Weakening sales cause Coke to miss estimates

/ Source: Reuters

Coca-Cola Enterprises Inc. Thursday posted quarterly profit below analysts' estimates, hurt by weakness in the North American soft-drink business, sending shares down 3 percent in morning trading.

The world's largest bottler of Coke drinks, which is being squeezed by higher aluminum prices, also said high costs would weigh on 2007 results. The company is planning cost cuts and other measures to counter the high costs of goods, but still had to lower its full-year earnings forecast.

The company said net income for the third quarter was $213 million, or 44 cents a share, compared with $192 million, or 40 cents per share, a year earlier.

But excluding restructuring charges and other items, earnings were flat at 45 cents a share, the company said. Analysts on average were expecting 47 cents per share, according to Reuters Estimates.

A currency benefit and lower tax rate added to earnings, the company said.

Revenue rose 6 percent to $5.21 billion.

Consolidated volume rose 2 percent and net pricing per case rose 1 percent, which was not enough to offset the cost of sales per case, which rose 4 percent in the quarter due in part to higher commodity costs.

J.P. Morgan analyst John Faucher, who anticipated that the bottler's stock would fall Thursday due to the lower outlook, earnings miss and comments about raw material costs in 2007, said he believed the market was not pessimistic enough about the likely rise in cost of goods sold for 2007.

In the key North American market, volume rose 0.5 percent as carbonated soft-drink volume fell 1 percent and volume of bottled water rose in the double digits.

The company said the poor results in North America offset operating improvement in Europe.

"This quarter's disappointing performance illustrates the urgency of our work to develop strategies and practices that will allow us to consistently deliver improved operating performance," John Brock, the company's chief executive officer, said in a statement.

Sales of carbonated soft drinks in developed markets such as the United States and Britain have been on the decline as health-conscious consumers forgo sugary beverages for healthier options like bottled water and juice.

Looking ahead, the company, which is about 40 percent owned by Coca-Cola Co., the world's biggest soft-drink company, said it now expects earnings of $1.25 to $1.28 a share in 2006, down from a previous forecast of $1.27 to $1.32 per share, which excludes the impact of foreign currency and restructuring charges, but includes stock-option expenses.

"We recognize 2007 will be challenging because of the high 'cost of goods' environment we face next year," Brock said, adding that the company will give its 2007 financial outlook early next year, which is later than usual.

In the past Coke Enterprises has provided an outlook in December.

Earlier this month Pepsi Bottling Group Inc. reported higher profit on price increases and volume growth, but concerns about the likely effect of rising costs for raw materials such as aluminum pushed the stock down.

Coke Enterprises shares, which fell 59 cents to $20.45 on the New York Stock Exchange, had gained 9.8 percent this year and trade at 15.9 times estimated earnings for the current year.