We issued an updated research report on Dr Pepper Snapple Group, Inc.DPS on Nov 18, 2015.
Continuing the strong performance seen in the first quarter of 2015, the beverage maker posted solid results yet again on Oct 22 for the third quarter.
In the reported quarter, Dr Pepper beat the Zacks Consensus Estimate for both earnings and revenues. On a year-over-year basis, earnings of $1.08 per share increased 10%, while constant currency sales rose 5% backed by favorable price/mix and positive volume growth.
Pricing gains, innovations, powerful marketing programs, strong NCB performance and productivity improvements drove strong results in 2015. Moreover, despite increased Fx headwinds, Dr Pepper raised the sales and earnings guidance twice this year. We believe that improving U.S. consumer sentiments, rational pricing environment, increased marketing support and Rapid Continuous Improvement (RCI) driven cost savings will boost results, going forward.
The RCI program was launched in 2010, which has since then led to strong earnings growth. Though the program has now entered the fifth year of operation, the momentum remains intact.
Dr Pepper's shares have also had a good run so far this year, gaining around 26%. Over the past month, analysts have become increasingly bullish on the company, with 10 out of 12 upward estimate revisions for 2016 earnings.
Overall, Dr Pepper has sound long-term fundamentals - strong position in the flavored CSD market, aggressive cost savings from the RCI program and regular cash returns to shareholders.
However, sluggish volumes of its carbonated beverages, including the diet versions, due to CSD category headwinds are a persistent overhang. Cross-category competition and growing health and wellness consciousness - consumers are particularly vigilant about the use of artificial sweeteners, high sugar content and related obesity concerns - are hurting CSD category growth. This, coupled with new taxes on sugar-sweetened beverages and growing regulatory pressures, is affecting CSD sales of major soft drink makers, like The Coca-Cola Company KO and PepsiCo, Inc. PEP . The CSD category headwinds are expected to persist in future quarters as well.
Dr Pepper carries a Zacks Rank #3 (Hold). A better-ranked beverage company is Primo Water Corporation PRMW with a Zacks Rank #1 (Strong Buy).
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.