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Coca-Cola Enterprises Inc.’s (CCE - Analyst Report) second-quarter 2013 adjusted earnings of 77 cents per share beat the Zacks Consensus Estimate of 75 cents by 2.7% and the year-ago earnings of 73 cents by 5.5%. Favorable impact of 1 cent per share from currency translation, decline in operational expenses and lower share count led to year-over-year growth in earnings.
Revenues and Margins
During the quarter, net sales dipped 2.5% to $2.16 billion. Reported revenues also missed the Zacks Consensus Estimate of $2.21 billion. Sales in the quarter were adversely impacted by worse-than-expected weather conditions and a sluggish consumer spending environment. In Jun 2013, management had already warned that cold and wet weather conditions in the second half of May and the beginning of June could hurt volumes significantly during the peak summer selling season.
Coca-Cola Enterprises, one of the largest bottlers of The Coca Cola Co. (KO - Analyst Report), has been facing many other challenges lately. These include steep price competition in Great Britain, overall soft macro economic conditions and difficult beverage market conditions in France due to the increase in French excise tax (FET). Some of these challenges have been more persistent than expected, thus tempering the fisrt-half results.
The company’s net pricing per case decreased 0.5% whereas cost of sales per case increased 2.0% in the quarter. Volumes (bottle and cans) declined 2.5% in the quarter. Volumes declined 2.5% in continental Europe and 1.5% in Great Britain.
Sparkling drinks volume declined about 2.5% with beverages from Coca Cola down 2.5%. Still beverages witnessed a decline of 2%. However, Coca Cola Zero managed to post growth of as much as 13%. Also, energy drinks volume grew 3% with Monster posting a substantial growth of 15%.
Gross margins were hurt by about 160 basis points (bps) owing to higher cost of sales and adverse mix in Great Britain. Comparable operating income declined 4% despite a 5% decline in operating expenses owing to the continuing expense control initiatives.
Coca-Cola Enterprises began its third share repurchase program worth $1.5 billion in Jan 2013. The company continues to expect repurchase of shares worth at least $1 billion during 2013.
Fiscal 2013 Outlook
The company withdrew its previously provided outlook for fiscal 2013 in Jun 2013 due to lower visibility for the near future. However, management has updated the guidance this time.
It now expects adjusted earnings per share in a range of $2.45 to $2.50. At the current rates, currency translation is expected to reduce full-year earnings per share by less than 1%, down from the earlier guided range of 1%-2%.
The company expects net sales to grow in the low single-digit range, down from previously guided range of low-to-mid-single digits. The company has slashed its net sales guidance twice this year.
Operating income is expected to increase in the low-to-mid-single digits range, down from mid-single digits range guided earlier.
Coca-Cola Enterprises expects free cash flow for fiscal 2013 to be around $450 to $500 million. Capital expenditure is expected to be around $325 million. The company expects the weighted average cost of debt to be around 3% and effective tax rate to be in the range of 26% to 28%.
Despite an unimpressive guidance, the company is hopeful of better business conditions in the third quarter, thanks to recent weather improvements. It is still counting on the remaining summer season to bolster its sales in the upcoming quarter.
Coca-Cola Enterprises carries a Zacks Rank #3 (Hold). Some other consumer staples stocks that are worth a look include Monster Beverage Corp. (MNST - Analyst Report) and The WhiteWave Foods Co. (WWAV - Snapshot Report) both carrying a Zacks Rank #2 (Buy).