Dr Pepper Snapple's
) third quarter 2012 adjusted earnings (excluding mark-to-market
losses gains) of 79 cents per share increased 7.0% year over year
as flattish sales growth was overshadowed by a lower share count.
The company's quarterly earnings also surpassed the Zacks
Consensus Estimate of 77 cents per share.
During the quarter, Dr Pepper's net sales were flat (both
including and excluding currency impact) year over year at $1.528
billion. Price mix benefited revenue by 4%, but volumes declined
3%. Net sales slightly missed the Zacks Consensus Estimate of
Overall, sales were down from second quarter levels. Dr Pepper
maintained its full year 2012 earnings guidance, while it trimmed
the sales outlook.
Volume Growth in Detail
Dr Pepper Snapple manufactures and distributes a variety of
flavored carbonated soft drinks (CSDs) and non-carbonated
beverages (NCBs). Dr Pepper owns some well-established CSD brands
such as Dr Pepper soft drink, 7UP, Canada Dry, Schweppes ginger
ale, Peñafiel mineral water, Royal Crown Cola and many more.
Popular NCB brands include Snapple tea, Hawaiin Punch, Mott's
apple juice and sauce, Aquafiel mineral water, and Clamato tomato
juice among others.
Dr Pepper's sales volume is measured in two ways: 1) sales
volume and 2) bottler case sales (BCS) volume. Sales volume
represents sales of concentrates and finished beverages sold to
bottlers, retailers and distributors. Bottler case sales include
sales of packaged beverages by the company and its bottlers to
retailers and independent distributors.
In the quarter, BCS volume slipped 3%, which included a 2%
decline in CSD's and a 5% decline in NCBs. In CSD, Dr Pepper soft
drink volume declined 1% as growth in low calorie drink Dr Pepper
Ten and the fountain food service business was offset by weakness
in the base business.
Volumes of the core 5 brands (Canada Dry, A&W and Sunkist
soda, 7up and Sun Drop) declined 6% due to higher retail prices
and lower promotional marketing. Canada Dry volumes grew as
against declines in the other four. Fountain food service volume
went up by 2% year over year.
Among the NCBs, growth in Snapple was offset by volume decline
in Hawaiian Punch and Mott's.
Geographically, volumes declined 3% in U.S. and Canada and
increased 1% in Mexico and the Caribbean.
Sales volume, as discussed before, was also down 3% in the
quarter as branded volumes dropped 3% and contract manufacturing
volumes also went down.
: The division manufactures and sells beverage concentrates in
the U.S. and Canada, which is used primarily to produce CSDs. Dr
Pepper's net sales from Beverage Concentrates went up 4% (both
including and excluding currency impact) year over year to
$303 million, as lower discounts, price gains and favorable mix
were partially offset by a 2% volume decline. Segment operating
profit improved 1% (both including and excluding currency impact)
to $198 million driven by revenue growth.
: The division manufactures and distributes finished packaged
beverages (both CSDs and NCBs) and other products, including its
own brands, third party brands and private label beverages in the
U.S. and Canada. In the Packaged Beverages segment, net sales
declined 1% (both including and excluding currency impact) to
$1.12 billion, largely due to volume decline of 6%. Segment
operating profit increased 4% on a currency neutral basis to $147
million as top line decline was offset by price, mix and
Latin America Beverages
: The division manufactures and distributes carbonated mineral
water, flavored CSD, bottled water and vegetable juice in Mexico
and the Caribbean. Dr Pepper's net sales from Latin America
Beverages increased 7% on a currency neutral basis to $105
million driven by favorable product mix, higher pricing and
volume growth. Segment operating profit improved 133% in the
quarter to $14 million driven by sales growth and productivity
Dr Pepper maintained its full year 2012 earnings guidance.
Full-year 2012 adjusted earnings are expected to be in the range
of $2.90 to $2.98 per share, benefiting from share repurchases.
The company, however, lowered its full-year sales growth guidance
due to lukewarm sales in the third quarter. Dr Pepper now expects
2012 sales to grow approximately 2%, down from prior expectations
for sales to increase at the lower end of its long-term forecast
of 3% to 5%.
Full-year tax rate is expected to be about 37%. For 2012, the
company expects capital expenditure to be nearly 3.5% to 3.75% of
net sales, lower than prior expectations of 4.0% of net
We currently have a Neutral recommendation on Dr Pepper
Snapple. The stock carries a Zacks #3 Rank in the near term (Hold
Overall, we are encouraged by Dr Pepper's strong position in
the flavored CSD market. Also, the Rapid Continuous Improvement
(RCI) program is also resulting in cost savings and improving the
cash flow. However, Dr Pepper's weak volume growth and lack of
exposure outside U.S. keep us on the sidelines.
Moreover, its competitors in the liquid refreshment beverage
The Coca-Cola Company
). Together these companies command approximately 62% of the U.S.
LRB market in terms of volume and have much stronger investment
resources for brand building.
DR PEPPER SNAPL (DPS): Free Stock Analysis
COCA COLA CO (KO): Free Stock Analysis Report
PEPSICO INC (PEP): Free Stock Analysis Report
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