Cott stock is beating its North American peers including Coca-Cola and PepsiCo as the Canadian beverage maker diversifies away from sugary soft drinks to cater to health-conscious consumers.
Investors are banking on Cott’s ability to increase profits after the provider of private-label soft drinks to companies such as Wal-Mart Stores became the biggest publicly traded water supplier to U.S. homes and offices.
While consumption of carbonated sodas is declining as consumers seek healthier options, a U.S. economic recovery is stoking demand for water and coffee delivery. Cott gained a major foothold in that market last year with the $1.25 billion purchase of Atlanta-based DS Services of America, which supplies 1.5 million homes and offices.
“They’ve managed to change their portfolio mix, their cash flow and we think it is going to accelerate from here,” said Jack Murphy, senior portfolio manager at New York-based Levin Capital Strategies, the largest holder of Cott shares. “Over the next couple of years I think that’s a very reasonable return, and it could be better than that.”
The Mississauga, Ontario-based company’s shares have returned 60 per cent this year, while PepsiCo returned 2.5 per cent and Coca Cola lost investors 2.8 per cent, according to data compiled by Bloomberg. Kent Landers, a spokesman for Coca-Cola in Atlanta, said the company doesn’t comment on its stock performance or its competitors. PepsiCo didn’t respond to an interview request from Bloomberg News.
Cott has used its soft-drink manufacturing lines to make sparkling and flavoured waters, energy drinks and sparkling teas. DS Services is providing Cott with a truck distribution network to sell some of those products directly to customers, chief executive officer Jerry Fowden said in an e-mail.
DS Services also came with its own bottled water brands such as Alhambra, Hinckley and Sparkletts.
Cott, which has 60 manufacturing facilities in the U.S., Canada, the U.K. and Mexico, was founded by Henry Pencer, who started importing Cott sodas into Canada in 1952 and began bottling beverages in Quebec three years later.
Bloomberg News, edited by ESM
