On Jun 3, we maintained a Neutral recommendation on
Coca-Cola Enterprises Inc.
), due to its mixed first-quarter 2013 results.
Why the Neutral Recommendation?
On Apr 25, CCE announced first-quarter 2013 results. Adjusted
earnings of 39 cents per share beat the Zacks Consensus Estimate
of 38 cents by a penny. Adjusted earnings rose 8.3% year over
year as declining costs and a lower share count resulting from
significant share repurchases made up for the slim revenue growth
in the quarter.
Revenues missed the Zacks Consensus Estimate and declined 1%
year over year due to volume shortfall as the macroeconomic
difficulties continue. 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
Following the sluggish first-quarter results, estimates
largely moved downwards for 2013 and 2014. The Zacks Consensus
Estimate declined 0.4% for 2013 and 1% for 2014 over the last 60
In concurrence with the earnings release, CCE announced its
plans to not exercise its right to acquire KO's interest in its
German bottling business and let it expire. This decision enabled
Coca-Cola Enterprises to essentially double its share repurchase
goal for the year.
Accordingly, CCE increased its prior guidance for fiscal 2013
earnings to reflect accelerated share repurchases. It however,
reduced its expectation for revenues due to ongoing macroeconomic
challenges. The second quarter is expected to be quite
challenging in terms of volume and operating profits despite easy
comparisons. However, results are expected to improve in the
second half on the back of strong marketing and operating plans,
together with cost savings initiatives and favorable commodity
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 manage through the current environment and spur profitability.
Its latest decision of not moving forward with the purchase of
the German bottler and instead return excess cash to shareholders
in the form of accelerated share repurchases is also prudent. We
therefore, maintain a Neutral recommendation on the stock.
Other Stocks to Consider
Coca-Cola Enterprises carries a Zacks Rank #3 (Hold). In the
beverage/soft drinks sector sector, stocks worth mentioning are
The WhiteWave Foods Company
), both carrying a Zacks Rank #2 (Buy).
COCA-COLA ENTRP (CCE): Free Stock Analysis
COCA COLA CO (KO): Free Stock Analysis Report
PEPSICO INC (PEP): Free Stock Analysis Report
WHITEWAVE FOODS (WWAV): Free Stock Analysis
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