just On Call: Analysts cautious on Coca-Cola Enterprises outlook
Analysts said they remain cautious with regard to Coca-Cola Enterprises' long-term outlook
Bernstein Research analysts have said that they remain cautious with regards to Coca-Cola Enterprises' (CCE) long-term outlook, despite the bottler's share buyback plans and a prospective deal to acquire Coca-Cola bottling operations in Germany.
Bernstein analysts today (14 September) lowered their profits guidance on CCE, following the bottler's Shareholder Analyst Day earlier this week.
The move, said Bernstein, comes despite the company performing well as a result of "positive fundamentals, reiteration of guidance ... an increased share buyback, and likely momentum from the 2012 Olympic Games".
The analysts said: "We lower our current estimates (net of the incremental buyback) based on exogenous factors - namely, higher commodity inflation (+4% in 2012) and incrementally less favorable foreign exchange impacts given recent moves in the Euro/UK Pound," the analysts noted. "As a result, we lower FY11 EPS by $0.01 to $2.13 and lower FY12 EPS by $0.02 to $2.41."
The analysts added: "We remain more cautious/conservative with regard to CCE's longer-term outlook given ongoing macroeconomic challenges in Europe, FX/Euro risk, difficult demographic trends in CCE's home markets, and uncertainty surrounding the prospective German bottling deal."
Earlier this week, CCE announced a plan to buy back another US$1bn of shares, with at least $500m to be acquired in calendar 2012. The group is three quarters of the way through a current $1bn buyback scheme.
The news has cast greater uncertainty on if and when CCE will acquire Coca-Cola bottling operations in Germany. After Coca-Cola acquired the North American operations of CCE in February last year, CCE gained the right to acquire Coca-Cola's 83% stake in its German bottling operations between 18 and 36 months after the North America deal closing.
CCE's time window for acquiring the German bottling operations opened in August this year. The bottler's CEO, John Brock suggested to analysts this week that a deal is likely at some point.
He said: "Germany is the largest market in Europe. It's about 15% of Coca-Cola's volume in Western Europe. It is the largest population center in Europe. It's a growing market. And we are currently working hand in hand with the Coca-Cola Co to better understand the outlook.
"We have plenty of time to the time window goes for almost two years. We are currently and we will continue to conduct significant and thorough due diligence."
Brock added, however, that nobody should contemplate the announcement of the transaction this year and that the company's focus is on returning cash to shareholders.
"We are really interested in returning cash," Brock said. "Our plan is to continue returning cash to shareowners and our plan is to continue to meet or exceed our long-term financial objectives. Do we have some risk? Yeah, we do. We are optimistic, but we are realistic."
Separately, last week, CCE reinstated a EUR17m (US$24m) investment plan in France just 24 hours after announcing a review of the spend, amid a backlash from senior politicians.
Speaking at the shareholder day, Brock told shareholders: "Last month, certainly as you know, France proposed an increase in the excise tax on certain beverages with sugar. Now, we fully support efforts by the way to reduce the deficit, but we are strongly opposed to any kind of taxes that unjustly targets purchasing power of people on one single item."
At the analyst day, CCE reiterated its full-year guidance. Excluding currency changes, net sales for 2011 will grow by mid-single digits, with operating profits expected to increase at either the same rate or slightly quicker. Cost rises, however, are taking their toll in the third and fourth quarters, with operating margins expected to show "modest declines" in these periods, CCE said.
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