We issued an updated research report on Coca-Cola Enterprises, Inc. CCE on May 29, 2015.
Coca-Cola Enterprises’ first-quarter 2015 earnings (announced on Apr 23) beat the Zacks Consensus Estimate but revenues missed the same. Adjusted earnings of 42 cents per share declined 8.5%, while revenues dropped 13% year over year due to significant currency headwinds as the Euro is deteriorating versus the dollar. However, earnings and sales increased 15% and 4%, respectively, on a constant currency basis, backed by improved volumes in Great Britain and benefit from four extra selling days.
Coca-Cola Enterprises is The Coca-Cola Company’s KO strategic bottling partner in Western Europe. The company is thus, geographically focused in Western Europe and exposed to the economic uncertainties of the region.
The company has been facing a tough retail consumer and competitive environment in Great Britain. Though trends are improving, consumers are still apprehensive of spending extravagantly.
Ongoing economic softness and operating challenges in Europe, evolving consumer landscape and an increasingly competitive environment have been hurting the company’s top line. Management expects these challenges to persist in 2015 which, coupled with increasingly strong currency headwinds, will limit revenue growth as can be seen from the first-quarter results.
Moreover, management expects a benign commodity cost environment in 2015 versus the benefits realized in 2014. Cost of sales decreased 1% in the last year.
Also, currency translation is expected to be a significant headwind in 2015 as against being a tailwind in 2014.
With the Euro deteriorating versus the dollar, currency had a significant negative impact on Coca-Cola Enterprises’ earnings in the past two quarters. The company expects Fx to be a much greater headwind to 2015 EPS than management’s previous expectations.
These external factors that supported results in 2014 are likely to disappear in 2015 making it a challenging year for the company.
Nevertheless, despite the headwinds, the company has aggressive packaging/product innovation and marketing plans and operating strategies in place for 2015 to support the ongoing volume growth. Volumes increased 6.5% in the first quarter of 2015 and 2% in the fourth quarter.
The company’s marketing pipeline for 2015 includes sports sponsorships like the Rugby World Cup in Great Britain, campaigns like “Coke with Meals”, holiday programming and special programs to expand the distribution of new products in additional territories. The company also plans to expand its digital and social media presence through online marketing and mobile couponing.
Also, the company launched some healthy products in 2014 which should support the top line this year. Its adult low-calorie, fruit-based sparkling beverage called Finley, launched in 2014, is now available in France, Belgium and Sweden. Coca-Cola Life, a naturally sweetened mid-calorie cola with one-third less calories, also launched last year in Sweden and Great Britain, is now available in each of the company’s territories. Smartwater was also launched last year in Great Britain.
Moreover, ongoing focus on cost control and regular shareholder returns can drive earnings growth.
Stocks to Consider
Coca-Cola Enterprises has a Zacks Rank #3 (Hold). Some better-ranked beverage companies are The WhiteWave Foods Company WWAV and Cott Corporation COT. Both the stocks carry a Zacks Rank #2 (Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Be the first to comment