Dr Pepper Raises EPS Guidance On Solid Q2 Results

DPS: Dr Pepper Snapple logo
DPS
Dr Pepper Snapple

Dr Pepper Snapple (NYSE:DPS) has raised its full-year core EPS guidance, after net sales rose 2% year-over-year on a 1% rise in sales volume in Q2. The company has beaten consensus EPS estimates for four consecutive quarters, and now expects core EPS to be in the $4.27 to $4.35 range, up from the $4.20-$4.30 range forecast previously, in 2016.

DPS Q&A 19-1

In 2015, while 46% and 56% of Coca-Cola and PepsiCo’s net sales came from the U.S., a larger 89% of Dr Pepper’s revenue came from the domestic market. Dr Pepper is more dependent on CSDs than both Coca-Cola and PepsiCo are, with 82% of its net volume in this beverage category. But the company has been able to increase both its volume and revenue in the U.S. CSD market in the last few years despite the slowdown in the overall market, by nabbing market share from its chief competitors. Emphasis on smaller packages is also helping Dr Pepper boost its top line. The company expects around 3 percentage points of positive price and package mix impact on the top line for the full-year, of which around 2.5 points is expected to come from smaller CSD packages and brands such as Snapple, Clamato, and its allied brand portfolio.

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The company is deriving high volume growth from its allied brands, which is expected to continue this year. The allied brands growth is included in the packaged beverage volumes for Dr Pepper, which is the distribution wing for these small but fast growing brands, such as Bai 5, Vita Coco, etc. Certain allied brands are experiencing both double- and triple-digit growth rates partially as a result of Dr Pepper’s specific focus on allied brand distribution and availability. At the gross margin line, the allied brands tend to carry lower gross margin because they have somebody else’s manufacturing profit in there, but are good contributors to Dr Pepper’s operating profitability. Allied brands form a small proportion of net volumes at present, but are an important factor of growth.

In 2016, Dr Pepper expects CSD volume to be flat, but NCB (non-carbonated beverages) growth to be up slightly. Pricing actions taken across several of the company’s warehouse direct brands are expected to hinder growth in NCB volume this year, however, continued growth from other brands such as Snapple, Clamato, and the allied brand portfolio should offset this decline. Despite tepid volume sales, a focus on packages that have higher price per volume, in both CSDs and non-CSD categories, will help Dr Pepper boost its top line over time.

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Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Dr Pepper Snapple

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