Coca-Cola Enterprises Inc.
), one of the largest Coca-Cola bottlers in the world, recently
discussed its expectations regarding fiscal 2012 and 2013. The
company revealed its long term plans, share repurchase programs
and dividends and capital structure. Following are the
details of the update:
Fiscal 2012 Outlook
For fiscal 2012, Coca-Cola Enterprises expects earnings per share
toward the upper end of the previously announced range of $2.20
to $2.24. The Zacks Consensus Estimate for fiscal 2012 is $2.23
per share. The guidance includes adverse effect of currency
headwinds, which is expected to impact earnings by 7.5%. The
company's guidance of the currency headwinds has declined from
the prior guidance of 8%.
Coca-Cola Enterprises has maintained its revenue guidance. The
company expects revenue and operating income (both currency
neutral) to grow in the low- to mid-single digit range.
Coca-Cola Enterprises further expects free cash flow for fiscal
2012 to be around $500 million, which is at the top end of the
prior expected range of $475 million to $500 million. Capital
expenditure is expected to be around $375 million, which is at
the low end of the prior expected range of $375 million-$400
million. The company expects the weighted average cost of
debt to be around 3% (in line with prior expectations) and
effective tax rate to be in the range of 26% to 27% (tighter
compared to the prior expectations of 26% - 28%).
All of the above expectations consider several challenges that
the company has been facing. These include steep price
competition in Great Britain, overall soft macro economic
conditions and increase in French excise tax. The hike in French
excise tax was introduced by French regulatory authorities from
January 2012. An increased excise tax was levied on beverages
with added sweetener, which is applicable to almost all drinks
that the company sells in France.
Update on Share Repurchase and Dividends
Coca-Cola Enterprises completed repurchase of 27 million shares
worth $780 million in fiscal 2012, thereby completing the share
repurchase program of 65 million shares authorized by its board
The board authorized the third share repurchase program worth
$1.5 billion. The company expects to repurchase shares worth at
least $500 million during 2013.
The company also intends to increase its 2013 dividend by 30% to
35% of 2013 diluted earnings per share (currency neutral). This
would mark an approximately 15% increase from the prior-year
Long Term Outlook
Coca-Cola Enterprises reaffirmed its prior long-term targets. The
company intends to achieve annual revenue growth of 4% to
6%, operating income growth of 6% to 8%, high single
digit growth in terms of annual earnings per common share and at
least 20 basis points growth in annual return on invested capital
Capital spending is expected to decline 5% from the prior-year
quarter and be in the range of 4% to 4.5% of net sales, down from
the prior guidance of 5% of net sales. The capital spending
guidance includes the expected impact of increase in French
excise tax and cost control strategies of the company.
Fiscal 2013 Outlook
The company expects earnings per share to grow 10%, including a
mild positive impact of currency translation. The Zacks Consensus
Estimate for fiscal 2013 is $2.53 per share, up 13.5% from the
Zacks Consensus Estimate for fiscal 2012.
The company expects net sales and operating income to grow in a
mid single digit range. However, gross margin is expected to
decline owing to weaker net pricing per case compared to higher
cost of sales per case. The likely dip in gross margin is
due to sustained macroeconomic headwinds. As such, operating
income margins are also expected to be weak in fiscal 2013.
Coca-Cola Enterprises expects free cash flow for fiscal 2013 to
be around $450 to $500 million. Capital expenditure is expected
to be around $350 million. The company expects the weighted
average cost of debt to be around 3% and effective tax rate to be
in the range of 26% to 28%.
As a peer of
), it is encouraging to note that the company's underlying
guidance was raised slightly for net sales and operating income
in fiscal 2013.
Overall, we are optimistic about the company's long-term
fundamentals. We appreciate the company's strong brand portfolio
and solid cash position. However, the anticipated margin weakness
in 2013 is a matter of concern. Also, the currency headwinds and
economic challenges in Europe may drag the company's performance
in the upcoming quarters.
COCA-COLA ENTRP (CCE): Free Stock Analysis
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Coca-Cola Enterprises carries a Zacks #3 Rank in the near term
(Hold rating). We currently have a Neutral recommendation on the
company over the long term.