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Why Did Coca-Cola Enterprises Fall by ~25% on May 31?

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Jun. 1 2016, Updated 3:57 p.m. ET

CCE’s price movement

Coca-Cola Enterprises (CCE) has a market capitalization of $8.7 billion. It fell by 24.7% to close at $38.81 per share on May 31, 2016.

The stock’s weekly, monthly, and year-to-date (or YTD) price movements were -22.5%, -25.6%, and -20.2%, respectively, as of the same day. This means that CCE is trading 25.5% below its 20-day moving average, 25.0% below its 50-day moving average, and 21.6% below its 200-day moving average.

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Related ETF and peers

The Consumer Staples Select Sector SPDR ETF (XLP) invests 0.71% of its holdings in CCE. The ETF tracks a market-cap–weighted index of consumer staples stocks drawn from the S&P 500. The YTD price movement of XLP was 4.8% as of May 31, 2016.

The market capitalizations of Coca-Cola Enterprises’ competitors are as follows:

  • The Coca-Cola Company (KO) — $192.6 billion
  • PepsiCo (PEP) — $146.1 billion
  • Dr Pepper Snapple Group (DPS) — $17.0 billion

Coca-Cola Enterprises’ merger

Coca-Cola Enterprises fell by 24.7% on May 31, 2016, after the announcement that it had combined with Coca-Cola Iberian Partners and Coca-Cola Erfrischungsgetranke.

This combination created a new company called Coca-Cola European Partners, which will serve 300 million customers across Western Europe, including Andorra, Belgium, continental France, Germany, Great Britain, Luxembourg, Monaco, the Netherlands, Norway, Portugal, Spain, and Sweden.

The new company owns pro forma net sales of ~11 billion euros and pro forma EBITDA (earnings before interest, tax, depreciation, and amortization) of ~1.8 billion euros.

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Performance of Coca-Cola Enterprises in 1Q16

Coca-Cola Enterprises reported 1Q16 net sales of $1,517.0 million, a fall of 7.0% compared to net sales of $1,631.0 million in 1Q15. The company’s cost of sales as a percentage of net sales and operating income fell by 3.2% and 22.8%, respectively, in 1Q16 compared to the prior year’s period.

CCE’s net income and EPS (earnings per share) fell to $66.0 million and $0.29, respectively, in 1Q16, compared to $96.0 million and $0.40, respectively, in 1Q15.

CCE’s cash and cash equivalents and inventories rose by 64.1% and 10.4%, respectively, in 1Q16 compared to 4Q15. Its current ratio fell to 0.94x, and its debt-to-equity ratio rose to 7.5x in 1Q16 compared to 0.95x and 6.9x, respectively, in 4Q15.

Projections

The company has made the following projections for 2016:

  • It expects comparable and currency-neutral net sales to rise slightly.
  • It expects free cash flow in the range of $500 million–$550 million.
  • It expects capital expenditure of ~$325 million.
  • It expects a comparable effective tax rate in the range of 26%–28%.

Ratings

  • Evercore ISI has upgraded Coca-Cola Enterprises’ rating to a “buy” from a “hold.”
  • Goldman Sachs has initiated its coverage of the stock with a “buy” rating.

In the next part, we’ll take a look at BRF.

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