Coca-Cola Amatil Loses Domino’s Contract – Share Price Drops

Coca-Cola Amatil Ltd [ASX:CCL] dropped 2.9% this morning to $8.96 per share. The bottling company is now down more than 11% year-to-date.

What caused Coca-Cola Amatil’s share price drop?

According to The Australian Financial Review, Coca-Cola Amatil has lost a major contract with Domino’s Pizza Enterprises [ASX:DMP]. It’s the second blow to the company in the past two months. The first blow was when Woolworths Ltd [ASX:WOW] refused to stock Coca-Cola’s biggest new product, Coca-Cola No Sugar.

As reported by the AFR:

Coca-Cola Amatil has suffered its second blow in two months, losing a major contract to supply carbonated soft drinks and water to fast-growing Domino’s Pizza Enterprises to rival bottler Pepsi/Schweppes.

‘…While Coca-Cola No Sugar is being sold by Coles, Hungry Jacks, 7-Eleven and other convenience stores, Woolworths says consumers already have enough choice of Coca-Cola products.

What now for Coca-Cola Amatil?

For years, Coca-Cola Amatil has struggled to grow revenues. This is largely thanks to declining soft drink sales. In FY15 and FY16, total sales only grew 3% and 1% respectively. But according to its FY16 annual report, Coca-Cola Amatil believes it can ‘continue to make solid progress.

So is the stock just oversold?

Throughout 2017, Coca-Cola Amatil has been buying back shares. On 22 February, the company said it would buy back approximately $350 million shares. This is largely due to its extremely large cash piles.

In FY16, Coca-Cola Amatil had $1.38 billion in cash. Instead of letting inflation take hold, the company believes it can increase shareholder value by buying back shares.

While this might not necessarily mean the stock is cheap, it should prompt you to dig further. Coca-Cola Amatil is down more than 30% over the past five years. But if it can increase the number of high-margin brands it bottles, the stock could easily reverse.

Regards,

Härje Ronngard,

Junior Analyst, Money Morning

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