We have maintained our Neutral rating on
Coca-Cola Enterprises Inc.
) following appraisal of first quarter 2012 results.
Coca-Cola Enterprises posted first quarter 2012 adjusted
earnings of 36 cents per share beating the Zacks Consensus Estimate
by 3 cents. Earnings were up 9% year over year driven by an
improved top line and operating expense leverage.
During the quarter, net sales increased 1.5% to $1.87 billion
including 2.5% impact of the French excise tax (FET) increase and a
3.5% currency headwind. Further, management provided a bullish
outlook for top- and bottom-line growth. The company projects
currency neutral earnings per share to grow 10%, driven by
mid-single-digit growth in operating income and high single-digit
growth in revenue.
In October 2012, Coca-Cola Enterprises sold its North American
The Coca-Cola Company
) and took over the latter's bottling operations in Norway and
Sweden. Coca-Cola Enterprises has thus transformed itself to an
exclusive western European bottler consisting of legacy Coca-Cola
Enterprise's European bottling operations, as well as the bottling
operations in Norway and Sweden acquired from Coca-Cola
Coca-Cola Enterprise is one of the largest Coca-Cola bottlers in
the world. The company is the sole licensed bottler for Coca-Cola
Company's products in Western Europe. More than 90% of the
company's sales volume comprises products of The Coca-Cola Company.
The collaboration helps the company to create and develop new
brands, market products in an efficient manner and also maximize
The company distributes one of the world's most recognized brand
portfolios, with growing core brands led by the Coca-Cola
trademark. Moreover, the company continuously focuses on growing
value of existing brands. Further, the company focuses on
innovation in new brands, flavor extensions, new packaging or
These initiatives ensure customer satisfaction and thereby
generate additional revenue opportunities for the company. The
company has solid marketing strategies in place for the Euro soccer
championship and the upcoming London Olympics which will lift
volumes from the slightly depressed first quarter.
The company also boasts of a solid balance sheet and strong cash
flows which enable it to drive shareholder value both through share
repurchase and increasing dividends. The company's solid cash
position also allows it to reinvest in its business and evaluate
high return investment opportunities, including potential
Despite the positives, the FET increase and economic challenges
in Europe create significant overhang. 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. Though the company expects to pass on these
costs to consumers in the form of higher retail prices for its
products, a fear of losing customers to its competitors due to
steep pricing creates an overhang. The company's geographic focus
in Western Europe also exposes it to economic risks. We thus prefer
to remain Neutral on the company.
COCA-COLA ENTRP (CCE): Free Stock Analysis
COCA COLA CO (KO): Free Stock Analysis Report
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