Tags: AKO.B | Embotelladora Andina | KO | Coca-Cola | Latin America | bottlers | stock

Sugar Prices Make Latin Bottler Loses its Fizz

By    |   Monday, 06 Jun 2011 12:17 PM

Brazil, the world's biggest grower and exporter of sugar, is using more of its sugarcane output to make ethanol, and bad weather threatens crops. As a result, the price of sugar has soared, giving bottlers of sweetened soft drinks and juices a nasty headache.

The Chile-based bottler of Coca Cola-brand soft drinks, juices, and mineral water, Embotelladora Andina (AKO.B), which sells beverages in Chile, Brazil, and Argentina, posted net profits of $59.6 million in the first quarter of 2011, a decrease of 14.6 percent from the same period of 2010, mainly due to higher raw material costs.

However, consolidated sales volumes for the first quarter reached 130.3 million unit cases, a 2.1 percent increase year-on-year, mainly driven by the company’s Argentine operations and sales of juices and waters, which grew 19.4 percent.

Net sales were $533.6 million, up 9.1 percent due to increased volumes and higher prices, but operating income for the quarter fell 10.2 percent to $84.5 million as costs surged.

Sales costs rose 14.1 percent mainly due to higher costs of sugar and concentrate in Argentina and Chile as well as a higher per unit cost of distributed products versus produced products.

This was partially offset by the positive impact of the strong appreciation of the Chilean peso and the Brazilian real (7.2 percent and 7.5 percent, respectively, year-on-year) on the cost of dollar-denominated raw materials.

“The (bad) weather in Brazil affected volumes and the higher costs of raw materials had an impact upon comparing figures with the previous year,” said Andina CEO Jaime García.

García remains optimistic about 2011, as the economies of Brazil, Chile, and Argentina should continue to grow and Andina continues to consolidate its market share, which is already over half of the soft drink market in all three countries.

For the rest of the year Chilean volumes are expected to grow at a rate below GDP growth, while Brazil volumes should recover to a degree, said ratings agency Fitch Ratings in a May report, in which it affirmed the company’s “A” rating.

“Andina's operations have some of the highest profit margins in the Coca-Cola system. The long-term trends are positive due to the favorable consumption growth prospects in the region,” said the report.

Spending to grow

Capex for 2011 should amount to $250 million with the largest investments geared toward increasing capacity in Chile and Brazil.

In the last 52 weeks, Andina’s more-liquid B series ADR has traded at a high of $31.75 and a low of $20.25, gaining 40 percent in that period.
Andina is controlled by its major shareholder, Grupo Freire, which owns 47.5 percent of the company’s shares. Coca-Cola (KO) owns 11 percent.

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Brazil, the world's biggest grower and exporter of sugar, is using more of its sugarcane output to make ethanol, and bad weather threatens crops. As a result, the price of sugar has soared, giving bottlers of sweetened soft drinks and juices a nasty headache. The...
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2011-17-06
Monday, 06 Jun 2011 12:17 PM
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