Dr Pepper Snapple: The Fizz Is Strong

Company reported solid third-quarter results and is poised to grow

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One of North America's leading refreshment beverage companies, Dr Pepper Snapple (DPS, Financial) markets more than 50 brands of carbonated soft drinks, juices, teas, mixers, waters and other premium beverages. The company's strategy, brands and people have made it a strong, sustainable and profitable business. It is favorably positioned in the flavored carbonated soft drink market.

DPS’s success is fueled by more than 50 brands that are synonymous with refreshment, fun and flavor. It has six of the top 10 noncola soft drinks, and 13 of its 14 leading brands are No. 1 or No. 2 in their flavor categories. In 2010, Dr Pepper Snapple Group was named Company of the Year by the Beverage Marketing Corporation and Beverage World magazine. Dr Pepper Snapple Group is the No.1 flavored carbonated soft drink (CSD) company in the Americas and a leading innovator and marketer of functional/noncarbonated beverages.

The company posted strong third-quarter results. Dr Pepper Snapple remained focused on its strategy and continued to deliver against key priorities. The company posted another quarter of solid top-line and bottom-line results, with both the CSD and noncarbonated beverage portfolios performing well. Over the years, Dr Pepper Snapple posted impressive earnings. It had a solid 2014 and posted strong first-quarter 2015 results. It is back with a strong third quarter. This company is a buy. It has a good dividend yield and is a growth stock. Investors should consider adding this company to their portfolios.

Strong third quarter

EPS during the third quarter was $1.05 (which was 96 cents in the prior year period). Core EPS increased by 10% and was $1.08 (which was 98 cents in the prior year quarter).

Year to date, the company reported earnings of $3.00 per diluted share (which was $2.79 per share in the prior year quarter). Core EPS increased by 9% and was $3.02 (which was $2.77 in the prior year period).

Net sales increased 3% on a 3% increase in sales volumes, favorable product and package mix and price increases.

Reported income from operations for the quarter was $337 million (which was $316 million in the prior year quarter). Core income from operations for the third quarter increased by 9% and was $347 million (which was 20.1% in the prior year period).

Foreign currency translation reduced Net Sales by 2% and Reported EPS by 2% in the quarter.

Year to date, reported net sales increased 3%, and reported income from operations was $976 million, including $5 million of unrealized commodity mark-to-market losses (it was $924 million in the prior year period, including $10 million of unrealized commodity mark-to-market gains).

Net sales for beverage concentrates increased by 2% in the quarter driven by a 3% increase in concentrate shipments.

Net sales for packaged beverages increased by 6% for the quarter.

Net sales for Latin America Beverages increased by 10% in the quarter driven by an 8% increase in sales volumes and favorable mix.

Corporate costs during the quarter totaled $83 million (which was $76 million in the prior year quarter).

Net interest expense increased $1 million in the quarter.

Effective tax rate during the quarter was 34.4%.

Year to date, the company generated $723 million of cash from operating activities (which was $769 million in the prior year quarter).

Capex totaled $71 million.

The company returned $668 million to shareholders in the form of stock repurchases ($404 million) and dividends ($264 million).

Expectations for 2015

The company expects the following:

Net sales to increase approximately by 2%.

Core EPS to be in the $3.92 to $3.98 range.

Packaging and ingredient costs are now expected to decrease COGS by approximately 2% on a constant volume/mix basis.

The company continues to expect its core tax rate to be approximately 35.5%.

The company continues to expect capital spending to be approximately 3% of net sales.

The company continues to expect to repurchase $500 million to $550 million of its common stock.

(Source: Company’s Website)

Strong Attributes of third quarter

  1. Innovation
  2. Productivity improvements
  3. Strong pricing gains
  4. Marketing efforts
  5. Cost savings due to Rapid Continuous Improvement (RCI)

Current focus

1. To build and enhance leading brands

2. Opportunities in high growth and high margin categories

3. Increase presence in high margin channels and packages

4. Leverage its integrated business model

5. Strengthen its route to market

6. Improve operating efficiency

On a concluding note

Through years of acquisitions and mergers, not to mention in-house innovation, Dr Pepper Snapple Group has developed a diverse, flavorful brand portfolio and an integrated business model that uniquely positions it for success. Consumers selected DPS as the best among soft drink companies for consumer satisfaction in the 2012 American Customer Satisfaction Index report. DPS was named to The Civic 50 as one of the top 50 Standard & Poor's 500 companies making a difference in their communities.

From the invention of the first soft drink more than 200 years ago to some of the industry's most beloved beverage brands, Dr Pepper Snapple Group has a proud legacy of innovation, bold and distinct flavors and entrepreneurial spirit.

It is a company with strong fundamentals. The company is doing well and has plenty of room to grow. The company doesn’t bank on carbonated beverages only and has rolled out a plethora of noncarbonated beverages. The company has better cash flows and is in a good position to fund acquisitions and internal expansion.

Disclosure: I do not hold any position in the company.