Andina Meets Expectations

Yesterday, Embotelladora Andina S.A. (AKO.A - Analyst Report), leading bottler and distributor of soft drinks in Chile, Brazil and Argentina reported second-quarter results, which were in line with expectations.

During the quarter, consolidated sales volume reached 99.7 million unit cases, up 3.7% from the year-ago quarter driven mainly by the Brazilian operation. Soft drinks increased 4.1% while juices, water and beer together remained stable. Net Sales amounted to US$301.3 million, down 3.6% in US dollar mainly due to currency-conversation losses.

EBITDA was down 1.4% while operating income was up 1.1%. Net income was down 32.9% to US$22.5 million. Quarterly EPADR reached US$0.18, down from US$0.26 in the year-ago period. Andina continues to keep a sound balance sheet with a net cash position of US$54.8 million at the end of June 30, 2009.

Despite a dominant position in Chile, Andina faces intense competition in Brazil and Argentina from major international companies such as AmBev (ABV - Analyst Report), the largest brewer in Latin America which sells Pepsi products, local brands with flavors such as Guaraná and proprietary beers, Fomento Economic Mexicano (FMX - Analyst Report), the largest Latin American beverage company by sales and low-cost beverages (or “B” brands).

The company also competes against other beverages such as water, fruit juice and sport drinks. Although the weak economic situation throughout the world is a source of concern, we are optimistic about Andina’s future as it makes low-cost, daily use products and focuses on domestic markets.

We are also encouraged by its strong presence in the Latin American soft drink business, which is one of the most attractive areas for industry driven by positive demographics.

We believe that the company’s geographic diversification, strong balance sheet and the nature of its product will help the company tide over the current economic crisis. We are reiterating our Buy rating on Embotelladora Andina.

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