Dr Pepper Snapple’s Poor Quarter Results In Stock Price Fall

October 26th, 2017 by Trefis Team
DPS: Dr Pepper Snapple logo
DPS
Dr Pepper Snapple

Shares of Dr Pepper Snapple (NYSE:DPS) slid as much as 7.2% after its third quarter earnings release, wherein it missed expectations on both sales and earnings. Factors such as the early extinguishment of debt, hurricanes and earthquake in the US and Mexico, and a resin supply issue played a dampener on the earnings, which came in at $1.10 per share, 7 cents short of expectations. The sales growth was driven by the acquisition of Bai Brands, as well as a favorable product and package mix, favorable currency translations, and price increases.

The company also altered its full-year guidance yet again, now expecting its core EPS to come in the $4.50 to $4.57 range. The impact of the Bai acquisition is now expected to be $0.11 dilutive to the core EPS, from $0.07 earlier. While foreign currency translations are anticipated to have a reduced impact, the earthquake and hurricanes will reduce the metric by $0.02.

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Uncertainty Surrounding The Bai Impact

The fact that the purchase of Bai Brands is the first major deal by Dr Pepper Snapple as a standalone company is showing now, as the company modified the impact of the purchase on the earnings for the fourth time since announcing the acquisition. The volume growth forecast for the year has been reduced from a range of 40%-50% to about 40%, and the brand is expected to add 1 percentage point to the net sales growth, from 2 percentage points estimated earlier. Moreover, as mentioned earlier, the brand is expected to be more dilutive to the earnings than earlier predicted.

DPS does not have the experience of buying a smaller brand such as Bai, whose sales are growing at a fast rate. The company has also invested enormously in Bai’s advertising, promotion, and distribution strategy, which has also been pressuring the margins. In the third quarter alone, $20 million was spent for these purposes. A similar amount can be expected to be expended in the next quarter as well, with a cutback to be witnessed in the next financial year.

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 changing customer tastes. Through this acquisition, DPS aims to be the leader in the healthy beverages segment. The company still expects to double the sales of this brand by the end of next year.

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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