Coca-Cola Enterprises Inc raised its 2008 earnings outlook and outlined a restructuring plan on Thursday that includes reducing its US business units, sending shares up 15%.
The largest bottler of Coca-Cola Co drinks also forecast 2009 earnings per share to grow at a mid-single digit rate and operating income to rise at a low-single-digit rate, ahead of Wall Street estimates.
“It is good to see a company raising guidance,” said Gary Bradshaw, a portfolio manager at Dallas-based Hodges Capital Management. “It seems like every other day someone's lowering.”
For 2008, the company expects to earn $1.28 to $1.31 a share, due to stronger-than-expected sales volume in North America and cost controls. It had earlier forecast earnings of $1.25 to $1.29 per share.
Analysts, on average, were expecting $1.26 per share in fiscal 2008, according to Reuters Estimates.
Barclays Capital analyst Michael Branca said the bottler's 2009 guidance for mid-single-digit earnings growth implied a profit of $1.18 to $1.24 per share, including a hit from currency exchange rates.
That is higher than analysts' average estimate of $1.17 per share, according to Reuters Estimates.
“We believe the better-than-expected fourth-quarter results and the rather optimistic 2009 organic outlook are positive news in the face of what had been declining consensus expectations,” wrote Branca in a research note.
He also said the company's comments about aligning more closely with Coca-Cola could be a signal that relations between the world's largest soft drink maker and its biggest bottler have improved.
In October, Coke Enterprises warned that Coca-Cola Co had cut funding to its operations by $35 million and raised concentrate prices more than expected. It had cut its full-year profit forecast as a result.
Coca-Cola had also removed its chief financial officer from Coke Enterprises' board, raising fears of a deep rift.
On Thursday, the bottler said it will introduce new pricing and packaging initiatives and a new economic model to better align its business with Coca-Cola, its biggest shareholder with about 35% of its shares.
Coke Enterprises began a 120-day review of its North American operations in July to define steps that would improve its performance.
Results of the review include plans to more closely integrate its supply chain with that of Coca-Cola, a move it sees creating an additional $150 million of annual operating income by 2011 for both companies.
The company, which sells about 80% of the Coke drinks sold in North America, also said it would reduce the number of its US business units from six to four.
It did not say if jobs would be cut, and a company spokeswoman could not immediately be reached.
The news comes one month after rival bottler Pepsi Bottling Group Inc said it would cut some 3,150 jobs, or 4.5% of its workforce, and cut its full-year earnings forecast due to weaker foreign currencies.
Shares of both bottlers have lost more than half their value this year as the recession cut into soft-drink sales and high energy and commodity costs ate into profits.
Earlier this year, the weakness of the US dollar had boosted the value of international sales when they were converted to US currency, but that benefit is disappearing with a recent strengthening of the dollar.
Coke Enterprises shares were up $1.59 at $12.28 on the New York Stock Exchange. (Reuters)