Dr Pepper Snapple's (
) top-line stagnation continued into the fourth quarter of 2012 as
the declining sales of carbonated beverages in the North American
region took a toll on the company's sales volumes. Meanwhile, the
bottom line did not see any marked improvement either with margins
more or less the same as last year's. Overall, the company's net
income grew by a marginal 2% both for Q4 as well as the full twelve
See full analysis for Dr Pepper Snapple
Lower Demand For Soda Weighs On Volumes
In our pre-earnings write-up discussing Dr Pepper's fourth
quarter outlook, we mentioned how, of the big three cola companies,
Dr Pepper Snapple stands to lose the most from declining consumer
demand for soda in North America. The reasons are clear - soda
sales in North America make up for more than 70% of the company's
revenues. Moreover, unlike PepsiCo and Coca-Cola, DPS' portfolio in
the non-carbonated segment isn't wide enough to accommodate
the consumer shift towards healthier beverages. This fact is
reflected in the company's 2012 performance - total volume sales
declined by 1% in the final quarter and about 2% over the previous
year. The company has largely been offsetting volume decline
through pricing increases, and this continued in the fourth quarter
as well. Net sales as a result grew by a marginal 2%, both in Q4
and for the full year.
Strong Growth In Latin America
One of the brighter spots for investors in DPS' Q4 results was
the company's performance in Latin America. The increased focus on
countries such as Mexico and the Caribbean Islands certainly seems
to be paying off, with volume increase of 8% and net sales increase
of 11% in the region during the last quarter.
DPS's bottom line performance, meanwhile, remained steady. Gross
margins for the full year increased from 57.9% to 58.3% despite a
general increase in commodity prices, while operating margins
increased from 17.3% to 18.2%. As a result, net income for 2012
increased by around 2%.
Outlook Growing Weaker But Innovation May Turn Things
Going forward, we expect the sales slowdown in carbonated drinks in
North America to get worse. This casts a heavy gloom over DPS'
future earnings. The company will have to innovate with its
products to get out of this situation - investors should keep a
close eye on any portfolio expansion in the non-carbonated soda
segment. Meanwhile, the company's Latin American operations provide
another growth prospect, although DPS draws very little revenues
from the region. In order to compete more effectively with
companies such as Coca-Cola in countries like Mexico, DPS will also
have to step up its ad spend. This can however weigh down its
bottom line in the long run.
We currently have a price estimate of $46 for Dr
, which we will revise soon based on the latest results.
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