In 2010, Coca-Cola Enterprises Inc (NYSE:CCE) sold all of its United States bottling operations to The Coca-Cola Company (NYSE:KO). Now, Coca-Cola Enterprises is operating solely in Europe, where the consumer is especially weak due to austerity measures. However, Coca-Cola Enterprises isn’t in the business of quitting.
For the second quarter, net sales declined 2.5% to approximately $2.2 billion year over year, and diluted EPS came in at $0.66 versus $0.67. Both declines are concerning, and in regards to earnings, share buybacks boosted the number by $0.06 more than the year-ago quarter. However, while net income dropped to $182 million from $205 million, $34 million invested in a restructuring played a big role.
Costs per bottle/can increased 2%, mostly due to increased sweetener costs. This was partially offset by a decline in commodity costs, especially aluminum. Coca-Cola Enterprises Inc (NYSE:CCE) aims to cut costs via renegotiating supplier agreements.
For Coca-Cola Enterprises Inc (NYSE:CCE), 90% of sales volume stems from The Coca-Cola Company (NYSE:KO) products. Therefore, demand for the Coca-Cola brand is critical.
Volume dropped 2.5% in the second quarter, which Coca-Cola Enterprises Inc (NYSE:CCE) attributed to poor weather, increased taxes, and an uncertain economic environment that has led to weak consumer-spending habits.
Volume has only increased in two areas: Coca-Cola Zero Cherry and Vanilla Coke, the latter due to expanded distribution. Note that both are innovative products, and that there has been success. Coca-Cola Enterprises also hopes to see positive results with recent innovations like its 205 ml Slimline can (in Great Britain) and Sprite with stevia.
Recent economic conditions have led to net price per bottle/can declining 0.5%. It’s hopeful that the “Share a Coke” program will see continued success. This program began in Australia two years ago, when the 150 most popular names in Australia were placed on Coke bottle labels. Consumers had no idea this was going to take place, which added to the excitement.
Since only 50% of young adults and teens in Australia had ever tasted a Coke, it was a worthwhile risk. It paid off, as it led to increased brand loyalty. This program will now be run in 20 markets this year, and the odds of the majority of these campaigns being successful are high.
If you were only looking for a trade, as opposed to an investment, then you might not even need to worry about innovation. Coca-Cola Enterprises Inc (NYSE:CCE) is currently in the midst of a $1 billion stock-buyback plan. This will help reduce share count, which will then aid earnings. However, share buybacks aren’t long-term solutions, as they don’t help grow the underlying business.
Somewhere in the middle
Many investors wonder if Coca-Cole Enterprises presents a better investment opportunity than The Coca-Cola Company (NYSE:KO). If you look at the performance of these two stocks over the past year, then you might think so.
Coca-Cola Enterprises data by YCharts.
However, that chart doesn’t tell the whole story. The Coca-Cola Company (NYSE:KO) sports a higher net margin (percentage of revenue turned into profits) of 18.1% versus 7.6%. It also has a slightly more impressive ROE (percentage of investor dollars turned into profits) of 26.6% versus about 25.0%, and it yields 2.9% versus 2.1%.
Furthermore, The Coca-Cola Company (NYSE:KO) is much larger, with a market cap of $169.7 billion versus slightly less than $10.0 billion. Therefore, Coca-Cola is likely to be more resilient if the market were to falter. When the market is in bull mode, investors want growth, but when the market turns south, they want safety.