Declining pop sales are the taking the fizz out of beverage company Cott Corp. (COT).
UBS Investment Research analyst Kaumil Gajrawala said:
While Cott has targeted 50% operating income growth in 2009, we are forecasting EBIT (earnings before interest and taxes) growth of 26.5% as we believe declining water trends and continued softness in North America carbonated volumes could result in lower fixed cost leverage.
He reduced his rating on the shares to 'sell' from 'neutral.'
In a note to clients, he added:
Furthermore, we remain skeptical of Cott’s ability to deliver on their targets given their historical performance and their commentary that these targets will be a stretch.
Mr. Gajrawala said he was optimistic about private label trends in the industry, as retailers shift focus away from branded products in favour of selling goods under their own in-house brands.
[We] believe Cott is making the right moves by refocusing their business on private label products.
That said, we believe Cott’s ability to successfully execute against their financial targets will be tough in the in the current environment, particularly given the current level of promotional activity.
He nudged up his price target to C$2.95 from C$2.80.