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What's in Store for Coca-Cola Enterprises (CCE) in 2016?

We issued an updated research report on Coca-Cola Enterprises Inc. CCE on May 16, 2016.

The western European bottler of The Coca-Cola Company KO reported mixed first-quarter 2016 results on Apr 28, wherein earnings beat the Zacks Consensus Estimate but sales missed the same. Earnings of 41 cents per share declined 2.5%, while revenues dropped 7% year over year due to significant Fx headwinds with the Euro weakening against the dollar. However, earnings grew 1.5% on a constant currency basis as operating income expansion offset weak revenues and volumes. On a currency neutral basis, net sales dipped 3.5% due to lower volumes and one less selling day in the quarter.

Persistent softness in the consumer environment in Europe and strong Fx headwinds have been hurting Coca-Cola Enterprises’ sales and volumes.

The company is geographically concentrated in Western Europe and is thus exposed to the economic uncertainties of this region. The challenging consumer spending environment continues to affect the broad consumer goods sector. The retail consumer and competitive environment in Great Britain is no better with the company facing many a tough battle there.

The macro challenges are expected to persist in 2016, which along with the increasingly strong currency headwinds, will limit revenue growth.

Nevertheless, cost control and share repurchases have been driving Coca-Cola Enterprises’ operating profit and earnings growth.

Management also has several brand, package and marketing initiatives in place for 2016 which could lead to improved sales trends. These include sports sponsorships like Euro 2016 Soccer Championship, improved in-store execution, brand extensions and packaging innovations, and implementing Coca-Cola Company's new one-brand marketing initiative, named “Taste the Feeling.”

Moreover, the pending merger with other European bottlers will boost shareholders’ returns besides providing incremental cost savings and top-line benefits. Coca-Cola Enterprises is due to merge with two Coca-Cola European bottlers — Coca-Cola Iberian Partners and Coca-Cola Erfrischungsgetränke AG — to form a Western European bottler — Coca-Cola European Partners. Coca-Cola Enterprises will hold a 48% stake in the new bottling company. Coca-Cola European Partners will be the largest independent Coca-Cola bottler in terms of revenues. The transaction is expected to close by the end of second-quarter 2016.

Coca-Cola Enterprises carries a Zacks Rank #2 (Buy). A couple of favorably ranked beverage stocks are Molson Coors Brewing Company TAP and Primo Water Corporation PRMW, both sporting a Zacks Rank #1 (Strong Buy).

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