How Will Dr Pepper Snapple Perform In Its First Quarter?

by Trefis Team
Rate   |   votes   |   Share

Dr Pepper Snapple (NYSE:DPS) is scheduled to release its first quarter results on April 25, wherein a growth in both revenue and earnings is expected. This growth is expected to be driven by higher pricing and increased volumes, besides improvement of Bai Brands. As was the case while declaring the fourth quarter 2017 results, the company will not be hosting a quarterly webcast conference call and slide presentation, but will instead be filing its form 10-Q with the SEC before the market opens on April 25. A proxy filing process related to its previously announced merger transaction with Maple Parent Holdings Corp., which owns Keurig Green Mountain Inc., has been cited as the reason for this.

We have a $122 price estimate for Dr Pepper Snapple, which is slightly higher than the current market price. The charts have been made using our new, interactive platform. You can click here to modify the different driver assumptions, and gauge their impact on the earnings and price per share metrics.

Deal With Keurig

JAB Holdings, Keurig’s owner, has acquired a number of coffee brands, such as Jacobs, Peets, Caribou, and Keurig. It has also scooped up Krispy Kreme Doughnuts, Panera Bread, Au Bon Pain, among other food and beverage companies. However, being able to deliver these products to places where the consumers shop requires a massive distribution network, and this is where Dr Pepper Snapple will come in. Furthermore, this deal, the biggest in the soft drinks space according to Dealogic, would also result in a hot and cold drinks combination, with immense scale for both. DPS, meanwhile, will benefit from Keurig’s e-commerce capabilities. JAB also has experience in the past of acquiring small brands, and ensuring these fast growth rates continue, an aspect DPS has been working on for Bai. More details regarding the deal can be expected once the proxy filing process is complete.

Bai Brands’ Topsy Turvy Year

DPS completed the Bai brands merger on January 31, 2017, and for the full year (FY 2017), the primary impacts of merger decreased diluted earnings per share in total by $0.26, against an initial estimation of just $0.02. The brand also added to the net sales by 1%, as opposed to the 2 percentage points expected at first. The fact that the purchase of Bai Brands is the first major deal by Dr Pepper Snapple as a standalone company showed in DPS’ uncertainty regarding the brand’s expected financial performance, as the company modified the impact of the purchase on the earnings several times since announcing the acquisition. 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 been pressuring the margins.

One factor that could be causing the slow growth of the brand is that earlier the company relied on volume expansion by selling cases to companies such as Costco and Wal-Mart’s Sam’s Club. However, DPS is now focusing on acquiring retail grocery shelf space, where sales are usually more individualized, and not in bulk. The main reason cited for this was the highly promotional environment in such club stores. In the third quarter of 2016, the club channel mix was 31%, which dropped to 26% in Q3 of FY 2017. This strategy should prove to be more fruitful for the company over the long run as it encourages trials and samplings, although, in the short run, its unforeseen impact resulted in an overoptimistic results forecast.

Nevertheless, Bai Brands has tremendous potential to grow and drive DPS’ revenues going forward. 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. Moreover, 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.

See Our Complete Analysis For Dr Pepper Snapple

 

What’s behind Trefis? See How It’s Powering New Collaboration and What-Ifs

For CFOs and Finance Teams | Product, R&D, and Marketing Teams

More Trefis Research

Like our charts? Explore example interactive dashboards and create your own.

Rate   |   votes   |   Share

Comments

Name (Required)
Email (Required, but never displayed)
Be the first to comment!