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Coca-Cola Enterprises Inc.’s (CCE - Analyst Report) fourth quarter 2012 adjusted earnings of 45 cents per share beat the Zacks Consensus Estimate of 43 cents by 4.7%.   Earnings rose 25% year over year from 36 cents driven by operating income growth and a lower share count resulting from significant share repurchases in the quarter. 

Revenues and Margins in Fourth Quarter

The company’s overall results in the quarter were hurt by several challenges such as steep price competition in Great Britain, overall soft macro economic conditions and difficult beverage market conditions in France due to increase in French excise tax (FET).

The hike in French excise tax was introduced by French regulatory authorities from Jan 2012. An increased excise tax was levied on beverages with added sweeteners, which is applicable to almost all drinks that the company sells in France.

During the quarter, net sales rose 1.0% to $1.92 billion. Excluding the impact of both FET and currency headwinds, organic revenues were flat year over year. Excluding currency headwinds, revenue growth was 2.0%. Reported revenues were in line with the Zacks Consensus Estimate of $1.92 billion.

The company’s net pricing per case increased 4.0% and cost of goods per case increased 3.5% in the quarter, both excluding FET impact. Volumes (bottle and cans) declined 5.5% in the quarter, owing to difficult macroeconomic conditions. Volumes declined 5.5% in the continental European territories and 6.0% in Great Britain. The volume decline in the quarter is in line with the company’s guidance.

Adjusted gross profit in the quarter decreased 0.5% year over year to $667 million. Adjusted operating income increased 13.0% to $208 million (up 13.5% excluding currency impacts). 

Fiscal 2012

Coca-Cola Enterprises reported fiscal 2012 adjusted earnings (excluding the impact of restructuring charges and mark-to-market commodity hedges) of $2.26 per share beating the Zacks Consensus Estimate of $2.24 by 0.9%. The company results exceeded the company guidance range of $2.20–$2.24 for fiscal 2012.

During fiscal 2012, net sales declined 2.5% to $8.06 billion. Excluding the impact of both FET and currency headwinds, organic revenues were up 1.0%. Excluding currency headwinds, revenue growth was 3.0%. Reported revenues lagged the Zacks Consensus Estimate of $8.08 billion. 

Share Repurchase

A strategic bottling partner of The Coca-Cola Company (KO - Analyst Report), Coca-Cola Enterprises completed the repurchase of 27 million shares worth $780 million in fiscal 2012, thereby completing the share repurchase program of 65 million shares authorized by its board of directors.  

Its third share repurchase program worth $1.5 billion commenced in January 2013. The company expects to repurchase shares worth at least $500 million during 2013.

Fiscal 2013 Outlook

The company maintained its prior guidance for fiscal 2013 earnings, revenues and operating income. The company expects to return to positive volume growth during fiscal 2013. The company continues to expect currency neutral adjusted earnings growth to be 10%.

The currency translation is expected drive full year earnings by 2% to 3%. The target looks encouraging, considering it is higher than the company’s long-term target of high-single-digit growth.

The company expects net sales and operating income to grow in a mid-single digit range. However, gross margin is expected to decline as the increase in net pricing per case will be less than the increase in cost of sales per case.

According to the guidance provided on its Analyst Day, gross margins are expected to be hurt by re-organization initiatives in Norway and higher input costs.  Higher costs of European sugar are expected to result in a higher rate of commodity inflation in 2013 versus prior years. As such, organic operating income margins are also expected to be weak in fiscal 2013.

Coca-Cola Enterprises expects free cash flow for fiscal 2013 to be around $450 to $500 million. Capital expenditure is expected to be around $350 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%.  

Coca-Cola Enterprises carries a Zacks Rank #3 (Hold).

Other related companies to consider include Coca-Cola Hellenic Bottling Company S.A. (CCH - Snapshot Report) and Coca-Cola FEMSA S.A.B. de C.V. (KOF - Snapshot Report) both carrying a Zacks Rank #2 (Buy).

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