We have maintained a Neutral recommendation on
Dr Pepper Snapple Group Inc.
) following appraisal of the second quarter 2012 results.
Dr Pepper Snapple's second quarter 2012 adjusted earnings of 85
cents per share increased 9.0% year over year driven by revenue
growth and lower-than-expected tax rate. The company's quarterly
earnings also surpassed the Zacks Consensus Estimate of 82 cents
During the quarter, Dr Pepper's net sales grew 2% (up 4%
excluding currency headwinds) year over year to $1.6 billion. Price
mix benefited revenue by 4%, but volumes declined. Net sales were
in line with the Zacks Consensus Estimate. Dr Pepper maintained its
full year 2012 earnings and sales guidance.
Overall, we are encouraged by Dr Pepper's strong position in the
flavored carbonated soft drinks (CSD) market. Dr Pepper owns some
of the most popular CSD and non carbonated beverages (NCB) brands.
The company holds the #1 position in the flavored non cola CSD
market in the US with a market share of 40% in 2011. Dr Pepper soft
drink, the most popular CSD brand, holds the #2 position in the
flavored CSD market in the US. The company's portfolio of
well-established flagship brands offers a strong competitive
advantage and strengthens its position in the market. Further, the
company makes regular marketing investments to build brand value.
Over the last three years, the company has invested more than $100
million for marketing of popular brands.
In 2010, Dr Pepper launched its Rapid Continuous Improvement
(RCI) program under which the company is working to free up
critical resources, people, time and money so that these can be
used to build brand value. Therefore, the company has been able to
reduce inventory and storage costs and improve cash flows, which
can in turn be returned to shareholders via dividends and share
repurchases. Dr Pepper anticipates that the program will lead to
productivity savings of at least $150 million through 2013.
Though the commodity cost pressures have subsided in recent
times, the company's weak volume growth and lack of exposure
outside US keep us on the sidelines. Further, changing consumer
preferences toward healthier drinks, as a result of heightened
awareness, are affecting the company's CSD volumes. Moreover, the
company mainly operates its business in the U.S., Canada and
Mexico, which are experiencing saturation. It thus lacks exposure
in the fast growing emerging markets where demand is growing and
health consciousness is comparatively less. This is a significant
competitive disadvantage for Dr Pepper versus its peers like
The Coca Cola Company
), as they have significant exposure overseas.
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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