According to ABC News, in 1998 Americans drank an average of 51 gallons of soda. However, the consumption dropped 20% in 2014, clocking in at 44 gallons. Thus, people are drinking less soda since these sweetened drinks are bad for health. Consumers now look forward to having healthy drinks such as fruit juices, teas and zero calorie beverages.
Nonetheless, beverage retailers are still managing to boost their sales by enhancing other products, which offsets the decline in demand for carbonated sodas. An apt example here is Dr Pepper Snapple (DPS, Financial), a retailer of non-alcoholic beverages, which registered a bright quarter despite all the existing problems. The numbers were ahead of the Street’s estimate, sending its share price higher.
The earnings beat
Revenue for the quarter grew 3.4% to $1.5 billion, as compared to the previous year. The top line was higher than the analysts’ estimate of $1.46 billion. Sales were driven by a steady performance in the carbonated as well as the still beverage segment.
Still beverage segment’s benefited from a favorable product mix, which helped the revenue grow. Moreover, it makes 21% of the total revenue. Hence, growth in this segment resulted in higher sales. Also, sales volumes of the U.S. segment surged 2% during the quarter and were driven by Canada Dry in particular.
Volumes of the packaged beverages increased 4% during the same period. The company stands in the first position in the flavored non-cola CSD market in the U.S. and has a market share of 40%. Thus, it has a significant portion of the market.
One of the star performers during the quarter was Penafiel, the Mexican sparkling mineral water category. Revenue in this segment was up 21%, over last year’s quarter.
The bottom line of the beverage retailer was also good with earnings at $0.88 per share. Thus, it was in line with the analysts’ estimate of $0.88 per share, as the company cut its costs by reducing inventory and storage costs.
The bigger picture
Dr Pepper Snapple has a good year as it registered decent quarters in 2014. Its performance was driven by productivity improvement and pricing gains. Also, effective management of expenses and a focus on innovation helped the company grow. Thus, it raised its guidance for 2014 twice during the year, as it got more optimistic about its future.
Currency headwinds increased the prices of its products in Latin America, resulting in higher sales of 19%. However, the increase in health awareness has hurt soft drink sales of the company. Thus, it has come up with new and healthy options such as Achilles’ heel, a new variant of diet drinks.
Further, it introduced TEN, a 10-calorie version of soft drinks. This serves as an option against fruit juices and sports drinks. Furthermore, it has plans to launch many such products in the future. It will be launching Snapple Straight Up Tea, a new line of unsweetened teas in Pet bottles. In addition, it will be launching the Hawaiian Punch in a pouch format.
The obvious conclusion
The beverage retailer has put up a great show by withstanding the toughest of times, through its drive for innovation and focus on lowering its costs. Its new products have resonated well with the customers. Thus, it provided an impressive outlook for the current year. It expects earnings to be in the range of $3.56 per share and $3.62 per share, whereas the consensus was at $3.56 per share. It also provides dividends and announced an additional share buyback program of $500 million to $550 million of common stock. All these factors together make Snapple look like a lucrative bet.
