Dr Pepper Snapple Group Inc. ( DPS )
reported second quarter 2012 adjusted earnings (excluding mark to
market losses) of 85 cents per share, up 8.9% from the year-ago
earnings of 78 cents per share. Earnings increased on the back of
revenue growth and increase in margins. The company's quarterly
earnings also surpassed the Zacks Consensus Estimate of 82 cents
During the quarter, Dr Pepper's net sales grew 2% (3% excluding
the effect of foreign exchange) year over year to $1.6 billion. A
benefit of 4% from price/mix was offset by a decline in volume and
unfavorable currency impact of 2% in the quarter. Net sales were in
line with the Zacks Consensus Estimate.
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,
Hawaiian 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 sales of concentrates and finished beverages sold to
bottlers, retailers and distributors. Bottler case sales includes
sales of packaged beverages by the company and its bottlers to
retailers and independent distributors.
In the quarter, BCS volume slipped 1%, which included a flat
volume in CSD's and a 6% decline in NCBs. In CSD, Dr Pepper soft
drink sales were up 1% driven by the low calorie drink Dr Pepper
Ten (launched in the fourth quarter of 2011) and volume growth in
the fountain food service business.
Mid single-digit volume growth in Canada Dry, A&W was offset
by double-digit decline in Sun Drop and a low-single digit decline
in 7UP. The core 5 brands (Canada Dry, A&W and Sunkist soda,
7up and Sun Drop) together delivered a volume growth of 1%. All
other CSD brands went down by 2% due to a decline in Crush.
Fountain food service volume went up by 3% year over year.
Among the NCBs, growth in Snapple and Clamato was offset by
double-digit volume declines in Hawaiian Punch and Mott's due to
price increases implemented in 2011.
Sales volume, as discussed before, was down 1% in the quarter as
branded volumes were down by 2% and contract manufacturing volumes
The company reported consolidated adjusted operating income of
$293 million in the second quarter, up 3.5% from the prior-year
period on the back of revenue growth and benefits from productivity
improvement. Reported operating income (including mark to market
gains) was down 2% from the prior-year quarter. In the quarter,
marketing spend was up $9 million and the company also incurred an
$8 million pre-separation-related non-cash charge during the
Beverage Concentrates: The division
manufactures and sells beverage concentrates in the US and Canada,
which is used primarily to produce CSDs. Dr Pepper's net sales from
Beverage Concentrates went up 3% year over year to $331 million in
the second quarter, as lower discounts and favorable mix were
partially offset by a 2% volume decline. Segment operating profit
was down 1% to $214 million due to increased marketing and
Packaged Beverages: 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 US and Canada. In the
Packaged Beverages segment, net sales increased by 4% to $1.2
billion, boosted by favorable mix and higher pricing including
lower discounts. Segment operating profit increased 9% to $150
million as revenue growth was offset by commodity and packaging
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 1% to
$113 million, mainly helped by favorable product mix and higher
pricing. Segment operating profit was flat at $15 million,
primarily benefiting from sales growth, better operating leverage
and foreign exchange tailwinds, which mitigated the higher
packaging and ingredient costs.
Balance Sheet and Cash Flow
Dr Pepper ended the second quarter with cash and cash
equivalents of $303 million and long-term debt of $2.02 billion
compared with a cash balance of $192 million and long-term debt of
$2.25 billion at the end of the first quarter of 2012.
In the quarter, the company bought back shares worth $152
million, paid $141 million in the form of dividends and incurred
capital expenditure of $89 million.
Dr Pepper maintained its full year 2012 earnings and sales
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 expects full-year sales growth rate to
come at the lower end of its long-term forecast of 3% to 5%.
The company projects cost of goods sold to increase by 2% due to
higher packaging and ingredient costs. Full-year tax rate is
expected to be about 37%.
We currently have a Neutral recommendation on Dr Pepper Snapple.
The stock carries a Zacks #3 Rank, which translates into a
short-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 that are a part of the
However, the weak volumes, lack of exposure outside the US, a
difficult macro-economic environment and rising input costs keep us
on the sidelines.
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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