Coca-Cola Enterprises Cuts 2014 Sales and Profit Outlook


Coca-Cola Enterprises, Inc. (CCE) announced at an investor conference that it now expects fiscal 2014 sales and profits to be at the lower end of its previously-provided range.

In 2014, adjusted earnings are still expected to increase approximately 10% in constant currency. However, adjusted constant currency net sales and operating incomes are expected to come in at the lower end of the previously guided targets of an increase in the low single-digit and mid single-digit range, respectively. The Western European bottler of The Coca-Cola Company (KO) announced the revised guidance at the Barclays Back-to-School investor conference held in Boston on Sep 3.

Moreover, according to recent rates, currency is expected to benefit 2014 earnings per share by slightly less than 4%, lower than prior expectation of over 5%.

We believe challenging retail consumer and competitive environment in Great Britain and poor weather conditions in France in the third quarter forced management to lower 2014 expectations.

Also, the sales and profit guidance range are below the company’s long-term targets. Over the long term, net sales are expected to grow in the 4–6% range and operating income within 6–8%.

Though the earnings per share guidance of approximately 10% growth is above the long-term target of high single-digit growth, we believe it will mostly be driven by share buybacks.

Operating income growth is expected to be stronger in the second half, but weighted more toward the fourth quarter. Gross margins in the second half are expected to be softer than the first.

Management expects the Coca-Cola trademark brands to drive growth in the second half coupled with innovation initiatives and solid marketing. Coca-Cola Life, a naturally sweetened mid-calorie cola having one-third less calories, is expected to be launched in Great Britain and Sweden in September. Smartwater is scheduled for a launch later this year in Great Britain. Coca-Cola Enterprises’ marketing pipeline for the second half includes special summer and traditional holiday and Christmas activation programs.

Cost of sales per case is expected to be approximately flat for 2014 versus an increase of 1.5% expected previously. Pricing per case is expected to cover cost of sales per case.

Coca-Cola Enterprises expects free cash flow for full-year 2014 to be $650 million. Capital expenditures are expected in the range of 4% to 4.5% of net sales. The company expects the weighted average cost of debt to be around 3%. Effective tax rate is expected in a range of 26% to 28%.

Other Stocks to Consider

Coca-Cola Enterprises carries a Zacks Rank #3 (Hold). Better-ranked beverage stocks include The WhiteWave Foods Company (WWAV) and PepsiCo, Inc. (PEP). Both the companies carry a Zacks Rank #2 (Buy).

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