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Coca-Cola Enterprises (CCE)
Coca-Cola boosts profit estimate despite flat soda sales
Shares of Coca-Cola Enterprises were up 4% this morning on news that the Atlanta-based beverage manufacturer revised its 2007 profit estimates, citing additions to its product lineup and a rosy tax outlook. This news may come as a bit of a surprise to investors, which have been hearing pessimistic chatter about rising material costs and falling sales for months now, particularly as consumers increasingly reach for newer, more 'health-conscious' alternatives to soda. In fact, Coca-Cola has taken notice of its sagging growth in its carbonated brands and is taking steps to reverse this trend in 2008, according to an announcement made by CEO John Brock earlier this week. But will it be enough? And just how did Coca-Cola manage to boost profits in the face of poor soda sales?
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| Stock Analysis |
Coca-Cola raised its 2007 earning outlook to the $1.36 to $1.39 per share range. Previously, the beverage behemoth had predicted between $1.31 and $1.36, and analysts had been estimating about $1.34 per share.
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Coca-Cola had raised the prices of its soda products to offset increased costs in the prices of raw materials, such as aluminum for cans and corn syrup sweetener, though this move did hurt overall sales volume. North American soda sales were already troublesome in 2007, as health-conscious consumers sprung for tea and bottled water drinks.
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But Coca-Cola has a plan, naturally. The company is diversifying its bevy of beverages, with quite a few additions to its lineup in the past few months: Glaceau's "vitaminwater" products, Fuze fruity health drinks, and even the old-fashioned tomato-juice standby, V-8, which will be distributed by Coca-Cola through an agreement with Campbell Soup (CPB: Charts, News, Offers). These specialty drinks, which are marketed as a healthier alternative to sugary caffeine-laced sodas, come with a higher retail price than traditional colas. And that means fatter profit margins for Coca-Cola.
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Coke is optimistic for 2008, with analysts expecting profits of about $1.47 per share. The company forecasts small, but healthy North American growth and lower raw materials costs. And luckily for Coke, most of its business comes from outside the U.S., so its business is actually lifted by the weakened dollar. But how Coca-Cola hopes to manage flat growth for its core carbonated beverages remains to be seen.
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