Coca-Cola Enterprises Stays Neutral


We maintained our Neutral recommendation on Coca-Cola Enterprises Inc. (CCE) following appraisal of second quarter 2012 results.

Coca-Cola Enterprises’ second quarter 2012 adjusted earnings of 73 cents per share were in line with the Zacks Consensus Estimate. However, earnings declined 4% over the prior-year quarter due to currency headwinds and volume declines.

During the quarter, net sales declined 8.5% to $2.21 billion. Volumes were down 6% in the quarter due to increased retail prices resulting from the French excise tax increase, strong prior-year quarter comparisons, weather headwinds throughout the quarter and ongoing macroeconomic softness.

Despite the tough quarter, volume softness and economic challenges in Europe, the company’s underlying guidance remained largely unchanged, which is a strong positive. The company expects adjusted earnings per diluted share to be within $2.18 to $2.24; including currency headwinds of 10%. The guidance represents growth of over 10% on a currency neutral basis, which is higher than prior expectations of currency neutral earnings per share increasing by 10%.

The solid marketing programs for the London Olympics together with easing comparisons, cost-saving efforts and share buybacks are expected to help the company meet its targets. Overall, we are optimistic about the company’s long-term fundamentals.

Coca-Cola Enterprise is one of the largest Coca-Cola bottlers in the world. The company is the sole licensed bottler for The Coca-Cola Company’s (KO) products in Western Europe. Over 90% of the company’s sales volume comprises products of The Coca-Cola Company. The collaboration helps the company to create and develop new brands, market products in an efficient manner and also maximize efficiency.

The company distributes one of the world's most recognized brand portfolios, with growing core brands led by the Coca-Cola trademark. Moreover, the company continuously focuses on growing value of existing brands. The company is also slowly diversifying its product portfolio beyond the colas which are witnessing sluggish volume growth in comparison to other emerging categories like energy and still beverages. Further, the company focuses on innovation in new brands, flavor extensions, new packaging or sweeteners. These initiatives ensure customer satisfaction and thereby generate additional revenue opportunities for the company.

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