April 28, 2008 / 11:46 AM / 9 years ago

Cott posts loss amid higher costs

TORONTO (Reuters) - Cott Corp BCB.TO (COT.N), which swung to a loss and missed estimates in the first quarter, said on Monday slowing economic growth in the U.S. had so far failed to boost its low-cost private-label brands.

The Canadian soft-drink maker said the “disappointing results” were due to dwindling North American demand and more expensive ingredients and packaging, which offset its strategy of cutting costs and hiking the prices of some products.

In response, shares of the world’s biggest producer of private-label soft drinks fell 1.5 percent to their lowest in a month, and analysts questioned the stock’s ability to recover.

Interim Chief Executive David Gibbons said it should be “prime time” for low-cost private-label drinks, which Cott produces and sells under a partner’s brand name, and which typically shine when consumers tighten their purse strings.

“I certainly hope that we are able to take advantage of the economy,” Gibbons said during a conference call. “It’s never good when the economy is struggling, but for a company like Cott, there should be some opportunities.”

Gibbons, who took the reins at Cott last month, said that key customer Wal-Mart Stores (WMT.N) had begun trimming shelf space devoted to private-label soft drinks produced by Cott.

He said Wal-Mart’s move, which had hammered Cott’s shares when initially announced in February, would hurt sales volumes this year, particularly in the second quarter. The stock has lost more than 45 percent of its value since the February announcement.

The retail giant is also revamping its stores, which has led to a $1.1-million charge for Cott in the first quarter relating to outdated vending machines, and will mean further charges in the coming quarters, Gibbons said.

LIMP DEMAND HURTS PROFITS

Cott lost $20.7 million, or 29 cents a share, in the period ended March 29. That compares to a profit of $4.8 million, or 7 cents a share, in the same period a year earlier.

Quarterly revenue fell 2.6 percent to $389.7 million. Cott said the sales of core products, such as the RC International brand, hindered overall results.

Analysts polled by Reuters Estimates had expected an average profit of 3 cents a share before exceptions, on revenue of $394.2 million.

On the Toronto Stock Exchange, Cott’s shares fell to as low as $2.38 earlier on Monday, before recouping some losses to $2.64, down 4 Canadian cents, in afternoon trading.

International sales grew 9.9 percent, compared with a 7.1 percent drop in North America.

“Cott’s exposure to the (North American carbonated soft drink) business and commodity inflation will continue to be risks, despite having some hedging in place,” UBS analyst Kaumil Gajrawala wrote in a note.

Gajrawala lowered his earnings estimates for Cott for both this year and next to a loss of 18 cents a share and a profit of 4 cents a share, respectively.

Cott’s first-quarter margin dropped to 10.5 percent from 13.4 percent in the year-ago quarter. It targets a gross margin of 16 percent by the end of 2009.

The Toronto-based company, which reported a steep loss last year, repeated that it would try to boost profits from its bottled water business, launch more high-margin drinks and squeeze expenses in 2008.

Reporting by Jonathan Spicer; Editing by Bernadette Baum

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