We have maintained a Neutral rating on
Dr Pepper Snapple Group Inc.
) following appraisal of first quarter 2012 results.
Dr Pepper Snapple reported first quarter 2012 adjusted earnings
(excluding mark to market gains) of 46 cents per share, down 8%
from the year-ago earnings of 50 cents per share. Earnings
plummeted as top-line growth was offset by a decline in margins.
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 nominally 2% year
over year to $1.36 billion as benefit from price/mix was offset by
volume declines. Net sales were in line with the Zacks Consensus
Estimate of $1.36 billion. Gross margins declined 210 basis points
in the quarter primarily due to higher packaging and ingredient
costs. The company reported consolidated adjusted operating income
of $186 million in the first quarter, down 7% from the prior-year
period as revenue growth and benefits from productivity improvement
were offset by higher input and marketing costs.
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 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. The well-liked brand
portfolio also leads to impressive margins and cash flows.
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 a
cash productivity of at least $150 million through 2013.
However, weak volumes, a difficult macroeconomic environment and
rising input costs 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
The Coca Cola Company
) which 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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