefer to buy back shares when they are undervalued. Hence, the same amount of cash can buy more shares, and management gets a pat on the back for being effective.

CCL has planned to buy back $350 million share. To date, CCL has bought 1.33 million shares, for a total value of $14.3 million. That works out to an average buy-price of $10.75.

The company will continue their buyback on 26 April 2017. So if prices dip further, it could be a great chance for CCL to purchase more shares at a discount.

Regards,

Härje Ronngard,

Junior Analyst, Money Morning

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