Coca-Cola Enterprises Inc. (CCE) is set to report the third-quarter fiscal 2014 results on Oct 23, before the market opens. Last quarter, the company delivered a positive earnings surprise of 2.27%.
Let’s see how things are shaping up for this announcement.
Factors to Consider this Quarter
Coca-Cola Enterprises is the Western European bottler of The Coca-Cola Company (KO) and is exposed to the economic uncertainties of this region.
Coca-Cola Enterprises has been facing a tough retail consumer and competitive environment in Great Britain. Despite improving trends, consumers in Great Britain remain apprehensive of spending extravagantly. Though the company saw improvement in customer relationships in France in the first half of 2014 after witnessing difficult beverage market conditions since the increase in French excise tax (FET) in Jan 2012, it remains to be seen if the recovery can be sustained in the second half.
In fact, due to the challenging retail consumer and competitive environment in Great Britain and poor weather conditions in France in the first few weeks of the third quarter, management lowered expectations for 2014 during the Barclays Back-to-School investor conference held in Boston on Sep 3.
In 2014, adjusted earnings are expected to increase approximately 10% in constant currency. However, adjusted constant currency net sales and operating incomes are expected to come in at the lower end of the previous expectations of an increase in the low single-digit and mid single-digit range, respectively.
Also, the sales and profit guidance range are below the company’s long-term targets. Over the long term, net sales are expected to grow in the 4–6% range and operating income within 6–8%.
Though the earnings per share guidance of approximately 10% growth is above the long-term target of high single-digit range, we believe it will primarily be driven by share buybacks.
However, the company’s solid share buyback program, aggressive cost cutting initiatives, innovation plans, solid marketing and continued strong performance of the Coca-Cola trademark brands should drive growth in the second half. Coca-Cola Enterprises launched Coca-Cola Life, a naturally sweetened mid-calorie cola with one-third less calories, in Sweden and Great Britain in September, and will launch Smartwater in Great Britain later this year. The company’s marketing pipeline for the second half includes special summer, traditional holiday and Christmas activation programs.
Earnings Whispers?
Our proven model does not conclusively show that Coca-Cola is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here, as you will see below.
Zacks ESP: The Earnings ESP is 0.00%.
Zacks Rank: Coca-Cola has a Zacks Rank #4 (Sell).
We caution against stocks with a Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.
Other Stocks to Consider
A couple of stocks in the consumer staples sector that have both a positive Earnings ESP and a favorable Zacks Rank are:
The WhiteWave Foods Company (WWAV), with an Earnings ESP of +3.85% and a Zacks Rank #3 (Hold).
The Hershey Company (HSY), with an Earnings ESP of +2.78% and a Zacks Rank #3.
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