Coca-Cola proves the value of pricing power as companies brace for slowdown: Profit wrap
Wednesday, 20 August 2008
James Thomson
Beverage giant Coca-Cola Amatil has highlighted the importance of brand power in a slowing economy by posting a 22% increase in net profit to $171.9 million for the six months to 30 June.
While its competitors were desperately discounting to win market share and volume as retail sales fell, CCA actually increased its prices during the period to protect its profit.
So while the number of cases of beverage it sold fell by 2.8% during the period, its earnings before interest and tax actually jumped by 10%. As Business Spectator columnist Robert Gottliebsen argues there are very few food businesses that could get away with this sort of move.
The lesson for entrepreneurs and investors is clear; the businesses with the strongest brands are the ones that will be able to pass on increasing costs to customers and thrive during the downturn.
Clothing maker Pacific Brands posted an 11.1% increase in net profit for 2007-08 to $119.3 million, but has warned the slowing economy is likely to see earnings growth fall to 3% to 5% in 2008-08.
The company, which owns brands including Bonds, Holeproof, Sheridan and Berli, will focus on tight control of expenses and inventory in the next year.
Investment and financial services firms provided a perfect example of why the financial sector is one the nose with investors after Perpetual Trustees profit slumped 29% to $128.1 million.
Not surprisingly, the company has warned that a continuation of the current bear market conditions would harm its prospects in 2008-09.
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