It’s All About Bai In Dr Pepper Snapple’s Second Quarter Results
Bai Brands took the spotlight in Dr Pepper Snapple‘s (NYSE:DPS) second quarter earnings, reported on July 27. Heavy marketing investments into the brand helped to drive its sales; however, it also resulted in the operating profit falling, and consequently, the earnings per share, which fell by 27% on a reported basis. Reported net sales grew 6% on strong volume growth of 4%, helping to beat consensus estimates. However, the flat core earnings reported by the company missed expectations by 3 cents. The total marketing spend on Bai alone was $20 million in the quarter, with another $16 million spent on other priority brands. Such heavy levels of investment into the brand can be expected in the remainder of the year as well, with the highest expenditure coming in the third quarter.
Updated Full Year Guidance
- For the full year, the company expects net sales growth of 4.5%, higher than the 4% predicted earlier, 2 percentage points of which are anticipated to come from the acquisition of Bai Brands.
- Even currency headwinds are expected to negatively impact the earnings by 4 cents per share, instead of 7 cents.
- Despite these factors, the company has decided not to revise its EPS guidance upwards from the $4.56 to $4.66 range.
- This is because the impact of Bai is expected to be $0.07 dilutive, instead of an estimation of $0.02 earlier, due to the increased marketing efforts on the brand.
Potential Of Bai Brands
- The acquisition of Bai Brands has boosted the company’s revenues, and in Q2 2017 the brand accounted for just over 2% of the net sales growth.
- Through the acquisition of this brand, the company aims to be the leader in the healthy beverages segment. As millennials move away from carbonated soft drinks, demand for healthier options is increasing, and Bai is likely to be the front runner for DPS in terms of healthy beverage options.
- From an ACV (all-commodities volume) standpoint, while there are still distribution opportunities for its enhanced water product, greater opportunities lie in other platforms, such as Bubbles, Super Tea, and Black. ACV is considered an insightful measure for soft drink companies, and can be generally thought of as “% of stores selling,” but with stores weighted based on their size, and hence, reflects the item’s exposure to consumer spending.
- Bai is known for its disruption in the beverage industry and its entrepreneurial structure has allowed the company to innovate in the healthy beverage segment. Over the past two years the brand introduced fruit-based carbonated beverages and a better-for-you soda called Bai Black. These efforts are aimed towards introducing beverages which are healthier and appeal to customer tastes.
- The company is also re-launching antioxidant water, slated for the latter part of this year, which may drive further upside to the brand.
- With the founder of Bai recently leaving the business, it will be crucial for Dr Pepper Snapple to ensure that the innovations in this brand continue.
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See Our Complete Analysis For Dr Pepper Snapple
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