This is the way I recall the L. B. report
July 14, 2005
Coca-Cola Enterprises (CCE - $22.16) 1-Overweight
Company update
Broadening the Portfolio
This morning CCE acquired options to buy shares of Bravo Foods (BRVO-not rated-$1.25) with the intent of purchasing a majority stake and gaining master distribution rights. While this is a relativity small ($38 million) total investment from a financial point of view (our estimates remain unchanged), we view it as a positive for CCE & the Coke system to enter an emerging category at such an early stage- an exceptionaly rare occassion. We view this move as a symbolic gesture that the red system is willing to step up and broaden it's product & delivery portfolio into potentionly fast growing new catorgories using more creative delivery platforms. Coming on the heels of the distribution agreement with Rockstar (an energy drink), we are increasingly confident that management is finnaly taking action after years of apathy.
While it is still premature to assess the numbers,we estimate BRVO will generate revenues in excess of $17 million (an estimated 1.5 million unit cases) this year 2005 and about $90 million (7.7 million cases) in 2006 based on planned capacity additions. While this is not a huge number for CCE, it is an emerging category (shelf stable dairy), with health and wellness attributes and precious little coke-drink channel penetration (which CCE brings to the table). Importantly, BRVO already has an FDA approved co-packer, which would be a long and expensive process if undertaken independently by CCE. BRVO currently has 14 SKUs, but the majority of revenue is generated from 3 Masterfoods licensed brands--3 Musketeers, Milky Way, and Starburst. That explains why KO is not participating in this particular deal (as CCE will take the Slammers brand, for now) We would note that the total dairy/milk category is $11.3 billion, the shelf stable dairy-based drinks category is barely 1/20th that size--with estimated total retail sales of $563 million in 2004 (a 16% jump over 2003 sales)
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AI
