Shares of Cott (NYSE:COT), which supplies Wal-Mart (NYSE:WMT) and other retailers with generic soft drinks targeting value-minded shoppers who don't mind dealing with angry kids crying cola tears when not served name-brand products from Coca-Cola (NYSE:KO), Pepsi (NYSE:PEP), and Cadbury Schweppes (NYSE:CSG) (what kind of parents are you, anyway?), fell as the company bemoaned rising raw materials costs.
Toronto-based Cott said it expects 2004 sales of between about $1.65 and $1.69 billion, which are seen translating to EPS of $1.15 to $1.19. (The company is scheduled to report results on Jan. 28.) Those sales figures would be between 16% and 19% up from last year's top-line number, while Cott turned in 2004 EPS of $1.09 -- the estimates announced today would represent growth of something around 6% to 9%. That's well off the company's September guidance.
As a result, Cott shares fell nearly 10%. Strategically the company looks well-placed, but the number that's really got 'em worried is the 2005 sales growth projection of between 8% and 10% -- perhaps half as much as the company plans to report in 2004.
That number, along with the aforementioned materials costs and expenses associated with the building of a new plant, are seen as pressuring EPS growth: Management yesterday directed investors to expect profits per share to rise by between 2% and 8% in 2005. Neither figure compares particularly well with Cott's projected 2003 or reported 2004 numbers. (With profit margins coming under fire all year, this is perhaps unsurprising.)
So is all of Cott's dominant position in the generic soft drinks business for naught if it can't grow profits? There's some reassurance in the fact that Cott has grown its key U.S. business at impressive rates in 2003; the downbeat financial impacts of the new distribution center, meanwhile, should be near-term. (One assumes, meanwhile, that it would facilitate long-term growth.) Investors, however, appear concerned, as the shares are down considerably from summer highs.
It would seem an indicator of investors' pleasure with Cott, however, that the company's valuation remains determined not to hit value levels: It still trades at 20 times its high-end estimate for 2005 despite the new, lowered earnings outlook -- surprising, as the company has finished the year weakly after a strong start. Monday's deep drop and heavy trading volume are another indication of growing investor concern.
Fool contributor Dave Marino-Nachison doesn't own any of the companies in this story.
