June 4 (Bloomberg) -- Antonio Amorim is putting a new cork in wine bottles to keep his company's profits from spoiling.

After losing sales to synthetic stoppers and metal screw tops, Amorim says he's found a way to stem a decline in market share through a process that gets rid of ``cork taint.'' The contaminant can render the finest vintage undrinkable and costs the wine industry hundreds of millions of dollars a year.

Corticeira Amorim SGPS SA, the world's biggest maker of wine corks, saw sales decline each year from 2000 through 2004 as consumers turned up their noses at pinot noirs with the bouquet of damp dog. Amorim responded by modernizing plants to cut production costs as he searched for a cure. The shares, which shot up 79 percent in the past two years, are set to rise more as he wins back customers by virtually eliminating cork taint, said analyst Sonia Baldeira.

``This should be a very good year for Corticeira Amorim,'' said Baldeira, of Lisbon-based Caixa Banco de Investimento SA, who raised her rating on the shares March 5 to ``buy'' from ``hold'' with a 2.35 euro price target. ``There is a lot of room to grow,'' including in the U.S., its second-biggest market after Europe.

The shares, which reached a high of 2.84 euros in May 1998, advanced as much as 2 cents, or 1.5 percent, to 2.05 euros and closed up 1 cent at 2.03 euros.

Amorim's new process, which steams out compounds caused by a naturally occurring fungus, has helped lower the industrywide incidence of cork taint to less than 1 percent of wine bottles produced, from as much as 5 percent, Baldeira said.

``We're fighting back,'' Amorim said in an interview in Mozelos, northern Portugal, where the company founded by his great grandfather in 1870 is based. ``We may have lost market share in some places but we are gaining in others.''

Problem Solved?

French rival Oeneo, which has developed its own taint- removal process, sniffs at Amorim's claim and says it has eliminated the malodorous problem caused by the chemical trichloroanisole, or TCA, once and for all.

``That's a thing of the past,'' Dean Banister, a sales director at Oeneo's Diam Closures subsidiary, said last month at the London International Wine & Spirits Fair.

Paris-based Oeneo said March 26 that 2006 earnings rose more than fivefold, helped by a recovery at its cork unit. The shares reached a high of 2.34 euros on April 10 and are up 96 percent in the past two years.

Corticeira Amorim spokesman Carlos de Jesus said the Portuguese company's process is the only one that combines ``preventive and curative measures.''

Both cork makers are now turning their efforts to halt a slide in sales to wineries with their new technology.

Screw Tops

About 78 percent, or 14 billion, of the 18 billion wine ``closures'' each year are sealed with cork, Banister said.

``If you went back 10 years, you'd probably find that it was 95 percent cork,'' he said.

Cork makers may have their work cut out for them. Alternatives such as Alcan Inc.'s Stelvin aluminum screw cap are finding fans even among die-hard cork aficionados.

``Screw tops are the thing,'' said Richard Harvey-Jones, chairman of Seckford Wines, a Melton, England-based seller of fine and rare wines including Lafite and Mouton Rothschild.

While screw caps work ``brilliantly'' on everyday wines, cork is really the only choice for those that need to breathe and mature, Harvey-Jones said in an interview at the London wine fair.

``You go to one huge amount of effort, time, trouble and money to make great wine and one poxy little stopper ruins it, that's dreadful,'' he said. ``It's bad for business.''

`Corked' Wine

The number of ``corked'' bottles -- wines that have gone bad -- may be as high as 12 percent, Banister said. Vintners are hurt when consumers stop buying a particular brand after they've purchased a tainted bottle, he said.

A taint rate of 1 percent would mean a loss of about $100 million for the U.S. wine industry alone, along with tarnished reputations, said Christian Butzke, professor of oenology at Purdue University and a former winemaker.

``It's very hard to truly assess the value of what is lost,'' he said.

Amorim's loss of market share to synthetic closures and screw caps is almost entirely due to cork taint, said Butzke, chairman of the Indy International Wine Competition, the largest in the U.S.

``Without the problem of cork taint I don't think we would have seen any of these different products,'' he said.

Slow Harvest

Cork's waning popularity also has hurt the rural economy in Portugal, which produces 54 percent of the world's cork, or about 185,000 tons a year, and exports 900 million euros ($1.2 billion) a year in cork products.

Corticeira Amorim has been cutting cork from the country's oak forests for more than 130 years. Cork comes from the bark of the slow-growing tree, which can only be stripped once every nine to 14 years.

The company makes about 3 billion wine corks a year, 25 percent of world output. Its fortunes soured in the 1990s when retailers and restaurants began to favor screw caps and synthetic stoppers from companies such as Montreal-based Alcan and closely held Supreme Corq Inc., based near Seattle, which were cheaper and free of cork taint.

The race to find a way to produce fungus-free natural cork stopper and one cheap enough to compete with alternatives has cost Corticeira Amorim about 6 million euros a year in research spending since 2000, its chairman said.

Rising Profit

The effort paid off with a reduction in taint of as much as 90 percent and has led some wine producers in South Africa and Chile to start using cork again, Amorim said.

Sales, half of which come from bottle stoppers and the rest from products such as flooring, are starting to pick up. Revenue increased 3.4 percent last year to 442.6 million euros and is forecast to gain 5 percent this year, according to Baldeira. That's after a 0.3 percent gain in 2005 and a 0.2 percent decline in 2004.

Net income will rise to 22.3 million euros this year, said Baldeira, who has Corticeira Amorim as one of her six top stock picks from the 52-member Portuguese index. Profit last year climbed 28 percent to 20.1 million euros.

Earnings per share will rise to 17 cents this year and 19 cents in 2008, Baldeira said. In 2006, the company earned 15 cents as sales increased for the second-straight year.

Highly Profitable

Corticeira Amorim will be able to boost margins over the next 10 years even as cork loses share to alternative products because it can raise prices, said David Skalli, a partner at Paris-based wine consultant Skalli & Cie.

``Amorim won't lose money. In fact, they will be highly profitable in the coming years,'' Skalli said.

Earnings before interest, taxes, depreciation and amortization will be 8 percent to 10 percent of stopper sales in the next 10 years, Skalli said.

If last year's 8.2 percent Ebitda margin remains the same, and sales and the number of shares are unchanged, the stopper business will contribute about 15 cents per share annually to the bottom line, according to Bloomberg calculations.

``TCA is not an issue for the future,'' Skalli said. ``Amorim can only benefit.''

Plastic's share of the wine closure market has fallen to 12 percent from 15 percent in the past couple of years, according to Corticeira Amorim. Screw caps, meanwhile, have grabbed more business, rising to 8 percent from 5 percent.

Premium Wines

``Cork's market share can fall to as low as 75 percent in the next six to seven years but it will be a much bigger market,'' Amorim said. ``We will not be selling less cork.''

While Amorim is seeking to win over producers of everyday drinking wine, which accounts for as much as 40 percent of the wine market, he's also working to persuade makers of premium varieties.

Spanish winery Vina Araujo has agreed to attach a necktag certifying that its 2005 Albarino wine is sealed with natural cork, Amorim said.

Baldeira expects Corticeira Amorim's sales to increase in Central Europe, as the economies of countries like France and Germany pick up, and in the U.S., where demand for cork stoppers has been flourishing as more states become wine producers.

Amorim also is looking at China for growth. The company signed an agreement with a local partner and plans to invest as much as 3 million euros to set up a plant in that country, he said.

Sentimental Value

To fend off alternative stoppers, cork makers also stress the fact that their product is biodegradable and recyclable.

``Cork is clearly the best performer at this level,'' Amorim said.

Cork forests support a wide range of bird species including black storks and several varieties of eagles and vultures, according to the Royal Society for the Protection of Birds.

Investors and environmentalists aren't the only one cheering the cork industry's attempted comeback.

``There's a certain charm in removing the cork from a wine bottle,'' said wine critic Luis Antunes, who writes for the Portuguese magazine Revista de Vinhos. ``Cork doesn't only have an important economic value in Portugal, it also has sentimental value.''

To contact the reporters on this story: Anabela Reis in Lisbon at areis1@bloomberg.net; Brian McGee in London at bmcgee3@bloomberg.net.

Last Updated: June 4, 2007 12:54 EDT