Coca-Cola Enterprises Beats on Q1 Earnings; Lags Rev - Analyst Blog

Coca-Cola Enterprises Inc CCE reported first-quarter 2014 adjusted earnings of 46 cents per share, beating the Zacks Consensus Estimate of 44 cents by 4.5% and the year-ago earnings of 39 cents by 17.9% driven by expense control initiatives. Currency also favorably impacted first quarter earnings by 3 cents.

Quarter Details

During the quarter, net sales grew 1.0% year over year to $1.87 billion but fell short of the Zacks Consensus Estimate of $1.93 billion by 3.0%. Excluding currency translations, revenues declined 2.5% due to decline in volumes.

Volumes plummeted 1.5% in the quarter, as against 2.5% growth in the preceding quarter, mainly due to a decline in volumes in Great Britain. A combination of operating strategies including disciplined pricing under competitive conditions, the transition in packaging from 2-liter PET bottles to 1.75-liter PET bottles and wet weather conditions, led to a 9% decline in volumes in Great Britain. However, volumes grew 3.5% in continental Europe, led by strong growth of Coca-Cola trademark beverages and mid-single digit growth in still brands.

Net pricing per case increased 1.0%, while cost of sales per case was flat in the quarter. Total cost of sales was $1.2 billion in the reported quarter.

Adjusted operating income grew 7.8% on a currency neutral basis to $194 million owing to a 3.5% decline in operating expenses.

Share Repurchase

In Dec 2013, the board of Coca-Cola Enterprises, the western European bottler of The Coca-Cola Company KO, authorized a new $1 billion share repurchase program, the fourth buyback program since the company's inception in 2010. The company expects to buy back $800 million worth of shares by the end of 2014.

2014 Outlook

The company maintained its 2014 guidance. In 2014, adjusted earnings are expected to increase approximately 10% in constant currency terms. In addition, according to recent rates, currency is now expected to benefit 2014 earnings per share by over 5%, up from the prior expectation of 3%–4%.

While adjusted constant currency net sales are expected to grow in the low single-digit range, operating income is expected to grow in the mid single-digit range.

Coca-Cola Enterprises now expects free cash flow for full-year 2014 to be $650 million, at the high end of the prior guidance of $600 million–$650 million. Capital expenditures are still expected to be approximately $350 million. The company expects the weighted average cost of debt to be around 3%. Effective tax rate is expected in a range of 26% to 28%.

Coca-Cola Enterprises carries a Zacks Rank #2 (Buy). Other beverage stocks worth considering include Monster Beverage Corporation MNST and Pepsico Inc. PEP, both holding a Zacks Rank #2.