April 17, 2008 / 4:01 PM / 10 years ago

Cott turnaround faces tough market conditions

OTTAWA (Reuters) - Cott Corp (BCB.TO) will try to boost profits from its bottled water business, launch more high-margin beverages and squeeze expenses in 2008, the troubled soft drink maker told shareholders on Thursday.

Facing higher ingredient costs and flat demand, the world’s biggest producer of private-label soft drinks struggled in 2007, posting a steep loss and falling short of turnaround targets, said interim Chief Executive David Gibbons.

Cott remains confident in its strategy, but market conditions such as soaring commodity prices post big hurdles.

“I’ll work very hard to restore our credibility,” said Gibbons at the company’s annual meeting in Toronto.

“We do have a very strong base with which to build upon. It’s not going to be easy, but I am looking forward to great things from Cott.”

Hard hit by news in February that key customer Wal-Mart Stores (WMT.N) would reduce U.S. shelf space for its drinks, Cott is trying to improve its results by reducing costs and hiking prices.

New technology, using lightweight bottles is expected to cut costs and improve profit margins for Cott’s bottled water lines. Production will start this summer.

The company is also counting on other new high-margin beverages such as teas and energy drinks, and bigger international sales, to lift 2008 results.

Meanwhile, it faces the difficult task of passing along its soaring costs to customers.

“I think we have done a better job in the last 12 months of trying to keep up through price increases with the rise in cost of the commodities,” said Gibbons, who last month replaced CEO Brent Willis. “There were a couple of years previous where we did not.”

Cott is also hedging, or taking fixed-cost positions, on such key commodities as aluminum.

Presenting cost increases to retail customers such as Wal-Mart is not easy, said Gibbons.

He would not answer a shareholder’s question on the financial impact of Wal-Mart’s recent decision to cut Cott’s space, but said it remains a “great” customer.

“We see a lot of growth opportunity into the future with our business with Wal-Mart for the long term,” he said.

“Our team is working together with the Wal-Mart team and we are putting together a program for the rest of the year ... but we’re not ready to share that here today.”

Cott expects to report first-quarter results on May 1. Analysts expect earnings before exceptions of 3 cents a share, on average, down from a profit of 7 cents a share in the same period last year.

Cott lost $76.8 million, or $1.07 a share, in the fourth quarter.

The company’s shares have tumbled more than 80 percent in the past 12 months. The stock was off 2 percent at $3.09 on the Toronto Stock Exchange and down 3.5 percent at $3.04 in New York on Thursday.

Reporting by Susan Taylor; editing by Rob Wilson

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