On Sep 11, we maintained a Neutral recommendation on
Coca-Cola Enterprises Inc.
), due to mixed second-quarter 2013 results.
Why the Retention?
On Jul 25, CCE announced second-quarter 2013 results. Adjusted
earnings of 77 cents per share beat the Zacks Consensus Estimate
by 2.7%. Earnings increased 5.5% over the prior-year quarter as a
lower share count made up for the slim revenue growth in the
quarter. Revenues missed the Zacks Consensus Estimate and
declined 2.5% year over year due to worse-than-expected weather
conditions and a sluggish consumer spending environment.
Both volume and pricing declined in the quarter. The company
also lowered its net sales and margin outlook for the full year
due to the ongoing macroeconomic challenges.
Moreover, the company has been facing many other challenges
lately. These include the 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 (FET). Some of these challenges have been more
persistent than expected, thus tempering the first-half volumes
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
Despite a difficult first half, management is hopeful of
better growth in the third quarter, thanks to weather
improvements in July and the summer promotional programs (already
showing signs of success). Overall, the company expects better
growth in the second half with both volumes and pricing/case
expected to improve.
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. We,
therefore, maintain a Neutral recommendation on the stock.
Other Stocks to Consider
Coca-Cola Enterprises carries a Zacks Rank #3 (Hold). Other
consumer staples companies that are worth considering include
Pinnacle Foods Inc.
Green Mountain Coffee Roasters, Inc.
). Both the stocks carry a Zacks Rank #1 (Strong Buy).
COCA-COLA ENTRP (CCE): Free Stock Analysis
GREEN MTN COFFE (GMCR): Free Stock Analysis
COCA COLA CO (KO): Free Stock Analysis Report
PINNACLE FOODS (PF): Free Stock Analysis
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