Dr Pepper Snapple (DPS, Financial) reported strong second-quarter results and raised its EPS guidance for the rest of the year.
This was a solid quarter marked by growth. Driving integrated communication and execution across its key priority brands contributed to the company's success. The company is also benefiting financially from Rapid Continuous Improvement (RCI).
Dr Pepper Snapple is one of North America's leading refreshment beverage companies. With a brand heritage spanning more than 200 years, its portfolio includes more than 50 brands of carbonated soft drinks, juices, teas, mixers, waters and other beverages. In addition to the flagship Dr Pepper and Snapple brands, its portfolio includes 7UP, A&W, Canada Dry, Clamato, Crush, Hawaiian Punch, Mott's, Mr & Mrs T mixers, Penafiel, Rose's, Schweppes, Squirt and Sunkist soda.
From the invention of the first soft drink to some of the industry's most beloved beverage brands today, it has a proud legacy of innovation, bold and distinct flavors and entrepreneurial spirit.
Second-quarter results
The company reported second-quarter EPS of $1.39 (which was $1.14 in the prior-year quarter).
Core EPS were $1.25, which marked an increase of 11% from $1.13 in the prior-year quarter.
Year to date, the company reported earnings of $2.35 per diluted share (which was $1.95 per diluted share in the prior-year period).
Core EPS were $2.18, which marked an increase of 12% from $1.94 in the prior-year period.
During the quarter, reported net sales increased by 2%.
Reported segment operating profit (SOP) increased by 5%, or $24 million.
Reported income from operations for the quarter was $412 million, which was $369 million in the prior-year quarter.
Core income from operations during the quarter was $387 million, which marked an increase of 6%, and represented 22.8% of net sales as compared to 22.1% in the prior-year period.
Year to date, the company generated $407 million of cash from operating activities net of the $35 million multi-employer pension plan settlement payment, which was $349 million in the prior-year period.
Corporate costs totaled $52 million during the quarter.
Capex was $68 million, which was $42 million in the prior-year period.
Reported effective tax rate during the quarter was 35.3% (35.5% in the prior-year quarter).
Beverage concentrates
Net sales increased by 4% in the quarter, and there was a 1% increase in concentrate shipments.
Packaged beverages
Net sales increased by 3% in the quarter on favorable product and package mix and price increases.
Latin America beverages
Net sales increased by 10% in the quarter on a 6% increase in sales volumes, favorable product mix and higher net pricing.
Capital allocation
The company returned $493 million to shareholders in the form of stock repurchases ($303 million) and dividends ($190 million).
On Aug. 11 the company declared a quarterly dividend of 53 cents per share on the company's common stock. The dividend is payable in American currency on Oct. 5 to shareholders of record on Sept. 13.
Expectations for 2016
| Ă‚ | Range |
| Net sales | To increase by around 2% |
| Core EPS | To range between $4.27 and $4.35 |
| Share repurchases | It plans to buy $650 million to $700 million of its common stock. |
| Capex | To be around 3% of net sales |
| Core tax rate | To be around 35.5% |
Focus
- Productivity improvements.
- In-house innovation.
- Capitalizing on evolving consumer trends.
- Improving distribution.
- Increasing promotional effectiveness.
- It is focused on improving its product presence in high margin brands, products and channels.
- Driving shareholder value.
Growing base
The company’s brand partnerships and product tie-ins are contributing to the company's growing customer base. It is catering to evolving consumer tastes and preferences through product and package innovation. RCI is bringing in the desired change in the organization, thereby targeting growth and productivity improvements.
The company is constantly making efforts to diversify its product portfolio. It is trying to create shareholder value through strategic acquisitions. It is now focusing the concern toward the healthier beverages category since consumers have shown a preference for the health drinks category. Dr Pepper Snapple may benefit from the allied brands. It is reducing costs and is making initiatives in supporting its top-line growth.
Conclusion
The company boasts of a diverse, flavorful brand portfolio and an integrated business model that uniquely positions it for success. It is in the process of marketing and analysing to identify key brands that have have the greatest potential for profitable sales growth. It is leveraging its integrated business model to reduce costs by optimizing geographic manufacturing and coordinating sales, service, distribution, promotions and product launches.
On an overall basis, the company is poised for a good year. It has more room to grow as is reflected from the raised EPS guidance. It has good partnerships with allied brands which is driving meaningful growth. It has a strong cashflow generation and is also returning benefits to the shareholders in the form of dividends and share repurchases. Adding this company is going to create shareholder returns.
Disclosure: I do not hold any position in the company.
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