Beverage maker Cott (NYSE:COT) is getting clobbered on Wall Street today. Its stock is the largest percentage loser on the NYSE, falling as much as 21%.
The company's stock has been rocked by its announcement that current-year earnings are going to be "substantially below previously announced guidance." How low has the limbo bar been lowered? The company didn't provide revised guidance.
Lowered guidance is nothing new for Cott. The company warned lower last year, citing rising raw material costs. So what's the excuse this time? You guessed it -- rising raw material costs, continued softness in the U.S. carbonated soft drink business, and a product mix shift to lower-margin bottled water.
Cott is the world's largest producer of retailer-branded soft drinks. Customers include Wal-Mart (NYSE:WMT) -- which represented an eye-popping 40% of total sales in the last full-year period for which data is available -- and a slew of others. Surprisingly, the company said in its latest SEC earnings filing that in the U.S., "while the carbonated soft drink industry continues to experience slow growth, the retailer brand segment is experiencing positive growth." Given the news, retail-branded drinks can't be doing that great.
Investors might want to take Cott's warnings and look at brand-name peers like Motley Fool Inside Value pick Coca-Cola (NYSE:KO), PepsiCo (NYSE:PEP), and Cadbury Schweppes (NYSE:CSG) to see what impact sales weakness and/or raw material cost increases might have on these stocks. Sales weakness for Cott might well equate to sales weakness elsewhere. Although Pepsi has been putting up sweet numbers and Cadbury has also produced tasty results, Coca-Cola Enterprises (NYSE:CCE), the largest Coca-Cola bottler in the world, recently warned that its third quarter would come in below analysts' estimates.
As consumers get squeezed by higher oil prices, soft sales expectations for relatively cheaper generic drinks like the ones Cott's makes indicates a fairly simple truism, to me: Soft drinks of any kind are discretionary purchases. We'd do well to remember that there's always tap water, the ever-cheaper alternative, waiting to steal sales.
Cott has been expected to grow earnings 12.1% annually for the next five years. If it does so and reaches analysts' 2006 earnings estimates of $1.25, the stock, currently at a new 52-week low, is what I'd call bargain priced. For this observer, though, the sales concentration at Wal-Mart is a big negative, as is the softness in U.S. sales.
Coca-Cola is a Motley Fool Inside Value pick. To see more invaluable value picks, click here for a free 30-day trial.
Fool contributor W.D. Crotty owns shares in PepsiCo. Click here to see The Motley Fool's disclosure policy.
