TORONTO – Cott Corp. (TSX:BCB) warned investors Wednesday that margins could be squeezed by higher commodity prices into next year, even as it reported higher overall profits and sales in its most recent quarter.
“It is clear that commodities have and will remain a headwind for food and beverage producers for the next several quarters and into 2012, which means we’ll likely experience some continued commodity pressure as we look forward,” chief executive Jerry Fowden said on a conference call with analysts Wednesday.
Cott Corp. (TSX:BCB) reported higher net profits for the latest quarter as the company benefited from an acquisition to sharply boost revenues despite price hikes on key ingredients and materials ranging from apple juice concentrate to resin used to coat its cans.
Cott said its net profits jumped to US$27 million or 28 cents a share for the second quarter ended June 30. That was up from $22 million, also 28 cents per share, the previous year.
The company, which reports in U.S. dollars, said revenue increased 51 per cent to US$640 million from $425 million, largely as a result of the 2010 acquisition of Cliffstar Corp., a privately owned U.S. juice producer.
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The company said the Cliffstar business, acquired in the third quarter of 2010 for $500 million, contributed US$162 million of the increase in revenue.
Excluding the acquisition and foreign exchange impacts, Fowden said Cott’s core volumes and revenues still grew by nine per cent from the same quarter last year.
“This top line performance represents one of the best quarterly year-over-year volume and revenue growths for Cott during the past several years,” he said.
The company noted that filled beverage case volume increased 27 per cent, driven by higher volumes in North America, Mexico and the United Kingdom.
The latest quarter also saw a tax gain, which Cott expects to be ongoing as a result of the restructuring of its intercompany financing arrangements.
However, the company did not meet its own targets for North American juice sale volumes, which decreased by double digits in the quarter as double-digit price increase over the first quarter deterred some consumers. Apple juice sales fell most, as prices rose as much as 30 per cent.
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“For the remainder of 2011, we’re focused on doing all we can to offset the continued impact of higher commodity costs, as well as planning for 2012 commodity coverage and pricing.”
Prices of some raw materials are now estimated to stay higher longer and fall slower than expected a few months ago. The rising cost of resin used to coat its aluminium cans is now expected to cost the company $45 million this year, up $15 million from the $30 million it had projected in the last quarter.
“As we look to 2012, it’s clear aluminum, high fructose corn syrup, sugar and energy will all post significant increases over 2011,” Fowden said.
The company has also felt some pressure from national brands, which used synergies available to them to partially offset the need to raise prices. But Cott said it expects those name brand drink and juice producers to raise prices in the second half of the year.
Cott is the world’s largest distributor of store-brand beverages, with about 4,000 employees and soft drink, juice, water and other beverage bottling plants in the United States, Canada, the United Kingdom and Mexico.
Shares in the company gained three per cent or 24 cents each to $7.93 Wednesday afternoon on the Toronto Stock Exchange.
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