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Soda Makers Hope Sugar Substitutes Will Sweeten Sales

Posted
3/12/2014 7:01:00 PM
By: Investor's Business Daily
Referenced Stocks:DPS;KO;PEP;SNMX

Hurt by slowing sales, soda makers are rushing to find sugar substitutes as consumers increasingly shun highly sweetened beverages.

But flat revenue hasn't affected one drink maker's stock. Shares ofDr Pepper Snapple Group ( DPS ) have been trading at or near new-high ground since mid-February, when they cleared a long base in heavy trade.

The Plano, Texas-based company on Feb. 12 reported Q4 EPS that topped views by a wide margin, though sales slipped 1%. In the earnings conference call, CEO Larry Young addressed the head winds the carbonated soft drinks category faces.

Bottler case sales in Q4 were flat to lower in most of its brands, which include 7UP, Crush and Canada Dry. Snapple sales grew 3%. For the year, Snapple and Mott's outperformed.

The beverage maker has been making a push with offerings such as Aloha Morning, a 40%-less-sugar version of Hawaiian Punch, and a Mott's juice line with 40% less sugar and no artificial sweeteners.

It's now test-marketing Snapple Straight Up Tea in response to consumers' request for a less-sweet tea. Also up for test-marketing soon is a proprietary sugar-Stevia blend to be used in some of its drinks.

RivalCoca-Cola ( KO ) is testing a similar blend, whilePepsiCo ( PEP ) is set to sell drinks sweetened with Sweetmyx as early as this year, after the Food and Drug Administration on Tuesday approved theSenomyx ( SNMX )-developed sweetener enhancer. PepsiCo has exclusive rights to use it in nonalcoholic beverages.

Dr Pepper last month raised its quarterly dividend by 8% to 41 cents a share, for an annualized yield of 3.1%. It's increased its payout each year, starting with 15 cents in 2009. The S&P 500's average yield is 1.87%.

Steady earnings-per-share growth the past four years helps it earn an 84 EPS Rating and a 3-year Earnings Stability Factor of 2 on a scale of 0 (most stable) to 99 (least stable). Analysts see gains of 6% this year and next.