Dr Pepper Snapple Group Inc.
(
DPS
) reported first quarter adjusted earnings (excluding
mark-to-market gains) of 46 cents per share, down 8% from the
year-ago earnings of 50 cents per share. Top-line growth was offset
by margin declines to cause the earnings downfall. The company's
quarterly earnings also missed the Zacks Consensus Estimate of 48
cents per share.
During the quarter, Dr Pepper's net sales grew 2% (3% excluding
impact of foreign exchange) year over year to $1.36 billion. A
benefit of 4% from price/mix was offset by a decline of 1% in
volumes in the quarter. Net sales were in line with the Zacks
Consensus Estimate of $1.36 billion.
Quarter in Detail
Dr Pepper Snapple Group Inc. manufactures and distributes a
varied product range 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, Clamato tomato juice and others.
Dr Pepper's sales volume is measured in two ways: 1) sales
volume and 2) bottler case sales (
BCS
) volume. Sales volume represents units of concentrates and
finished beverages sold to bottlers, retailers and distributors and
bottler case sales includes sales of packaged beverages by the
company and its bottlers to retailers and independent
distributors.
In the quarter, BCS volume was flat, which included a 2% growth
in CSD's and a 7% decline in NCBs. In CSD, Dr Pepper soft drink was
up 2%. Volume growth for Canada Dry, A&W Sunkist soda and 7UP
was offset by declines for Sun Drop and Crush.
Among the NCBs, growth in Snapple and Clamato was offset by
volume declines for Hawaiian Punch and Mott's.
Sales volume, as discussed before was down 1% in the
quarter.
The company reported consolidated adjusted operating income of
$186 million in the first quarter, down 7% over the prior-year
period as revenue growth was offset by higher input and marketing
costs. Reported operating income (including mark to market gains)
was down 4% over the prior year quarter.
Segment Details
Beverage Concentrates
: The division is engaged in the manufacturing and selling of
beverage concentrates in the US and Canada which is used primarily
to produce CSDs. Dr Pepper's net sales from Beverage Concentrates
were flat year over year to $254 million in the first quarter, as
4% benefit from increased pricing was offset by volume declines
(3%) and higher discounts. Segment operating profit was down 10% to
$140 million due to increased marketing and ingredient costs.
Packaged Beverages
: The division manufactures and distributes finished packaged
beverages (both CSDs and NCBs) and other products, including own
brands, third party brands and private label beverages in the US
and Canada. In the Packaged Beverages segment, net sales increased
by 3% to $1.02 billion, attributable to price increases and
favorable mix. The segment witnessed a volume gain of 1%. Segment
operating profit increased 3% to $111 million as revenue growth was
offset by commodity headwinds.
Latin America Beverages
: The division includes manufacturing and distribution of
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 6% to $91 million, mainly stemming from
sales volume growth of 4% and favorable product mix. Segment
operating profit surged 60% to $8 million primarily benefiting from
sales growth, better operating leverage and foreign exchange
tailwinds which made up for the higher packaging and ingredient
costs.
We would like to remind investors that the company's revenues
and operating profits were down sequentially for almost all
segments.
Balance Sheet and Cash Flow
Dr Pepper ended the first quarter with cash and cash equivalents
of $192 million and long-term debt of $2.25 billion compared with a
cash balance of $701 million and long-term debt of $2.26 billion at
the end of the fourth quarter of 2011.
In the quarter, the company bought back $85 million worth of
shares, paid $68 million in the form of dividends and made capital
expenditures of $51 million.
Outlook
Dr Pepper maintained its full-year 2012 earnings and sales
guidance provided at the fourth quarter conference call. Full-year
2012 adjusted earnings is expected to be in the range of $2.90 to
$2.98 per share benefiting from share repurchases.
The company expects its full-year sales growth rate to come in
at the lower end of its long-term forecast of 3% to 5%. The company
projects cost of goods sold to increase by 2%-3% due to higher
packaging and ingredient costs.
Full-year tax rate is expected to be about 37%. For 2012, the
company expects capital expenditure to be nearly 4.0% of net
sales.
Our Recommendation
We currently have a Neutral recommendation on Dr Pepper Snapple.
The stock carries a Zacks #3 Rank in the near term (Hold
rating).
Overall, we are encouraged by Dr Pepper's strong position in the
flavored CSD market. Moreover, the company's Rapid Continuous
Improvement (
RCI
) program is also resulting in cost savings and improved cash
flows. The company's priority brand licensing agreements with
PepsiCo, Inc.
(
PEP
) and
The Coca Cola Company
(
KO
) boost sales of the branded products forming part of the
agreement.
However, the weak volumes, lack of exposure outside the US, a
difficult macroeconomic environment and rising input costs keep us
on the sidelines.
DR PEPPER SNAPL (
DPS
): Free Stock Analysis Report
COCA COLA CO (
KO
): Free Stock Analysis Report
PEPSICO INC (
PEP
): Free Stock Analysis Report
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