Yesterday, Coca-Cola Enterprises (CCE) provided an update on its full-year 2010 earnings guidance and long-term financial objectives following the divestiture of its North American bottling wing to The Coca-Cola Company (KO).
Full-Year 2010 Guidance Update
Coca-Cola Enterprises increased its earnings guidance to a range of $1.78 to $1.82 per share from $1.73 to $1.77 per share provided during the second-quarter earnings call. The revised guidance includes a negative currency impact of approximately 7 cents at current levels.
The company expects Europe to report a mid single-digit revenue growth and a high single-digit to low double-digit operating income growth. Also, the company expects North America operating income to expand at a mid-to-high, single-digit rate on flat revenues.
The Zacks Consensus Estimate for third-quarter 2010 earnings is 52 cents per share. For full year 2011 and 2012, the Zacks Consensus Estimates are, respectively, $1.80 per share and $1.84 per share.
Transaction Update
Coca-Cola Enterprises expects the transaction with Coca-Cola to close in the fourth quarter of 2010. In February, the companies inked a deal whereby Coca-Cola agreed to acquire Coca-Cola Enterprises’ entire North American business, which consists of approximately 75% of U.S. bottler-delivered volume and almost 100% of Canadian bottler-delivered volume.
Concurrently, Coca-Cola and Coca-Cola Enterprises inked a deal whereby Coca-Cola Enterprises will buy Coca-Cola’s bottling operations in Norway and Sweden for $822 million. Also, Coca-Cola Enterprises will have the right to acquire Coca-Cola’s 83% equity stake in its German bottling operations.
A new entity, retaining the name Coca-Cola Enterprises will be formed through a split-off. The new Coca-Cola Enterprises will hold Coca-Cola Enterprises’ European businesses. The shareholders of Coca-Cola Enterprises will exchange each existing share for a share in the new entity.
Coca-Cola Enterprises requires antitrust approval in the U.S. and Canada as well as shareowner approval for the transaction. A special shareowner meeting is scheduled on Oct 1 to consider the same.
The newly restructured Coca-Cola Enterprises now expects to have approximately $2 billion in net debt, $2.4 billion in gross debt, and $400 million in cash at the close of transaction. Post split-off Coca-Cola Enterprises expects approximately 350 million outstanding shares and an initial tax rate of 28% to 30% in 2011.
Following the transaction, Coca-Cola Enterprises expects to buy back $1 billion of its shares within the following 18 months, and pay an expected annual dividend of 50 cents per share. However, share buyback and dividend payment will require the approval of the board of Coca-Cola Enterprises and can be fine tuned depending on economic, operating, or other factors.
Long-term Objectives
Following the hiving of the North American bottling business, Coca-Cola Enterprises expects revenue growth of 4%–6%, operating income to expand in a range of 6%–8%, earnings per share to accelerate in a high single-digit clip, and return on invested capital to grow 20 basis points or more per year over the longer term.
Headquartered in Atlanta, Georgia, Coca-Cola Enterprises operates in the soft drink beverage industry and is the world’s largest bottler of Coca-Cola beverages.
We maintain a “Neutral” recommendation on Coca-Cola Enterprises. The quantitative Zacks #3 Rank (short-term Hold rating) for the company indicates downward pressure on the shares over the near term.
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