Soft Drink Maker Cott Pursues Energy Drink Market

TORONTO (CP) -- Soft drink bottler Cott Corp. says it is embarking on a new growth strategy in the trendy energy drink market in an attempt to rejuvenate fizzling sales in North America.

"We are...starting to make progress on some of our new product and SKU (inventory) goals this year...developing a platform in the energy drink category in the U.S is a particular focus for us," Cott CEO Jerry Fowden said on a conference call to investors Wednesday.

He said the energy drink line has been stocked on shelves at a few key customers in the U.S. for several months. Cott said the popularity of energy and sports drinks contributed to first quarter growth of 24.5 percent its top performing U.K. and European markets.

The world's third-largest soft drink provider said it won several new customers during the quarter, adding 2.5 million more cases to its new shipment volumes, which now amount to 15 million cases per year. Fowden said the company is now 75 percent of the way toward reaching its goal of shipping 20 million new cases of business by the end of the year.

"I am optimistic about our ability to achieve our full goal over the coming few quarters and while we already see the year-over-year growth impact coming through internationally, I would hope that we will be able to see them in North America as we move into the second half of 2010.

Cott, which supplies many retailers and grocers with private-label products, reported Wednesday its net profits fell by nearly half in the latest quarter ended April 3 due to tax-related adjustments on its balance sheet.

Toronto-based Cott said it earned US$12 million or 14 cents a share in the first quarter, down from $20 million or 28 cents per share last year. Revenues fell 1.1 percent to $363 million, mainly because of currency exchange effects.

Profits beat analysts estimates of 12 cents a share, but revenues came in under the $372 million analysts had predicted.

The company, which reports in U.S. dollars, said the net earnings decline reflected an income tax expense of $4 million in the first quarter, reversing an income tax benefit of $6 million a year ago.

However, operating results were better, rising to $25 million from $22 million, while expenses fell.

Fowden said growth in the company's U.K. and European operations more than offset lower volumes shipped in North America, where volume comparisons were difficult due to a particularly strong first quarter last year.

Fowden said the company already began to see North American volume pick up in April and anticipates volume comparisons to become easier as the year progresses.

Kaumil Gajrawala, an analyst with UBS Investment Research, said Cott's total volumes growth of 13.3 percent during the quarter came in well ahead of analyst estimates and he expects growth to improve as the year progresses.

"We are positive on Cott as the new management team has continued to deliver on their promises and re-establish credibility with investors and customers," Gajrawala wrote in a note to investors.

"Going forward, we expect momentum to remain strong as Cott adds new accounts, reaches an optimal price gap versus the branded names."

Cott supplies private branded soft drinks to major retailers. Last year it lost the its exclusive deal with Walmart as supplier of store-brand pop to the world's biggest retailer. The company said at the time that it would wind down the exclusivity deal over three years, and that it represented nearly 40 percent of its overall business.

However, Cott still supplies numerous other retail giants including Loblaw, Costco, Metro Inc. and convenience chain 7-Eleven Inc.

At Cott's annual meeting Tuesday, Fowden said the company is sticking to what has worked best over the past year: nurturing relationships with the retailers who stock its store-branded drinks on their shelves.

He told investors that Cott spent much of last year reining in expenses, and ensuring the supermarkets, convenience stores and news stands that carry its product were happy.

The company employs 2,800 people and has bottling plants in the United States, Canada, the United Kingdom and Mexico. Its non-alcoholic beverage concentrates are sold in more than 50 countries.

Shares in the company fell 3.55 percent, or 30 cents to $8.16 apiece in midday trading Wednesday on the Toronto Stock Exchange.

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