We have maintained a Neutral recommendation on
Dr Pepper Snapple Group Inc.
) following appraisal of third quarter 2012 results.
Dr Pepper Snapple's third quarter 2012 adjusted earnings of 79
cents per share increased 7.0% year over year as flat sales
growth was partially offset by decent margins. 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 as gains from pricing were offset by volume declines and
unfavorable segment mix. Net sales slightly missed the Zacks
Consensus Estimate of $1.568 billion. Overall, sales were down
from second quarter levels. Dr Pepper maintained its full year
2012 earnings guidance, while it trimmed the sales outlook.
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 U.S. 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 U.S. 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 made over
$100 million of marketing investment in 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
Though the commodity cost pressures have subsided, of late,
the company's weak volume growth and lack of exposure outside
U.S. 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
), which have significant exposure overseas.
DR PEPPER SNAPL (DPS): Free Stock Analysis
COCA COLA CO (KO): Free Stock Analysis Report
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