Coca-Cola Enterprises upbeat on profits growth

Coca-Cola Enterprises upbeat on profits growth

Coca-Cola Enterprises still hopes that a soft drinks tax in France will not be implemented, but has said it will take all measures necessary to protect profits growth.   

Barring a late reprieve, France will introduce a tax on added sugar soft drinks in January. The move is part of a dual strategy to target rising obesity rates and increase Government revenue. 

Coca-Cola Enterprises (CCE) said today (15 December) that it has left the tax out of its guidance for 2012, reflecting hope that the policy may yet be extinguished. If the tax is implemented, however, the Europe-focused soft drinks bottler hinted that it is prepared to strip out costs in its French business in order to protect profits.

"If the current tax proposal is implemented, we would expect volume growth to be impacted in France, but we are prepared to manage our overall business to deliver operating income and earnings per share growth at the lower end of our guidance," said the group in an outlook statement. It will review the situation in its full-year results announcement in February. 

Despite the looming French tax and economic crisis across the eurozone, CCE said that it is performing ahead of its long-term growth targets and is expected to continue doing so next year. For 2011, diluted earnings per share are set to be at the top of the bottler's guidance range of between US$2.14 and $2.18. In percentage terms, net sales should rise in mid-single digits and operating profits are forecast to increase by high single digits.

In 2012, diluted earnings per share share are expected to rise by between 10% and 12% on 2011, although this excludes an anticipated hit from currency. All of the outlook figures exclude currency swings year-on-year.

Major sports tournaments should boost sales next year, CCE said. “We have excellent market-based programmes in place that will allow us to maximise the potential of opportunities such as the 2012 London Olympics and the 2012 European Soccer Championship,” said Hubert Patricot, executive vice president and president of CCE Europe.  

Following the update, analyst group Stifel Nicolaus said: "We expect concern the targets are too high, given the macro environment and potential tax in France, but consider them sound and likely achievable, considering our view of Coke’s and CCE’s plans and execution abilities in the region." It pointed out that CCE's outlook may shift if the group takes up its 'first refusal' option on Coca-Cola Co's Germany bottling operations, which Stifel thinks may cost around $2bn.