At a recent annual business update meeting, Coca-Cola Enterprises Inc. CCE maintained its previously issued 2014 guidance. Moreover, the western European bottler of The Coca-Cola Company (KO) warned that currency headwinds will hurt its profits in the New Year.
2015 Outlook
In 2015, constant currency adjusted earnings per share are expected to increase in the range of 6–8%. Currency translation is expected to be a headwind in 2015 versus a tailwind in 2014. According to recent rates, currency is expected to hurt 2015 earnings by approximately 7% — a stark contrast to the expected benefit of 3% in 2014.
Both adjusted constant currency net sales and operating income are expected to be slightly positive in 2015.
Management had previously stated that it expects to have limited benefit from the improved commodity cost outlook in 2015 as the benefits have already been realized in 2014.
As currency shifts unfavorably, commodity cost tailwinds decline and ongoing economic softness and operating challenges persist, 2015 could prove to be a challenging year for Coca-Cola Enterprises.
Coca-Cola Enterprises has been facing a tough retail consumer and competitive environment in many European countries. Management expects the ongoing economic softness and operating challenges to persist in the fourth quarter as well as in 2015, thereby limiting revenue growth.
Management has increased its focus on high growth brands and regular brand and package innovation to deal with the challenging environment.
In 2015, the company expects to repurchase at least $600 million of its shares. Cash flow is expected in the range of $650 million to $700 million. Capital expenditures are expected within $325 million to $350 million.
2014 Outlook Retained
In 2014, adjusted earnings are still expected to increase approximately 10% in constant currency. Moreover, according to recent rates, currency is expected to benefit 2014 earnings by approximately 3%.
Adjusted constant currency net sales are expected to be flat. Adjusted constant currency operating income is expected to increase in the low single-digit range.
We would like to remind investors that Coca-Cola Enterprises has lowered the full-year 2014 sales and profit outlook twice this year due to ongoing macro and competitive pressure in Europe.
Also, it is noteworthy that the sales and profit guidance range for both 2014 and 2015 are far below the company’s long-term targets. Over the long term, net sales are expected to grow in the 4–6% range and operating income within 6–8%.
Coca-Cola Enterprises continues to expect free cash flow for full-year 2014 to be $650 million. Capital expenditures are expected to be less than $325 million, comparing unfavorably with the previous expectation of approximately $325 million. The effective tax rate is expected to be approximately 27%.
In 2014, the company expects to repurchase shares worth $925 million, higher than $800 million expected earlier. Coca-Cola Enterprises’ board has also approved a new $1 billion share repurchase program.
Stocks to Consider
Coca-Cola Enterprises carries a Zacks Rank #3 (Hold). Better-ranked beverage stocks include Monster Beverage Corporation (MNST) and Dr Pepper Snapple Group, Inc. (NYSE:DPS). While Monster sports a Zacks Rank #1 (Strong Buy), Dr Pepper carries a Zacks Rank #2 (Buy).