CCE faces an uphill battle in Europe

CCE faces an uphill battle in Europe

The on-going challenges from Europe's trading environment mean that Coca-Cola Enterprises may struggle to achieve its long-term growth targets, an analyst has warned.

The group yesterday (25 July) reported a 22.6% drop in first-half net profits, as sales dipped by 1.7%. CCE blamed ongoing macroeconomic weakness, poor weather, the impact of France's tax hike last year, and the UK's “competitive environment”. 

In a note today (26 July), Bernstein analyst Steve Powers said that, given the troubles CCE faces, he continues to “harbour concerns about the sustainable achievability of long-term top-line (+4-6%) and operating profit (+6-8%) growth objectives”.

On France's tax increase, introduced in January last year, Powers said: “We wonder the extent of the actions the company is considering to facilitate the improvement. Will improved in-store promotion and displays be enough, or are additional pricing cuts on the table?”

He also suggested that the company's "renewed appetite" for M&A could bring “an additional layer of risk” for investors.

However, Powers did note that recent trends have improved for CCE, due to better weather in its key regions.

Meanwhile, CLSA analyst Caroline Levey said that Europe remains a risk for CCE, as 55% of its earnings and sales are generated in the region. She also suggested that CCE's first right of refusal to buy Coca-Cola Co's German bottling operations remains “an opportunity and a risk, depending on the price they might pay”.