Wal-Mart Stores is still quenching consumers' thirst for cheap soda, and that's really bad news for private-label soft drink manufacturer Cott.
Store checks conducted by Stiefel Nicolaus beverage team found that Wal-Mart has been offering branded sodas at substantially greater-than-usual discounts, mainly $5 per 24-pack of 12-ounce cans, and featuring these promotions in high-traffic areas.
These deep discounts in the soda aisle have been going on for a quite a while. We last wrote about these price rollbacks ahead of the Memorial Day weekend.
Analyst Mark Swartzberg said he expects the strategy is helping to draw shoppers from other food retailers to Wal-Mart, and this is a "double-negative" for Cott .
Swartzberg trimmed his earnings estimates for Cott, and cut his rating for the company's stock Friday to "hold" from "buy."
Cott manufactures Wal-Mart's Sam's Choice sodas as well as the private label soft drinks for other supermarkets. Swartzberg estimates that Wal-Mart made up about 34 percent of Cott's net sales last year.
At the moment, Wal-Mart's price cuts mean Sam's Choice products are priced at parity, or only a slight discount to Coca-Cola, PepsiCo, and Dr Pepper Snapple brands.
It's unclear how long this situation will persist. Swartzberg said he expects Wal-Mart's aggressiveness with carbonated beverages will be limited to the summer months.
With Cott's management focus on cash flow and cost controls as well as the company's double-digit free cash flow yield, it's unlikely that there needs to be a "more negative investment view" on Cott's stock, he said, in a research note.
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