Soft-drink maker Cott Corp. said Friday it swung to a first-quarter profit, helped by cost cuts and a move by recession-wary consumers to private-label products, and the news sent its shares 40 per cent higher.
The turnaround for Cott, the world's largest maker of private-label soft drinks, comes as consumers opt for cheaper products as they reduce discretionary spending, including restaurant visits and purchases of high-end goods, to try to save money during the recession.
"Private-label and commodity cost trends have turned significantly in Cott's favour," said BMO Capital Markets analyst David Hartley.
Cott shares have tumbled 22 per cent in the past year as the company has struggled with weak demand, high commodity prices and tough competition from brand-label drink makers.
Earlier this year, U.S.-based retail giant Wal-Mart ended an exclusive supply agreement in the United States with the company. Wal-Mart, the world's biggest retailer, represented more than 30 per cent of Cott's business.
The Toronto-based company said it earned $20.8-million, or 28 cents a share, for the quarter ended March 28, compared with a loss of $20.9-million, or 30 cents a share, for the same period a year earlier.
Revenue for the quarter slipped 5.8 per cent to $367-million due to rise of the U.S. dollar against the currencies of several countries in which Cott operates.
Analysts, on average, were expecting a loss of 5 cents a share and revenue of $367-million, according to Reuters Estimates.
Cott shares jumped 44.4 per cent to C$3.47 Friday morning on the Toronto Stock Exchange.
Gross margin increased to 15.9 per cent of sales in the quarter, compared with 10.5 per cent last year, as higher volumes in North America improved net selling price per beverage case and lower costs helped offset the impact of foreign exchange and lower volumes outside North America.
The company's global beverage case volume was flat with a 4.6 per cent hike in North American sales offset by a 9.8 per cent drop in Britain and a 26.3 per cent decline in Mexico.
Despite its return to profit, the company remained cautious, noting that a number of one-time factors including deferred spending, lower commodity prices and tax benefits boosted the results.
Cott Chief Executive Jerry Fowden also noted that sales of national brands are expected to rise as the global economy improves.
"I remain keenly aware that one good quarter does not make a successful turnaround," he said during a conference call. "We still face challenges in the competitive environment, our capital structure and customer base."
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