Coca-Cola Enterprises Inc. (CCE), the world's largest marketer, producer, and distributor of Coca-Cola products and the anchor bottler for North America and Western Europe, has upgraded its earnings per share (EPS) guidance.
This revision precedes the analyst presentation at the Deutsche Bank Global Consumer Conference scheduled to be held in Paris on June 14, 2010. With a bullish outlook, the company now sees earnings per share for fiscal 2010 to grow at 10%–12% over 2009 on a comparable basis, excluding any foreign currency fluctuation.
Coca-Cola Enterprises had earlier expected to beat 2009 earnings per share of $1.60 by 10% on a comparable basis and excluding any foreign currency fluctuation. However, after taking cues from a solid performance in the first quarter, constructive trends in the second quarter, in line expectations in North America and better performance in Europe, the company foresees a better fiscal 2010. A 10% to 12% increase on 2009 EPS of $1.60 entails EPS in the range of $1.76 to $1.79 for fiscal 2010.
There is a foreign exchange (FX) headwind for Coca-Cola Enterprises in fiscal 2010, which led the company to even hike its FX effect by a negative 7 cents a share to 10 cents a share, which brings the earnings per share range for the year to $1.66–$1.69.
In February, Coca-Cola Enterprise, in collaboration with the beverage giant Coca-Cola Company, made an acquisition deal that involves the acquisition of the entire North American business of the bottler by Coca-Cola. Coca-Cola Enterprise indicated that it is on track to close the transaction in the fourth quarter, keeping in mind the promise to deliver strong results in 2010. Management views this transformation as positive, as it expects the new Coca-Cola Enterprise, post divestiture, to grow faster.
In April, Coca-Cola Enterprise mentioned that it expects its top line to grow at a low, single-digit rate fueled by mid single-digit growth in Europe and a flat-to-low, single-digit decline in North America.
Coca-Cola Enterprise expects its European operations to remain solid in fiscal 2010 attributable to the benefits the company will realize from World Cup 2010, continuous focus on the Energy segment coupled with initiatives to optimize key business functions.
North American Operations
Management expects operations in the region to reap the advantages of the addition of Vitaminwater Zero and reintroduction of Dasani Flavored Waters. A better packaging of products and two-liter contour conversion should also add to benefit.
Estimate Trend Revision
The Zacks Consensus Estimate for Coca-Cola Enterprises’ earnings for the fiscal year ending December 2010 is currently pegged at $1.73 per share, 3 cents lower than the guidance. For the current year, the Zacks Consensus Estimate has moved down by 3 cents over the past month as 6 of 11 covering analysts decreased their projections, while none of the analysts moved in the opposite direction.
Over the last 30 days, out of the 8 analysts providing estimates on Coca-Cola Enterprises for the second quarter, 4 have revised their estimates in the downward direction, leaving the projection at 69 cents from 70 cents.
Considering earnings surprises, the stock has been steady over the last four quarters, with all four positive surprises. The average remained positive at 17.43%. This implies that Coca-Cola Enterprises has surpassed the Zacks Consensus Estimate by 17.43% over the said period. The upside potential for the estimate in the second quarter, essentially a proxy for future earnings surprises, currently stands at 0.00%.
Beverage is a highly competitive industry. We believe that the key behind the success in the beverage industry is to follow the macroeconomic trends within the industry. The company should keep up with changing consumer preferences and should innovate. The World Cup 2010 offers a good opportunity to further boost the brand name for Coca-Cola Enterprises.