Enterprises' earnings report today was a downer compared to last year's first quarter. Revenue fell 1% on a 1.5% fall in case volume, but there were two fewer selling days in the quarter. Saving the day, so to speak, was a 1.5% increase in revenue per case. Still, operating earnings fell 28%, and earnings per share came in at a dime, a full penny short of what analysts expected -- far below the $0.22 earned last year.
The first quarter was a free cash flow (operating cash minus capital expenditures) disaster. Although this was a seasonally slow period for the company, its free cash decreased from a negative $96 million in last year's first quarter to a negative $314 million this year. The bad taste of that plunge will fade away if the company hits its "more than $700 million" free cash flow target for 2005.
Investors would be wise, though, to be skeptical of the company's forecasts. The company has cut earnings estimates before. Oh, and the earnings that analysts expect ($1.32 a share in 2005 and $1.45 in 2006 -- both up from $1.27 in 2004) are less than the company's mid-year guesstimate of $1.48 to $1.52 in 2004 (yes, that's right, last year).
I am always skeptical of any company that starts out an earnings report with anything other than sales and earnings. Today's report from Coca-Cola Enterprises starts with an affirming of the company's 2005 earnings guidance (which matches analyst estimates) and its 2005 free cash flow projection. I guess the company wanted a sweet opening before the other news left a tart aftertaste.
The only good news in all of this is that Enterprises was able to make competitor Pepsi Bottling's
The shark swimming in Enterprises' pool is $11.2 billion in net debt. That's total debt minus cash. Interest expense took a mighty $157 million bite out of revenue this quarter -- and operating income was only $220 million. It makes you wonder why investors are willing to pay 15 times 2005 estimated earnings for this slow-growing enterprise with a gigantic debt.