Coca-Cola shares fall further as debt ratings downgraded

 PHOTO: S&P says Coca-Cola is now facing stiffer competition.(ABC, file photo)

Struggling food and beverage maker Coca-Cola Amatil has had its credit rating cut by Standard & Poor's.

The ratings agency has taken it down a notch from A- to BBB+ as mounting competition and weak profit margins dent the company's operating performance.

The BBB+ rating is still investment grade, and S&P says the company's outlook remains stable, although it warns further downward rating pressure could arise if the company's debt to earnings ratio substantially rises, its cash flow weakens or there is reduced support from The Coca-Cola Company, which owns 29.2 per cent of the firm which is licensed to produce and sell its products in Australia, New Zealand, Indonesia and some Pacific Islands.

S&P says the downgrade was triggered by Coca-Cola Amatil's (CCA) surprise profit warning on Friday, where management warned first half earnings would fall 15 per cent.

"This deterioration was reflected in CCA's earnings downgrade announced on April 11, 2014, which was materially below our previous expectations," said S&P credit analyst May Zhong.

Standard & Poor's has also downgraded CCA's business risk profile from strong to satisfactory, but adds that it expects that its operating expertise should enable it to arrest its sales and earnings decline within the next two years and find cost savings.

It also notes that CCA is a "moderately strategic" subsidiary to its US-based major shareholder The Coca-Cola Company, and this group support lifts its rating a notch from what it would be if CCA was a completely standalone enterprise.

Ms Zhong says CCA's future depends largely on its ability to return to previous successes in the Australian market, which could result in an upgrade if local profitability is restored.

"In our view, the stability of the Australian beverage business is critical to the rating on CCA, as it provides a solid operating base for the company to expand into more volatile Asian markets," she added.

Coca-Cola Amatil shares have continued falling today on news of the downgrade, slipping a further 7 per cent to $9.06, after slumping 14.6 per cent after the profit downgrade on Friday.

Source: ABC - 15 April 2014