Dr Pepper Snapple Profits Buoyed By Stronger Pricing

DPS: Dr Pepper Snapple logo
DPS
Dr Pepper Snapple

Dr Pepper Snapple (NYSE:DPS) reported its Q2 earnings on July 26 which were boosted by stronger pricing and volume gains from Dr Pepper TEN. Total revenue rose 2.5% to $1.62 billion. Net income stood at $178 million, or 83 cents a share, up from 77 cents a share from the prior year quarter. The beverage company reaffirmed its 2012 outlook of a 3% to 5% increase in EPS.

Soft drink volumes stood flat. However, Dr Pepper volume increased 1% helped by Dr Pepper TEN. Dr Pepper Snapple soft drink volumes have generally remained flat in the last few quarters, but since the overall carbonated soft drink (CSD) market size is decreasing, the company continues to gain market share.

Volumes for non-carbonated beverages (NCB) decreased 6% driven mainly by declines in Hawaiian Punch and Mott’s. Snapple continued to do well with a 1% volume increase. The company has a weak portfolio in the NCB segment and continues to lose ground in the broader non-alcoholic beverage market.

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We currently have a price estimate of $38.60 for Dr Pepper Snapple, and we are in the process of revising our estimates to incorporate Q2 earnings.

Margins Remain Steady

Margins improved slightly for the quarter. The company reported EBTIDA margin of 20.8%, up from 20.4% from the year-ago quarter. A rise in the cost of goods was more than offset by lower selling, general and administrative costs. However, in the first six months of the year, margins are still down and so we estimate a slight decline in margins for the full year.

Beverage companies have generally resorted to more aggressive pricing (lower discounts, periodic price hikes, smaller packaging to achieve a favorable price mix) since the volumes have persistently refused to show any significant gains. Thus, any rise in the cost of commodities is most likely to be passed on to the consumers. Hence we don’t expect any significant deterioration in the margins in the long term. [1]

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Notes:
  1. DPS 10-Q []