Non-alcoholic beverages company Coca-Cola Enterprises Inc. (CCE) reported Wednesday a higher profit for its third quarter, as lower costs offset a 3% drop in operating revenues due to lower volume. Comparable earnings per share for the quarter topped market projections, while top line missed Street view. Further, the Atlanta, Georgia-based company, which bottles and distributes soft drinks, lifted its fiscal 2009 comparable earnings forecast.
Third-quarter net income was $247 million or $0.50 per share, compared to $214 million or $0.44 per share in the year-ago quarter.
The latest quarter results included net unfavorable items totaling $7 million or $0.01 per share, as net mark-to-market commodity hedges of $0.03 per share were more than offset by restructuring charges of $0.04 per share. Prior year results included net unfavorable items of $12 million or $0.02 per share.
Excluding items, comparable net income for the quarter was $254 million or $0.51 per share, higher than prior year's $226 million or $0.46 per share. Comparable earnings per share for the latest quarter included a negative currency impact of about $0.04 per share.
On average, 10 analysts polled by Thomson Reuters expected the company to report earnings of $0.46 per share for the quarter. Analysts' estimates typically exclude special items.
Net operating revenues for the quarter dropped 3% to $5.57 billion from $5.74 billion in the prior-year quarter, and missed seven Wall Street analysts' consensus revenue estimate of $5.72 billion. Excluding a negative currency impact of 3%, total revenues were flat with previous year.
The company, which sells approximately 80% of Coca-Cola Co.'s (KO) bottle and can volume in North America, pointed out that consolidated third-quarter results included a decline of 6.5% in comparable physical case bottle and can volume. Net pricing per case increased 7.5%, and cost of sales per case increased 3.5%.
Gross profit rose 2.5% to $2.17 billion from last year's $2.12 billion, as the impact of lower revenues were offset by 6% drop in cost of sales to $3.40 billion. Operating income was $464 million, higher than $430 million a year ago, and comparable operating income grew 5% to $471 million from $449 million in the previous year.
On a geographical basis, North American revenue declined 4% year-over-year to $3.83 billion, while divisional comparable operating income rose 9%, reflecting the benefits of price/package architecture, efficiency initiatives, and year-over-year declines in some commodity prices. Third-quarter volume declined 10% in the region, impacted by the Olympic-related promotional volume growth hurdle created in the same quarter a year ago and the shift of 4th of July holiday volume into the second quarter. Pricing per case grew 7.5% and cost of sales per case increased 3.5%.
John Brock, chairman and chief executive officer, commented, "Profitability in North America remained in-line with our expectations despite a challenging economic, consumer and operating environment. Our earlier actions to drive improved effectiveness and efficiency and to enhance margins through price/package architecture initiatives continue to improve profitability."
In Europe, quarterly revenue edged down 1% from last year to $1.74 billion, despite strong volume and pricing growth, while comparable operating income climbed 17%. Third-quarter volume grew 4%, driven primarily by 4.5% growth in the Coca-Cola trademark brands.
Brock stated, "We benefited from our ongoing efficiency and cost control initiatives and from the growth of our core sparkling brands, which remain a key element of the sustained growth in European profitability."
In its preceding second quarter, Coca-Cola Enterprises reported a net income of $313 million or $0.64 per share, compared to prior year's loss of $3.17 billion or $6.48 per share that included hefty charges. Comparable earnings rose to $328 million or $0.67 per share from $276 million or $0.56 per share a year ago, reflecting higher North American revenues and strong operating expense control. Net operating revenues for the quarter were $5.91 billion, down 0.5% from last year, while excluding a negative currency impact of 6.5%, total revenues increased 6%.
Among peers, Pepsi Bottling Group Inc. (PBG), a distributor of Pepsi-Cola beverages, in early October, reported higher third-quarter profit, driven by tax audit settlement and mark-to-market related gains. Net income rose to $310 million from $274 million in the prior-year quarter, and net income attributable to the company was $254 million or $1.14 per share, compared with $231 million or $1.06 per share last year. On a comparable basis, the Somers, New York-based company's earnings for the third quarter were $1.06 per share. Meanwhile, net revenues dropped 5% to $3.63 billion from $3.81 billion in the prior-year quarter, reflecting lower volume. On a currency neutral basis, the company's worldwide revenue increased 2%.
PepsiAmericas Inc. (PAS), which is being acquired by PepsiCo Inc (PEP), said Wednesday that its third-quarter net income attributable to the company declined to $63.5 million or $0.51 per share from $73.1 million or $0.58 per share in the prior year period. Adjusted net income fell to $72.2 million or $0.59 per share from $80.2 million or $0.64 per share a year earlier. Net sales for the quarter decreased to $1.13 billion from $1.32 billion in the comparable period.
For the nine months of fiscal 2009, Coca-Cola Enterprises' net income was $621 million or $1.26 per share, compared to prior year's loss of $2.94 billion or $6.07 per share that included a hefty franchise impairment charge. Comparable earnings for the period grew to $679 million or $1.38 per share from $540 million or $1.10 per share a year earlier. Net operating revenues were $16.53 billion for the nine months, down 0.5% from $16.57 billion.
Brock stated, "Year to date, we have achieved strong profit growth through successful execution of brand and marketplace initiatives and efficiency and effectiveness programs. Going forward, we continue to develop solid business plans for 2010 that will enable us to increase the efficiency and synergy of our system and deliver consistent, balanced growth."
Further, Coca-Cola Enterprises lifted its fiscal 2009 earnings forecast, and now expects comparable earnings per share to be in a range of $1.54 to $1.57. Previous earnings expectation for the year was in the range of $1.44 to $1.49 per share. Analysts currently expect the company to report earnings of $1.52 per share for full-year, with estimates ranging between $1.48 and $1.65 per share.
According to the company, its revised forecast includes an expected negative currency impact of $0.16 per share, in comparison to previous projection of $0.15 per share.
Meanwhile, peer PepsiAmericas lowered its fiscal 2009 earnings forecast and now expects full-year adjusted earnings per share in the range of $1.83 to $1.87 compared with the prior range of $1.87 to $1.94. Analysts estimate earnings of $1.93 per share for the year.
Excluding the impact of currency, Coca-Cola Enterprises' revenue is now expected to increase in a low to mid single-digit range and decline slightly on a reported basis. Wall Street analysts project revenues of $21.97 billion for the year, representing a 0.7% growth from previous year.
While issuing the second-quarter results, the company had said that it expects full-year 2009 revenue in North America, on a comparable, currency neutral basis, to increase in a low to mid single-digit range. Volume is projected to decline and cost of goods per case is expected to increase in a mid to high single-digit range, driven principally by the mix impact of increased sales of purchased finished goods and increased commodities cost. North American operating income is also expected to rise approximately 10%.
Further, Coca-Cola Enterprises projected European revenue to grow in a mid single-digit range. Volume is expected to grow in a low single-digit range and cost of goods per case is expected to increase in a low single-digit range, reflecting a continued moderate commodity cost environment. The company also sees about 10% rise in operating income.
The company today said it also expects strong free cash flow of approximately $800 million and capital expenditures of approximately $900 million for the year.
On Tuesday, Coca-Cola Enterprises' board of directors declared a regular quarterly dividend of $0.08 per share, payable December 10, 2009 to shareowners of record on November 27, 2009.
CCE is currently trading at $19.84, down $0.18 or 0.90%.
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