On Dec 10, we maintained a Neutral recommendation on
Coca-Cola Enterprises Inc.
), despite strong third-quarter 2013 results. We prefer to stay
on the sidelines due to a cautious outlook for the next quarter
owing to continued operating and marketplace challenges.
Why the Retention?
On Oct 24, Coca-Cola Enterprises announced decent
third-quarter 2013 results. Third-quarter 2013 adjusted earnings
of 82 cents per share beat the Zacks Consensus Estimate of 80
cents by 2.5% and the year-ago earnings of 71 cents by 15.5%
driven by currency tailwinds, share buybacks and lower taxes.
Revenues grew about 5.0% year over year to $2.17 billion and came
in line with the Zacks Consensus Estimate. Excluding currency
tailwinds, revenues grew 2.5% driven by improvement in both
volumes and pricing.
Overall, volumes (bottle and cans) grew 2.5% in the quarter,
much better than a similar decline in the second quarter. Volumes
were positively impacted by favorable weather conditions and
seasonal promotional initiatives, especially the 'Share a Coke'
campaign. However, while volumes improved strongly in the month
of July due to exceptionally warm weather conditions, it returned
to more normal patterns thereafter; remaining flat in August and
declining in September as the macro headwinds persisted.
Coca-Cola Enterprises has been facing many challenges lately.
These include steep price competition in Great Britain, overall
soft macroeconomic conditions and difficult beverage market
conditions in France due to the increase in French excise tax.
These persistent macro headwinds caused the company to lower its
underlying top line and operating income guidance for full-year
More than 90% of the sales volume of Coca-Cola Enterprises
comprises products of
The Coca-Cola Company
). In Oct 2012, Coca-Cola Enterprises sold its North American
operations to The Coca-Cola Company and took over the latter's
bottling operations in Norway and Sweden. The company is thus
geographically focused in Western Europe and is exposed to the
economic uncertainties of this region, including the debt burdens
of some of these countries and the challenging consumer spending
Overall, we believe that the company has solid long-term
fundamentals. Its strong brand portfolio, solid cash position,
cost saving initiatives and accelerated share buybacks will help
it ride out the current environment and spur profitability.
However, the poor macro conditions across Europe and challenging
consumer environment are restricting meaningful volume/top-line
growth. We, therefore, maintain a Neutral recommendation on
Other Stocks to Consider
Coca-Cola Enterprises carries a Zacks Rank #3 (Hold).
Better-ranked beverage companies include
Coca-Cola Amatil Limited
The WhiteWave Foods Company
). While Coca-Cola Amatil sports a Zacks Rank #1 (Strong Buy),
WhiteWave Foods carries a Zacks Rank #2 (Buy).
COCA-COLA ENTRP (CCE): Free Stock Analysis
COCA-COLA AMATI (CCLAY): Get Free Report
COCA COLA CO (KO): Free Stock Analysis Report
WHITEWAVE FOODS (WWAV): Free Stock Analysis
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