Coca-Cola's (NYSE: KO) second largest bottler, Coca-Cola Hellenic (NYSE: CCH), largely serves Eastern Europe, Ireland, and Nigeria . Depressed macroeconomic conditions and political volatility in many of Coca-Cola Hellenic's operating regions led to an overall sales and volume decline of 5% and 3%, respectively, during the most recent quarter. Before investing in this company, there are three things to consider.
Europeans like trademark Coca-Cola
European popularity of trademark Coca-Cola brands served as a buffer against further declines in Coca-Cola Hellenic's top line, with a 3% volume increase in trademark Coca-Cola products in the most recent quarter. Coca-Cola Zero, a low-calorie product, grew volume an amazing 18% according to the last earnings call. Interestingly, Coca-Cola's bottler in Western Europe, Coca-Cola Enterprises (NYSE: CCE), also reported a 4% increase in sparkling beverages driven largely by a 23% increase in Coca-Cola Zero. Moreover, flavored Coca-Cola products such as Vanilla Coke and Coca-Cola Cherry Zero increased volume "almost 10%". Based on these figures, it's reasonable to conclude that the Coca-Cola brand still holds considerable weight in certain parts of the world regardless of health concerns.
Tough economic and political environments
Austerity measures in places like Greece and political instability in places like the Ukraine laid the foundation for high unemployment and subsequent low consumer confidence in Eastern Europe. Greece stands as an extreme example of economic depression, with unemployment clocking in at 28%, the highest level in the European Union. Coca-Cola Helenic's volume in Greece declined in the "high-single digits". However, even in that country, sparkling beverages showed resiliency. The emerging markets segment showed a 4% volume decline due to weak performances in Romania, Ukraine, and Serbia. Currently, it doesn't look any better in the Ukraine, as the president's refusal to enter the European Union has resulted in social unrest.
Non-sparkling beverages underperforming
Also a European phenomenon, Coca-Cola Hellenic's non-sparkling beverages struggled in the most recent quarter. Ready-to-drink teas and water declined 11% and 10%, respectively. Coca-Cola Enterprises also struggled, with still beverages declining 5% overall. Frugal customers all over Europe probably want to shy away from paying a premium for commoditized beverages. In the case of water, consumers probably prefer to get it for free from the tap or other sources to save their consumer dollars for the occasional Coke or Fanta.
Coca-Cola Hellenic seems fraught with political risk due to its operating territory. In addition, its market risk resides in the high range, as it trades within 10% of its 52-week high with a P/E ratio of 48. For comparison, the S&P 500 trades at 20. On the bright side, if you like risk, Coca-Cola Hellenic sits on one of Coca-Cola's frontiers where per capita consumption remains at its lowest. You may want to consider Coca-Cola Enterprises as a better bottler play due to its operation in the more politically stable Western European region where it also shows signs of economic recovery. Coca-Cola Enterprises also sports a lower P/E ratio of 19.