) posted second quarter 2012 adjusted earnings (excluding the
impact of restructuring charges and mark-to-market commodity
hedges) of 73 cents per share, in line with the Zacks Consensus
Earnings were down 4% year over year, owing to a decline in
revenue and volume. Currency translations had an unfavorable
effect on earnings by 8 cents.
During the quarter, net sales decreased 8.5% year over year to
$2.21 billion. Excluding the impact of currency and the French
excise tax (FET) hike, organic revenues were down 2.0%. Sales
lagged the Zacks Consensus Revenue Estimate of $2.29 billion.
From January 2012, French regulatory authorities introduced an
increased excise tax on beverages with added sweetener, which is
applicable to almost all drinks that the company sells in France.
The company expects this increased tax to hurt its overall cost of
sales by 4% in 2012 and expects to pass on these costs to consumers
in the form of higher retail prices for its products.
Volumes (bottle and cans) were down 6% in the quarter due to
increased retail prices resulting from the French excise tax
increase, strong prior-year quarter comparisons and difficult
weather, which acted as headwinds in the quarter.
While volumes in the continental European territories (including
Norway and Sweden) declined 7%, they declined 4.5% in Great
Britain. While Sparkling beverages (like Sprite and Fanta)
continued to decline, the energy category grew 16%. Coca-Cola Zero
The company's net pricing per case and cost of goods per case
increased 6.5% each in the quarter, including FET. However,
excluding the FET impact, net pricing per case increased 4%, and
cost of goods per case also increased 3%.
Adjusted gross profit in the quarter decreased 9% year over year to
$814 million due to a decline in volume. Adjusted operating income
was down 11% to $328 million (down 2% excluding currency impacts)
mainly due to currency headwinds.
Other Financial Update
During the reported quarter, Coca-Cola Enterprises repurchased $225
million shares under a new share repurchase program worth $1.0
billion, which was announced in January, 2012. The company expects
to buyback at least $600 million worth of shares by the end of
Fiscal 2012 Guidance
The company expects earnings per diluted share to be within $2.18
to $2.24. The guidance includes the negative impact of currency
translation and anticipates a decline in full-year earnings per
diluted share by about 10% and 12%, respectively.
Net sales are expected to grow in a mid-single-digit range.
Operating income is also expected to grow in a mid-single-digit
COCA-COLA ENTRP (CCE): Free Stock Analysis
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The company expects cash flow to be in the range of $475 million to
$500 million in fiscal 2012. The capital expenditures are expected
to be in the range of $375 million to $400 million. It expects the
weighted average cost of debt to be 3% and the effective tax rate
is expected to be in a range of 26% to 28% for fiscal 2012.
Currently, we have a Neutral recommendation on Coca-Cola
Enterprises. The stock carries a Zacks #3 Rank (a short-term Hold
We are encouraged by the company's strong brand portfolio and solid
cash position. However, the French excise tax increase and economic
challenges in Europe create significant overhang. We thus prefer to
remain on the sidelines.