Coca-Cola Amatil shares dropped to almost 6.4% following a number of analysts questioned the company’s plans to raise their product’s prices due to the rising price of sugar and pointed out a couple of risks that the company’s plans to release a series of new products can affect their earnings and sales.
The reaction from the investors was caused by the company’s briefing stating a $100 million cost-cutting aside from the initial $100 million to be cut from their expenses. This was due to the repetition of their guidance regarding their mid-single-digit earnings per share growth for the following years.
The increasing investor concerns and the lack of confidence in their nearing earnings outlook regarding Coca-Cola’s growth led the company to lose their recent gains with the shares falling to 6.4% to $9.45 with over 9.7 million shares changing hands during heavy trading.
The management of Coca-Cola Amatil also confirmed that they are struggling in the middle of a decline in the demand of their products which are mostly soft drinks and the increasing health concerns of their sugar-based products.
Currently, there is only one buy recommendation on the company shares as other downgraded their ratings to either neutral, underweight, and sell.
An agreement is set to be closed between Coca-Cola Amatil and its major shareholder which is The Coca-Cola Company regarding a new model in pricing concentrate which is a major income provider for The Coca-Cola company and the main ingredient used in the production of carbonated drinks.
Increasing Health Awareness among Consumers
In their efforts to decrease competition from companies offering healthier options or even non-alternative emerging brands, the company together with its major shareholder is not creating a new structure that will accelerate their sales despite the declining demand for soft drinks.
One of which is the strategy to boost the sales of their own water, tea, juices, and other non-carbonated products that will raise more revenue for their brand all the while coming up with more low sugar alternatives for the carbonated and sugar products.
Following the struggles of the company regarding the sales and the decreasing demand for their products, the shares of Coca-Cola Amatil dropped to 6.8% to $9.41 from an opening price of $9.90. The stock traded at $10.10 prior to the drop from an opening of $10.09.
Coca-Cola Amatil shares were in a rally for the past seven consecutive sessions before the downgrade from analysts due to increasing investor concerns sent the stocks to dive by 6.8%. Also despite the huge drop, the stocks have not been oversold.
Although the $100 million cost cutting that would drive more revenue due to the savings which was announced during their investor guidance would assure growth, the announcement did fail to impress a huge number of investors driving stocks to a huge decline even after the lower expenses would give a stronger dividend payout in the years to come.
So to say, Amatil shares are still good at a buy because of the good dividend returns and a steady working cash flow caused by their cost cutting plans but is set to show a slow growth in their overall revenue.
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