After the disheartening quarterly results of the beverage giants – namely, Coca-Cola (KO, Financial) and PepsiCo (PEP, Financial) – it is simply believed that declining soda sales is indeed a matter of concern. Since people have become increasingly health conscious, they have shifted to other healthier drinks, resulting in lower sales of carbonated beverages. Thus, beverage retailers are having a tough time attracting customers.
However, this notion has been proved wrong by Dr Pepper Snapple (DPS, Financial), which has been doing remarkably well in this industry. Its recently reported third-quarter results were not an exception. The numbers met the Street’s expectations, sending its share price higher.
A different approach
Revenue rose 3% to $1.6 billion, over last year’s quarter. This was almost in line with analysts’ expectations. Factors such as an increase in product prices improved productivity and enhanced promotions, helped the top line grow.
The segments which showed strength were Packaged Beverages and Latin America Beverages. The Latin Beverages segment was in fact one of the brightest spots with a 21% increase in sales, driven by a 10 % surge in volumes and higher product price.
The company marketed its products aggressively in the previous quarters, the result of which was evident in this quarter. It also increased the distribution and availability of its products in U.S, Canada and Latin America, which helped in growing sales. Also, it enhanced the single serve availability. Single serve beverages have become quite popular among customers and increasing its availability should continue to benefit the retailer.
However, it now plans to lower its marketing costs, which will help the bottom line grow further. Earnings for the quarter stood at $0.98 per share, an increase of 11% over last year. Also, it was higher than the analysts’ estimate of $0.96 per share. Thus, controlling marketing costs should help boost the bottom line even more.
Highlights of the quarter
Some of the new products which did very well during the quarter were Penafiel and Clamato. Penafiel is a fruit-flavored mineral water and has 75% less calories. This product resonated well with the customers in Mexico and grew 25% during the quarter. Therefore, the company plans to expand it in the U.S.
Further, Clamato is a spicy drink and is quite popular in Latin America. Higher demand for Clamato too drove results higher. Also, a new juice category is introduced, called seafood blends. Volumes of this product rose 7%. Thus, the success of these products was one of the key drivers of Dr Pepper’s growth.
Moreover, the beverage retailer acquired Davis Beverage Group, which will help the company grow in the future. It also increased its forecast for the year since it believes that the upcoming fall season will bring in additional customers to its newly introduced products.
Final word
Dr Pepper is one of those beverage giants that have managed to outperform in a market where its peers were finding it difficult to survive. Its focus on new products, ramped up marketing and cost containment measures make the company’s prospects even brighter. Thus, investors should not ignore this shining company.
