On May 22, 2014, we issued an updated research report on
Dr Pepper Snapple Group Inc.
On Apr 23, the beverage company reported robust first-quarter
2014 results, beating the Zacks Consensus Estimate for both
earnings and revenues.
Adjusted earnings of 74 cents per share increased 40% year over
year attributable to strong margins, favorable timing of
concentrate shipment and lower interest expense and taxes. However,
though net sales and volume grew 1% in the quarter, it was only due
to the favorable timing of concentrate shipments. Carbonated soft
drinks (CSD) volumes continued to decline in the quarter.
Though the company is consistently delivering strong bottom-line
results, it needs to turn around sales. Weak volume trends, ongoing
pressure in the U.S. CSD category, and lack of exposure outside the
U.S keep us concerned.
The CSD category declined for the ninth straight year in 2013
due to weak consumer spending environment, cross-category
competition and growing health and wellness consciousness -
consumers are particularly vigilant about artificial sweeteners,
high sugar content and related obesity concern. Also, possible new
taxes on sugar-sweetened beverages and growing regulatory pressures
are affecting CSD sales. These headwinds are significantly
affecting Dr Pepper's CSD volumes which comprise around 80-85% of
Dr Pepper is trying to reinvigorate its CSD category through
low-calorie versions of its popular brands like Dr Pepper, 7UP,
Sunkist Orange Soda, A&W Root Beer, Canada Dry Ginger Ale and
RC Cola. The 10-calorie drinks have gained decent success, bringing
new as well as lapsed consumers back to the category.
The company also enjoys solid fundamentals - strong position in
the flavored CSD market, efficient cost management and regular cash
returns to shareholders. Moreover, Dr Pepper's priority brand
agreements with beverage giants,
The Coca Cola Company
), ensure that its popular brands are included in all core
packages, major merchandising events and display activities that
the companies participate in, thus boosting the sales of these
Other Stocks to Consider
Dr Pepper carries a Zacks Rank #3 (Hold). A better-ranked
beverage stock is
Coca-Cola Enterprises, Inc
) with a Zacks Rank #2 (Buy).
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