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Coca-Cola Enterprises (CCE) Sales Remain Weak; Profits Up

We issued an updated research report on Coca-Cola Enterprises Inc.CCE on Nov 10, 2015.

Coca-Cola Enterprises' third-quarter adjusted earnings beat the Zacks Consensus Estimate while sales missed the same. Adjusted earnings of 84 cents per share declined 8.5%, while revenues dropped 14.5% year over year due to significant Fx headwinds as the euro is deteriorating versus the dollar. However, earnings increased 8%, on a constant currency basis, as commodity cost favorability offset the weak top line.

Persistent economic softness and operating challenges in Europe, evolving consumer landscape and an increasingly competitive environment hurt Coca-Cola Enterprises' top line in 2014 and 2015 so far.

Coca-Cola Enterprises is the Western European bottler of The Coca-Cola Company KO and is thus exposed to the economic uncertainties of this region and the challenging consumer spending environment in this region which continues to affect the broad consumer goods sector.

However, it has been managing the business well as cost cutting and share repurchases have been driving the company's operating profit and EPS growth despite top-line weakness.

Moreover, Coca-Cola Enterprises has undertaken many initiatives to accelerate volume growth. The company is leveraging package and product innovation to support volume growth. It is also conducting special programs to increase the presence of new products like Finley and Coca-Cola Life.

The company also plans to expand its digital and social media presence through online marketing and mobile couponing.

Importantly, the pending merger with other European bottlers will boost shareholders' returns. On Aug 6, Coca-Cola Enterprises announced a merger agreement with two European bottlers - Coca-Cola Iberian Partners and Coca-Cola Erfrischungsgetränke AG - to form a Western European bottler, named Coca-Cola European Partners. Coca-Cola Enterprises will hold 48% stake in the new bottling company, which will be the largest independent Coca-Cola bottler in terms of revenues.

However, the difficult consumer/retail environment is expected to persist through the rest of the year and in 2016 which, coupled with the increasingly strong currency headwinds, will limit revenue growth. With the euro deteriorating against the dollar, currency had a significant negative impact on first-half sales and earnings. Currency translation is expected to hurt 2015 earnings by 18%. Currency translation proved to be a significant headwind in 2015 as against being a tailwind in 2014.

Also, category headwinds are hurting sales of its carbonated soft drinks (CSD). Cross-category competition and growing health and wellness consciousness - consumers are particularly vigilant about the use of artificial sweeteners, high sugar content and related obesity concern - are hurting CSD category growth and thereby CSD sales of soft drink companies like Coca-Cola, PepsiCo, Inc. PEP and Dr Pepper Snapple Group, Inc. DPS

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COCA-COLA ENTRP (CCE): Free Stock Analysis Report

COCA COLA CO (KO): Free Stock Analysis Report

DR PEPPER SNAPL (DPS): Free Stock Analysis Report

PEPSICO INC (PEP): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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