We have maintained a Neutral rating on
Dr Pepper Snapple Group Inc.
) following appraisal of fourth quarter and fiscal year 2011
Dr Pepper reported fourth-quarter 2011 earnings of 82 cents per
share, up 22.4% from the year-ago earnings of 67 cents per share.
The company's quarterly earnings also surpassed the Zacks Consensus
Estimate of 74 cents per share.
During the quarter, Dr Pepper's net sales grew 3% year over year
(4% excluding the impact of foreign exchange) to $1.46 billion and
also swept past the Zacks Consensus Estimate of $1.45 billion. The
year-on-year growth was mainly attributable to price increases and
a favorable mix.
The company entered into priority brand agreements with cola
The Coca Cola Company
) in 2010. These initiatives also helped boost the top line. The
priority brand agreements ensure that the popular brands of Dr
Pepper are included in all core packages, major merchandising
events and display activities that Coca Cola and PepsiCo
participate in, thus boosting sales of these brands. Sales volumes
however declined in the quarter.
Overall, we are encouraged by Dr Pepper's strong position in the
flavored carbonated soft drinks (
) market. Dr Pepper owns some of the most popular CSD and non
carbonated beverages (
) brands. It holds the #1 position in the flavored CSD market in
the US with a market share of 40% in the US 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 well-established 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 (
) 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 with $57
million already achieved in 2011.
However, weak volumes, lack of exposure outside US, a difficult
macroeconomic environment and rising input costs keep us on the
sidelines. The macroeconomic environment was weak in 2011 as rising
costs of raw materials resulted in price increase for the finished
products. Price hikes discouraged consumers from indulging in
The company's customers also remain sensitive to other
macroeconomic factors including interest rate hikes, credit
availability, unemployment levels, and high household debt levels,
which may further dissuade them from unnecessary spending. At the
end, these may affect the company's growth and profitability.
Changing consumer preferences and increasing health consciousness
also limit the company's CSD sales.
DR PEPPER SNAPL (
): Free Stock Analysis Report
COCA COLA CO (
): Free Stock Analysis Report
PEPSICO INC (PEP): Free Stock Analysis Report
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