Is Cott's Prized Relationship with Wal-Mart in Jeopardy?

After falling 20% on Monday, Cott Corp. (COT) shares were down another 35% through early afternoon trading on Tuesday, amid fresh concerns regarding its prized relationship with Wal-Mart (WMT).

Cott confirmed Tuesday morning that it has received notice of a reduction in shelf space and merchandising support for Wal-Mart's private label carbonated soft drinks in the U.S., including Sam's Choice, the retailer brand produced by Cott.

The statement was issued after a report on Friday from beverage industry newsletter Beverage Digest surfaced that said Cadbury (CSG) is likely gaining Wal-Mart shelf space for its Royal Crown and Diet Rite soft drinks at the expense of Sam's Choice.

In the statement Cott went on to say that 2008 programs have not yet been finalized, and that Cott is still actively negotiating with Wal-Mart appropriate space allocation and other merchandising programs associated with Sam's Choice brands.

UBS analyst Kaumil S. Gajrawala said the impact of reduced shelf space at Wal-Mart would be significant to Cott's top line.

In a note to clients the analyst said:

Wal-Mart currently represents approximately 38% or $700-million of Cott's total revenue. We believe the revenue loss from losing four feet of shelf space could represent up to 10% of Cott's current Wal-Mart revenues, or approximately $70-million.

He reduced his earnings per share estimate for the company from C$0.07 to C$0.19 to reflect lower volume and operating margin estimates, adding the company also face decreased fixed cost leverage as a result of continued CSD category declines.

Mr. Gajrawala lowered his rating from "buy" to neutral and his price target from $8 to $4.50.

In less than a year, Cott shares have fallen from a high of C$19.70 to around C$2.54 as of 1:30 p.m. ET on Tuesday.