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On Sep 11, we maintained a Neutral recommendation on Coca-Cola Enterprises Inc. (CCE - Analyst Report), due to mixed second-quarter 2013 results.

Why the Retention?

On Jul 25, CCE announced second-quarter 2013 results. Adjusted earnings of 77 cents per share beat the Zacks Consensus Estimate by 2.7%. Earnings increased 5.5% over the prior-year quarter as a lower share count made up for the slim revenue growth in the quarter. Revenues missed the Zacks Consensus Estimate and declined 2.5% year over year due to worse-than-expected weather conditions and a sluggish consumer spending environment.

Both volume and pricing declined in the quarter. The company also lowered its net sales and margin outlook for the full year due to the ongoing macroeconomic challenges.

Moreover, the company has been facing many other challenges lately. These include the steep price competition in Great Britain, overall soft macroeconomic 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 first-half volumes and sales.

More than 90% of the sales volume of Coca-Cola Enterprises comprises products of The Coca-Cola Company (KO - Analyst Report). In Oct 2012, Coca-Cola Enterprises sold its North American operations to The Coca-Cola Company and took over the latter’s bottling operations in Norway and Sweden. The company is thus, geographically focused in Western Europe and is exposed to the economic uncertainties of this region, including the debt burdens of some of these countries and the challenging consumer spending environment.

Despite a difficult first half, management is hopeful of better growth in the third quarter, thanks to weather improvements in July and the summer promotional programs (already showing signs of success). Overall, the company expects better growth in the second half with both volumes and pricing/case expected to improve.

Overall, we believe that the company has solid long-term fundamentals. Its strong brand portfolio, solid cash position, cost saving initiatives and accelerated share buybacks will help it ride out the current environment and spur profitability. We, therefore, maintain a Neutral recommendation on the stock.

Other Stocks to Consider

Coca-Cola Enterprises carries a Zacks Rank #3 (Hold). Other consumer staples companies that are worth considering include Pinnacle Foods Inc. (PF - Snapshot Report) and Green Mountain Coffee Roasters, Inc. (GMCR - Analyst Report). Both the stocks carry a Zacks Rank #1 (Strong Buy).

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