July 27, 2009 / 2:26 PM / 9 years ago

UPDATE 3-Cott results rise, but shares drop on outlook

*EPS $0.48 vs year-earlier loss $0.03

*Revenue falls 5.9 percent to $438.8 million

*Shares drop 21.2 pct (In U.S. dollars. Adds company and analysts’ comments. Updates share price)

By Scott Anderson

TORONTO, July 27 (Reuters) - Cott Corp (BCB.TO) (COT.N), reported a quarterly profit on Monday that handily beat expectations, but its shares dropped more than 20 percent as the company warned that the second half of the year could be challenging.

Cott, the world’s largest maker of private-label soft drinks, cautioned that steep competition and rising commodity prices could limit profit growth.

“I remain keenly aware that two good quarters don’t make a successful turnaround. We still face some challenges in a competitive environment,” Jerry Fowden, Cott’s chief executive, said on a conference call with analysts.

The company warned during the call that its gross margin, which increased to 16.7 percent of sales in the second quarter from 12.2 percent in the year-before period, could fall by as much as 2 percentage points in the second half of the year as Cott grapples with rising costs for materials such as sweetener and aluminum used in its containers.

UBS analyst Kaumil Gajrawala downgraded the company to “hold” from “buy”.

The cautious outlook sent the shares, which have soared since the start of the year, down 21.2 percent to C$6.55. Early in the session the shares touched a high of C$8.96.

“Some of the concern coming through here is on the second half. That is spooking the market here a little bit,” said David Hartley, an analyst at BMO Capital Markets.

“I think the company is being a little cautious. I think it does have cost savings in its back pocket, but the market wants to see it before it believes it.”

Toronto-based Cott said on Monday it earned $33.7 million, or 48 cents a share, for the second quarter ended June 27, compared with a loss of $1.8 million, or 3 cents a share, for the same period last year.

Taking out one-time impairment costs and tax benefits, the company earned about 30 cents a share, Hartley said.

The Toronto-based company said strong performances at its North American and British divisions and a favorable tax benefit helped it return to a profit.

However, revenue for the quarter fell 5.9 percent to $438.8 million due to the rise of the U.S. dollar against the currencies of several countries in which Cott operates.

Analysts, on average, were expecting profit of 15 cents a share and revenue of $461.8 million, according to Reuters Estimates.

$1=$1.08 Canadian Reporting by Scott Anderson; editing by Peter Galloway

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