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On Jan 22, we maintained a Neutral recommendation on Coca-Cola Enterprises, Inc (CCE - Analyst Report), following the appraisal of its third quarter results.

Why the Neutral Recommendation?

More than 90% of the sales volume of Coca-Cola Enterprises comprises products of The Coca-Cola Company (KO - Analyst Report). In October 2012, Coca-Cola Enterprises sold its North American operations to The Coca-Cola Companyand took over the latter’s bottling operations in Norway and Sweden.

Coca-Cola Enterprises has thus transformed itself into an exclusive western European bottler. The company is thus exposed to the economic uncertainty of this region, including steep price competition in Great Britain and headwinds from increased taxes on beverages with sweeteners in France.

Moreover, Coca-Cola Enterprises’ second and third quarters were challenging mainly due to volume softness and currency headwinds.

Coca-Cola Enterprises’ third quarter 2012 earnings of 71 cents per share beat the Zacks Consensus Estimate by 2.9%. Earnings, however, declined 1.4% over the prior-year quarter due to currency headwinds and lower revenues and margins. Volumes improved slightly in the quarter, though they are expected to decline in the fourth quarter.

Despite back-to back challenging quarters, volume softness and economic challenges in Europe, we are optimistic about the company’s long-term fundamentals. We appreciate its strong brand portfolio and solid cash position. The company is one of the largest Coca-Cola bottlers in the world.

Further, its cost saving initiatives and accelerated share buybacks are aimed at offsetting the headwinds from a soft operating environment. Moreover, the financial outlook for 2013 provided at the analyst day meet in mid-December 2012, remained somewhat encouraging.

Other Stocks to Consider

Coca-Cola Enterprises carries a Zacks Rank #3 (Hold). Other stocks in the beverage industry that are currently performing well include Coca-Cola Hellenic Bottling Company S.A. and The Coca-Cola FEMSA S.A.B. de C.V. (KOF - Snapshot Report). Both the companies carry Zacks #2 Rank (Buy).

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