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To: Johnny Canuck who wrote (42652)	9/21/2005 1:16:08 PM
From: Johnny Canuck	Read Replies (1) \| Respond to of 68426

Cott short: soft-drink maker warns profit will 'substantially' miss forecast Related Symbols: T.BCB 9/21/05 9:31:00 AM TORONTO (CP) - Cott Corp.'s profit this year will be "substantially below" previous expectations as plastic bottle costs soar with the price of oil while demand for carbonated soft drinks flattens. Cott CEO John Sheppard stressed Wednesday that "the retailer-brand revolution continues" and the long-term outlook is effervescent for the world's largest supplier of store-brand soft drinks. But Cott shares (TSX:BCB) were down 14 1/2 per cent in morning trading, losing $3.83 to $22.43 on the Toronto Stock Exchange after plunging to a four-year low of $21 at the open. The Toronto-headquartered company did not issue revised earnings guidance, saying it is looking at ways to cover cost increases and streamline operations. Analysts had on average expected a 2005 profit of $1.08 US per share, according to Thomson Financial. But at the same time that costs have spiralled upward for plastic for bottles, aluminum for cans and other inputs, demand for carbonated soft drinks is fading as consumers turn to lower-profit bottled water. The reasons for the profit weakness "are pretty endemic throughout the CSD (carbonated soft drink) industry," Sheppard told an investor conference after the news release. In addition to "the CSD volume weakness, we've had a significant increase in raw-material prices, particularly on resin," he said. "Also we've had a continuing (product) mix shift into water, which we've talked about in the past, and finally some operational challenges in the U.S., mainly caused by the volume softness in CSD." The total carbonated soft drink category, which had been growing at one to two per cent annually in recent years, has fallen three per cent this year, Sheppard said. Meanwhile, Cott's costs have increased by $100 million US over the past 18 months, he said, and uncertainty about future material prices prevented the company from issuing a new earnings estimate. Sheppard said hurricane Katrina caused a 40 per cent reduction in North American production capacity of polyethylene terephthalate - PET, the plastic used in drink bottles - and there are fears of further weather-related disruptions. "That's an area of uncertainty for us in terms of what will happen to PET prices," he said. "That's why, from a press-release standpoint, we were very uncertain in terms of what that impact is going to be." Cott is responding to the "significant CSD weakness" with new packages and novel products such as "new age sparkling water" and no-calorie fruit refreshers, Sheppard said. "Water has just taken off - the water growth has been enormous, 30 to 40 per cent in many markets - and that has not slackened off," he added. Bottled water is "basically a service, and a very, very low-margin business for us," Sheppard said, adding that Cott is trying to find ways to expand profit margins in the category. Strategically, the corporate focus "is really on back to basics . . . customer service and supply-chain excellence," he said. "The overall market environment does support further retailer CSD growth." Consumers of store brands are no longer primarily lower-income value shoppers but the "living comfortable and affluent category," he said. And prospects for growth are strong in the United States, Cott's biggest market, he said. Total retailer-brand penetration in the U.S. is about 17 per cent, compared with 42 per cent in Britain, another key Cott market where a few major store chains dominate the scene. "As the big get bigger in the U.S., that number will continue to drive forward and the retailer-brand market share will grow," Sheppard predicted, mainly due to Wal-Mart, Cott's most important customer. Store-brand soft drinks remain "the cornerstone of a strong retailer brand program," he said. In Canada, where's Cott's store-brand market share is overwhelming but the market is growing more slowly than elsewhere, Cott is concentrating on supplying quick-service restaurants and on pushing new energy drinks, with "further emphasis on the diet segment," Sheppard said. Meanwhile, Mexico, which Cott entered in 2002 to take advantage of high soft-drink consumption and developing retailer-brand momentum, was immediately profitable is "really a model for us as we look at international expansion going forward."