Go ahead... pop open one of those red cans and drink a toast to Coca-Cola Enterprises (NYSE:CCE). It won't turn your dental work to rust. Promise.
Coca-Cola Enterprises is bubbling about the prospects for earnings per share (EPS) this year. The bottler likes what it saw during the first quarter and is confident of achieving EPS of $1.42 to $1.46, therefore backing its original estimate for 2004. Besides that, operating income should rise 5% to 6%, and return on invested capital (ROIC) should also increase.
There are three main drivers to the company's strategy. First, the introduction of fresh concepts to the beverage portfolio always tends to provide a boost, as seen with Vanilla Coke and Sprite Remixes. New product lines are crucial to staying ahead of the curve of fickleness, as the Frito Lay division of PespiCo (NYSE:PEP) -- one of the masters of product repurposing -- will gladly tell you.
Second, stronger marketing by novel packaging concepts such as the Fridge Pack should keep the sodas flying off the shelves. And -- sorry about this, folks -- those sodas will hopefully fly off at a higher cost to the consumer. That is the third tier in the overall plan to boost earnings: Introduce as much inflation as conceivable without hurting the demand too badly -- pricing wars are just way too ugly (as Joshua the computer said in that old Matthew Broderick flick, "The only winning move is not to play.").
This is great news for stockholders of Coca-Cola Enterprises, but it is even better news for shareholders of Coca-Cola (NYSE:KO). The big bottling company typically requires a heavier dose of capital expenditures to keep all those factory systems running smoothly and solidly. The parent company, on the other hand, finds as its main responsibility the selling of the secret-formula concentrate to the various bottlers it has an interest in -- of which Coca-Cola Enterprises is the largest in the world -- and the subsequent marketing of the product to make sure the demand stays high, thus making the margin structures more attractive.
Besides, if Coca-Cola Enterprises is doing well, it might be a proxy indicator for the rest of the bottlers, and Coca-Cola should theoretically prosper in something of a proportional fashion. That doesn't have to be the case, of course, but an individual investor might be better off holding the concentrate seller as opposed to the manufacturer of the final product, because the risk is less in nature. (Another thing to consider: Coca-Cola already owns over a third of Coca-Cola Enterprises.)
We'll have to keep watching to see if Coca-Cola Enterprises' success translates into greater growth for Coca-Cola. In the meantime, shareholders in both companies (me among them, with Coca-Cola) hope you'll keep tossing back those sugary-sweet cans of caffeinated delight.
Discuss the merits of Coca-Cola's stock on its discussion board.
Fool contributor Steven Mallas owns shares of Coca-Cola, as mentioned above.
