Why Has Dr Pepper Snapple’s Stock Price Fallen?

by Trefis Team
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Dr Pepper Snapple (NYSE:DPS) lowered its earnings guidance for 2017 to adjust for a resin supplier issue in Mexico. The beverage company expects earnings to come in the range of $4.53 to $5.63, from an earlier estimated range of $4.56 to $4.66. The reduction in guidance was in anticipation of the effects of a default by a supplier of resin to DPS’ operations in Mexico, which was, in fact, unaffected by either Hurricane Harvey or Irma. While the company has procured additional sources of resin, it will have to write-off certain prepaid resin inventory. The total expected impact is said to be between $7 and $9 million, and will mostly occur in the third quarter. Moreover, the company also stated that its operations have been negatively affected by hurricanes in south Texas, the southeastern U.S., and the Caribbean, as well as the recent earthquake in Mexico.

This news sent the stock price of the company down by about 2%. Dr Pepper Snapple isn’t alone in this situation. Their lowered guidance comes a few weeks after Newell Brands cut its adjusted profit outlook, also blamed on the shortage of resin used in its products. Moreover, such natural disasters are bound to impact the performance of other consumer staples as well, resulting in stock price weakness in the entire sector.

Impact Assessment May Take A While

As is the case with many big events, especially when it may hurt the production side of the business, it may take weeks to assess the impact, such as what shortages there are, and for what products the companies may have to pay a premium. Hence, the information coming out of the companies may be limited right now, and it may take a month or two to figure out what the downstream effects are.

According to a survey conducted by the Institute for Supply Management (ISM), two-thirds of responding supply managers expect input materials pricing will be at least somewhat impacted over the next three months, with 27% believing that the prices will be negatively or very negatively impacted. Furthermore, 56% feel supplier deliveries will be at least somewhat negatively impacted over the next three months. Meanwhile, another 19% expect deliveries to be negatively or very negatively impacted. Even after six months, 56% of the respondents expect at least some negative impact on prices. Resin was among the key commodities most often mentioned as one that could be in short supply over the next three months, and the Food & Beverage industry was one of the industries that could be impacted the most.

The chemical industry in Texas is heavily involved in the global supply chain. The chemicals, polymers, resins, and raw materials manufactured here are present either in the direct supply chain or in the supplier’s supply chain. The reason that the supplier for DPS who was not located in the hurricane-affected area has had resin supply issues could be that they may be relying on materials that come from this region. The fact that DPS has worked with speed and precision to procure additional sources of resin may bode well for them, as compared to its competitors who may miss out. It is imperative for companies to act quickly in times like this, instead of following the “wait-and-see” approach.

See Our Complete Analysis For Dr Pepper Snapple

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Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such 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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