Cott turnaround taking longer than expected; North American results continue to hinder performance

By Jennifer Lanning Drey

Portland, Ore., April 28 - Cott Corp.'s turnaround process in the United States is taking longer than expected, David T. Gibbons, Cott's interim chief executive officer, said Monday during the company's first-quarter earnings conference call.

Gibbons called the company's first-quarter performance "disappointing" and said results continued to be hindered by the company's poor performance in North America.

Cott's first-quarter revenues were down 2.6% from the prior-year quarter, and the company reported a first-quarter operating loss of $12.1 million, compared with income of $15.5 million in the comparable 2007 period.

"We will be realistic about what we're going to accomplish, understanding what it will take to get to where we need to be, and we will make the hard choices necessary to make sure that we're moving Cott down a clearer path to recovery," Gibbons said.

Gibbons expects the company's search for a new CEO to take most, if not all, of the remainder of 2008.

New facility significant for liquidity

Cott ended the first quarter with total net debt of $409 million, up from $381 million at the end of 2007. The increase was largely due to the implementation of a financing agreement related to the company's North American water bottling equipment, Juan Figuereo, chief financial officer of Cott, said during the call.

At March 29, the company's cash balance was $21.4 million, down from $27.4 million at Dec. 29.

As previously reported, on March 31, Cott entered into a new $250 million senior secured asset-based credit facility, which replaced its existing senior secured credit facilities and accounts receivable securitization facility.

Figuereo said the company entered into the new facility after determining it could not maintain compliance with the financial covenants of the previous arrangements.

"Closing our ABL facility was a significant step in providing ourselves more flexibility to complete the turnaround," Figuereo said.

The new facility requires that the company's fixed-charge coverage ratio be below 1 to 1 but only applies if excess availability falls below $30 million, he said.

Positive global trends, pricing actions

On a more upbeat note, Gibbons said Cott believes long-term international growth trends are encouraging and plans to invest in global capacity expansions.

Gibbons also said price increases taken in 2007 led to higher sequential gross margins in the first quarter.

"This is a good first step to overcoming our core bottom line performance and moving toward long-term margin recovery," he said.

Additionally, he said the company is implementing actions to minimize volume loss in the second half of 2008 caused by the decision of its largest customer, Wal-Mart, to reduce shelf space for carbonated soft drinks. However, Gibbons said he was unable to provide any reliable estimates of the potential impact of the actions.

"2008 will be a challenging year but we'll do what is necessary to restore our credibility and deliver better results and to deliver a brighter future to our shareholders," Gibbons said.

Cott is a Toronto-based non-alcoholic beverage company and retail brand soft drink company.

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