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On Apr 2, we maintained a Neutral recommendation on Coca-Cola Enterprises Inc. (CCE - Analyst Report), due to mixed fourth-quarter results.

Why the Neutral Recommendation?

Coca-Cola Enterprises’ fourth-quarter 2012 earnings of 45 cents per share beat the Zacks Consensus Estimate by 4.7%. Earnings rose 25.0% over the prior-year quarter as operating income growth and a lower share count made up for the slim revenue growth in the quarter. Revenues were in line with the Zacks Consensus Estimate.

However, volumes declined in the quarter due to ongoing challenges and difficult year- ago comparisons. CCE has been facing many challenges lately, 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).

More than 90% of the sales volume of Coca-Cola Enterprises comprises products ofThe Coca-Cola Company (KO - Analyst Report). In Oct 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.

However, we believe that the company’s strong brand portfolio and solid cash position, cost saving initiatives and accelerated share buybacks will help it sail through the current environment and spur profitability. Moreover, the company is hopeful of returning to volume growth in 2013 on the back of solid operating and marketing plans. Infact CCE maintained its 2013 earnings, revenues and operating income guidance despite the current challenges and macro economic weaknesses.

Despite the mixed fourth-quarter results, estimates largely moved upwards for 2013 and 2014 due to somewhat encouraging outlook for 2013.  The Zacks Consensus Estimate moved up by a penny each in 2013 and 2014 over the last 60 days.

Other Stocks to Consider

Coca-Cola Enterprises carries a Zacks Rank #2 (Buy). Another stock in the beverage industry that is currently performing well is Coca-Cola Hellenic Bottling Company S.A. - Zacks Rank #2 (Buy). In the broader consumer staples sector, food company, Flower Foods, Inc. (FLO - Snapshot Report) is worth mentioning, carrying Zacks Rank #1 (Strong Buy).

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