Company issue 1 - walmart drop
HOW CANADA'S POP TITAN GOT CRUSHED Section: BUSINESS Cott Corp. is reeling from the loss of shelf space at Wal-Mart The vast majority of stock market rumours turn out to be false. But it's those remaining few that will sink you. Investors in Cott Corp., the world's largest bottler of retailer-branded drinks, learned that the hard way last week. During a conference call on Feb. 8, an analyst asked Cott's CEO Brent Willis about a rumour that a "very large customer" was planning to shrink the shelf space it devotes to private-label pop. Willis was emphatic in his response. "I would say, frankly, more than 90 per cent of the customers that we know…are planning to increase shelf space on private label." Of course that other 10 per cent, as it turned out, just happened to include Wal-Mart, Cott's biggest customer by far. The giant retailer's decision to scale back on its Sam's Club cola, which Cott produces, wiped out more than half the bottler's stock market value. Wal-Mart accounts for 38 per cent of Cott's total sales, and fully half of its North American business. Analysts say that losing just four feet of Wal-Mart shelf space will cost Cott US$100 million. The company was already struggling with a slowdown in pop sales, and has since warned it will be late filing its annual report. Debt rating agencies have put Cott under review. But what has yet to come to light is exactly when Cott knew Wal-Mart planned to replace its products with those of rival Cadbury Schweppes. Beverage Digest, an industry newsletter, first published the details on Feb. 22, two weeks after the Morgan Stanley analyst raised the issue. The company didn't confirm anything until Feb. 26, by which time its stock was already in free fall. A spokeswoman told the Wall Street Journal she couldn't comment on whether Cott knew of the Wal-Mart decision when Willis gave his answer. Maclean's left a message asking for details, but the company didn't respond. Throughout the ups and downs at Cott, there's been one constant -- its chairman, Frank Weise. He was hailed for an earlier turnaround at the company when he was CEO, and richly rewarded, but the seeds of many of the current problems were sown under his reign. Retailers sell products like pop and water under their own brands because they are cheaper than big name drinks. But the market has recently shifted away from pop toward water, energy drinks and iced tea, leaving Cott exposed. According to David Hartley, an analyst with BMO Capital Markets, the company suffers from a "lack of control over its own destiny. Cott's success ultimately relies on the brand equity of, and shelf space allocated by, its retailer partners." Wal-Mart's critics were quick to accuse the retailer of unfairly putting the squeeze on yet another of its suppliers. But Cott has made many strategic blunders in recent years. The company has been in turnaround mode for nearly four years, racking up losses, and undermining the confidence of key customers like Wal-Mart. Cott has been trying to cope with trouble in its core soda business, notes Hartley. The company is talking about boosting its own portfolio of brands, such as its Red Rain Energy Drink. "Unfortunately," he says, "carbonated soft drinks represent approximately 85 per cent of its business in the U.S." PHOTO (COLOR): COTT chairman Weise was hailed for saving the company, but the market soon changed PHOTO (COLOR) 01:52, 9 November 2009 (UTC)Michael.sorenson By Jason Kirby
c) 2009 Dow Jones & Company, Inc. Reproduced with permission of copyright owner. Further reproduction or distribution is prohibited without permission. Corrections & Amplifications
Wal-Mart Stores Inc. plans to phase out its exclusive supply agreement in the U.S. with Cott Corp. between 2009 and 2012. A Media & Marketing article Wednesday incorrectly said the phase-out begins in 2012.
(WSJ January 29, 2009) Store-brand-soda producer Cott Corp. said Wal-Mart Stores Inc. plans to phase out its exclusive supply agreement in the U.S., beginning in 2012. Toronto-based Cott said the 10-year-old relationship is being terminated "without cause" but that it will continue as a supplier to Wal-Mart. Almost a year ago Cott said it had received a notice from Wal-Mart, its biggest customer, concerning a reduction in shelf space and merchandising support for Wal-Mart's private-label carbonated soft drinks in the U.S.
Cott stock sank 29%, or 37 cents, to 92 cents at 4 p.m. Tuesday in composite trading on the New York Stock Exchange.
"While conversations with Wal-Mart are ongoing, and the impact on Cott's business is unclear at this time, the effect of this action is to phase out the exclusive nature of the relationship with Cott as the supplier of retailer brand carbonated soft drinks in the United States," Cott said. The termination will be effective in late January 2012. In the first year following termination, Wal-Mart will be allowed, if it chooses, to use another beverage maker for as much as one-third of its private-label soft-drink requirements. In the second year, as much as two-thirds of its private-label soft drinks can be manufactured by a company other than Cott. Credit: By Carolyn King
Cott Corporation (COT) announced that Wal-Mart (WMT) has decided to terminate its existing 10-year old exclusive supply agreement for carbonated soft drinks. This action gives Wal-Mart the option to transition to other suppliers over time: up to one third of its requirements can be moved this year and up to two thirds can be moved next year.
While the ultimate outcome is unclear and discussions between Cott and Wal-Mart are reported to be ongoing, this is certainly not good news for Cott. Wal-Mart represents 35%-40% of Cott’s sales. If Wal-Mart were to move its business to other suppliers, Cott could have difficulty servicing its debt.