Cott sustains $1.8 million loss on restructuring charges

by Eric Schroeder
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TORONTO — Toronto-based soft drink maker Cott Corp. on Thursday said significant restructuring charges pushed it to a third-quarter loss and prompted a sharp downward revision in its full-year earnings forecast.

Cott in the third quarter ended Oct. 1 sustained a loss of $1.8 million, compared with net income of $22.1 million, equal to 31c per share on the common stock, in the third quarter of 2004. This year’s third-quarter results included impairment and restructuring charges of $25.7 million, or 24 cents per share. The charges include $23.7 million to adjust the carrying value of certain customer relationships and $2 million for severance payments related to a North American realignment.

Excluding those items, Cott said it would have posted adjusted earnings of 21c per share, widely missing analysts’ consensus forecast of 28c per share, according to Thomson Financial.

Sales in the quarter increased 6% to $469.9 million from $442.4 million in the year-ago period, but fell short of Wall Street’s target of $485.8 million.

Favorable currency exchange boosted sales by 1%. By region, U.S. sales fell nearly 2%, while sales in Canada grew 13% and sales in Europe and Britain surged 46%, excluding the effect of currency exchange. International sales jumped 19% due largely to gains in Mexico.

"Our top line benefited from the Macaw acquisition, as well as growth in our Canadian and international businesses," said John K. Sheppard, president and chief executive. "Our priority is to continue building stronger customer relationships, while at the same time taking aggressive actions that will help us to respond more quickly to changing business conditions and opportunities."

Looking ahead, Cott said it expects additional charges through 2006 as it streamlines operations and revises its product mix. Last month, the company warned that shrinking U.S. soda demand and higher raw-material costs would cut into its bottom line.

The company slashed its 2005 guidance to a range of 32c to 40c per share, which assumes one-time charges between 30c and 35c per share. In July, the company forecast annual earnings of $1.01 to $1.06 per share on sales of $1.74 billion to $1.77 billion.

During the quarter, Cott announced the acquisition of Macaw (Soft Drinks) Ltd. in the U.K. for $135.1 million including acquisition costs. Macaw was the largest privately-owned manufacturer of retailer brand carbonated soft drinks in the U.K. The acquisition adds six production lines, including production capability for the fast-growing aseptic beverage segment, to Cott’s U.K. operations.

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