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Coca Cola Amatil shares slide after profit downgrade

Investors in Coca-Cola Amatil have pummelled the soft drink giant after weak trading at its core local beverages arm prompted an earnings downgrade and sending shares down more than 10 per cent.

Australia accounts for about two thirds of Coca-Cola Amatil's market. The company has been challenged to grow market share in a saturated and price-sensitive market that has increasingly turned its back on soft drinks.

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Scan data obtained by Fairfax Media revealed soft drink sales slumped 2.9 per cent in volume in the 2016 financial year across the aisles of Coles, Woolworths, Foodworks and IGA supermarkets, reversing almost a decade of growth in the sector.

"Trading in Australian Beverages for the year to date has been weaker than last year with all channels experiencing volume and price pressure due to competition and category trends," Coca-Cola Amatil told the market on Friday.

"Amatil management expects underlying (before non-trading items) net profit after tax [NPAT] will decline in the first half of 2017.

"While our medium term target continues to be mid single-digit earnings per share growth, at this early stage of the year we are expecting full year underlying NPAT to be broadly in line with last year. This is largely driven by the challenges being experienced in Australian Beverages."

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After a solid run this year, Coca-Cola Amatil's shares were smashed on Friday, closing down 10.7 per cent to $9.61, wiping about $800 million from the company's market capitalisation.

Bruce Smith, of investment fund Alphinity, said the announcement cast doubt on Coca-Cola Amatil's full-year results. 

"Everyone has known that the local business has been struggling to grow volumes and it's difficult for the whole company to prosper when the biggest part has flat or declining volumes," he said.

"It feels a bit hopeful to say full year will be in line ... being down to date, and with so much of the year to go and so much earned in the final quarter, I'd be surprised if the company was really confident about a flat full year."

Dean Fergie, director and portfolio manager at Cyan Investment Management, described the announcement as "disappointing" and lacking in detail.

"I'm not surprised the re-rating has been sharp and I wouldn't be surprised if it continues," he said.

"If they can't produce even modest EPS [earnings per share] growth the stock moves from being what has previously been a growth stock to a value stock, and then your PE [price to earnings ratio] goes from 30 times back to 15.

"If I were a shareholder I'd be really reassessing my position because it looks like they've gone, certainly domestically, ex-growth."

Coca-Cola Amatil, which is 29 per cent owned by The Coca-Cola Company of the US, said trading in New Zealand and Fiji, Alcohol, Coffee and food business SPC were within expectations.

Papua New Guinea was performing well and while trading in Indonesia continued to be affected by soft market growth, the business was delivering to expectations, it said.

"Amatil's initiatives, which includes strategies to address the structural changes in our market and rebalance our portfolio, working together with our partner, The Coca-Cola Company, continue to be implemented. Further time is required for these initiatives to gain traction."