Dr Pepper Snapple New Coverage: $39.50 Trefis Price Estimate

Dr Pepper Snapple Group (NYSE:DPS) is the third largest beverage company in the U.S. with an additional presence in Canada, Mexico and Caribbean. Dr Pepper Snapple is a market leader in the flavored Carbonated Soda Drink (CSD) segment. Besides CSD, the company is also present in juices, Ready-to-Drink (RTD) teas and mineral water, among others. Some of the company’s most valuable brands are its namesake drink Dr Pepper, 7UP, Canada Dry, Sunkist, Crush and Snapple. Dr Pepper Snapple competes primarily with PepsiCo (NYSE:PEP) and Coca-Cola (NYSE:KO), among others.

We estimate a $39.57 price for Dr Pepper Snapple, which is in line with the market price.

See our full analysis for Dr pepper Snapple Group

We have broken down the company into 3 major divisions:

• North American Carbonated Soft Drinks
• North American Non Carbonated Drinks
• Latin American Beverages

Dr Pepper Snapple’s Biggest Division: North American CSD

North American CSD segment refers to the company’s Carbonated Soft Drinks (CSD) operations in the U.S. and Canada. Some of the most popular brands of the company include Dr Pepper, Sunkist, 7UP, Canada Dry, Crush, Schweppes and Squirt. The CSD market is divided into colas and flavors. Dr Pepper Snapple is the industry leader in the flavors segment with a market share of more than 40%.

Going forward, we expect the company to increase its market share, albeit gradually, in the the North American CSD market as Coca-Cola and PepsiCo put a greater focus on international markets. The company launched Dr Pepper TEN at the end of 2011 which has so far received positive reviews although official sales figures aren’t available. For 2012, we expect Dr Pepper Snapple’s market share in the North American CSD market to be 16.9%. Note that Dr Pepper Snapple owns the trademarks of its brands only for the continent of North America so it cannot invest in the emerging economies in Asia, Africa or South America.

The total North American CSD market size has shown a decline in recent years as consumers switch to healthier alternatives such as juices, Ready-to-Drink (RTD) teas etc most of which fall into Non-Carbonated Beverages (NCB).

North American NCB

North America NCB segment refers to the company’s Non-Carbonated Beverage (NCB) operations in the U.S. and Canada. This segment includes juices, ready to drink (RTD) teas, mixers and energy drinks. Some of the most prominent brands of the company in this segment are Snapple, Mott’s, Hawaiian Punch, Clamato and Margaritaville.

Although the CSD market size is declining in North America, the overall Liquid Refreshment Beverage (LRB) market (which consists of CSDs as well as NCBs) is showing a net positive increase.

However, a lack of a robust portfolio in the NCB segment has resulted in the company losing market share in the overall LRB market. Going forward, the market share will erode further if the company fails to innovate meaningful products in the NCB segment.

Latin American Beverages

Latin America division refers to Dr Pepper Snapple’s beverage operations in the regions of Mexico and Caribbean. The company primarily participates in carbonated mineral water, flavored Carbonated Soft Drinks (CSDs), bottled water and vegetable juice categories. Some of the key brands in this division include Peñafiel, Squirt, Clamato and Aguafiel.

Volume sold (in million gallons) in Latin America has generally witnessed a positive trend. Dr Pepper Snapple sold 270 million gallons in 2010 and 280 million gallons in 2011. Going forward, we expect the Latin America volume to grow annually at a rate of 3.5%.

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