If there's one thing a shareholder doesn't want to hear, it's a downward revision of previous earnings guidance. News catalysts, psychology, various valuation metrics such as price divided by sales, all of these things affect the capital appreciation of a stock -- but earnings do a lot of the heavy lifting. Or heavy dropping, as the case may be.
With that in mind, let me say that Coca-Cola Enterprises
So, what's a business to do about such an issue? Tighten the belt, of course. Reading through the release, it is obvious that CCE recognizes that investors see free cash flow as the Holy Grail of a publicly traded entity because it intends to balance off the reduction in operating results by a cutback in capital expenditures. The company, therefore, thinks free cash flow will come in at $700 million, as previously counted on. This shows me that management is serious about setting a support level for this metric, which is a smart action on its part.
As can be expected, Coca-Cola
However, for investors looking to get into the Coca-Cola business, I'll repeat something I've stated before: Don't buy into the bottlers, buy into the company that sells the concentrate to the bottlers and markets the images of the beverages in the portfolio (I speak of KO shares, naturally). Bottlers need to maintain all those properties and plants, which can be a pricey endeavor. If an individual does have her heart set on buying a bottler, perhaps wait to see whether the stock presents a better buying opportunity.
Quite frankly, I think Coca-Cola is having a tougher time than previously thought with growing case volume (especially in the context of product pricing pressures). My gut tells me that lower prices for KO and CCE shares will be tested before value buyers step in and call a bottom. After that, it is reasonable to suggest that the stocks will be in a sideways trading range for a long while. Is it hard to predict price movements? Certainly, but that's my best guess. All one can do with a company like Coca-Cola is ride out the multiyear case-volume malaise by reinvesting the dividends and ignoring the capital component's fluctuations as much as possible.
For news on Coke's nemesis, read:
- Is PepsiCo
- Pepsi hooks up with Time Warner's
- See if companies like Pepsi, Heinz
(NYSE:HNZ), and Hershey Foods (NYSE:HSY)are caught up in a low-carb bear market.
Fool contributor Steven Mallas owns shares of Coca-Cola.