The success of Coke Zero, a recently launched diet soft drink targeted at young men, will help Coca-Cola Amatil Ltd (CCA) lift net profit by up to 4.5 per cent this year, despite soaring raw material costs.
The bottling giant has forecast an annual net profit of between $325 million and $335 million for 2006 despite a predicted seven per cent increase in the cost of goods, such as sugar, resin and tin, and a highly competitive trading environment.
Volumes across the company were expected to grow between three per cent to five per cent over the year, helped by the success of the artificially-sweetened soft drink marketed to weight-conscious twenty-something males.
"Based on current trading and our forecasts, we would expect to be able to deliver net profit of between $325 million and $335 million in the full year," CCA managing director Terry Davis told shareholders at the company's annual general meeting.
"The major focus again for the balance of the year will be achieving full recovery of the commodity driven cost of goods increases."
CCA's net profit rose 15.9 per cent to $320.5 million in calendar 2005.
Mr Davis said Coke Zero - which the beverage maker says is its most successful product launch in more than 20 years - had exceeded expectations, with volumes rising 10 per cent in the first four months since its January 8 release in Australia and New Zealand.
The drink had also sparked renewed interest in the overall cola category, helping Coca-Cola edge out rival Pepsi in gaining market share, now estimated to be at about 64 per cent, he said.
"In the longer term, our expectations are that Coke Zero will cannibalise sales from Pepsi, Pepsi Max and to a lesser extent Diet Coke and Classic Coke," Mr Davis said.
He said it would be surprising if the "category killer" was not a $100 million brand - in terms of revenue - in its first year.
The drink is expected to eventually becoming as popular as Diet Coke - the Australasian drinks maker's number two product behind Classic Coke.
But the market share gains had come at a cost as competitors stepped up competition with supermarket customers, discounting heavily.
Mr Davis said a four per cent increase in February in the price CCA charged supermarkets for its products had not held across all items.
"Not all the pricing that we put through in February has stuck, and that's why we'll look certainly as we go into the June/July period to take a further increase in food stores," he said.
He said the hike would probably need to be around four per cent to five per cent to offset rising costs caused by the commodities boom, the gains from which would flow through in the second half.
In Australia, which contributes 80 per cent of CCA's earnings, volumes were expected to grow by five to six per cent in the first half, as the Mount Franklin, Powerade and pump brands, as well as Coke Zero, continued to perform strongly.
But the company said first half earnings would be affected by a $9 million expense from the Coke Zero launch as well as a volume shift to the supermarket channel.
CCA said its toughest market, South Korea, was on track to become profitable in the first half after a doubling of the company's marketing budget and as costs fell as staff numbers were cut by 10 per cent to about 250.
CCA shares lost 25 cents to $7.05.