Dr Pepper Snapple Beats on Q1 Earnings, Revs - Analyst Blog

Dr Pepper Snapple Group Inc.'s DPS first-quarter 2014 adjusted earnings of 74 cents per share beat the Zacks Consensus Estimate of 59 cents by 25.4%. Moreover, earnings increased 40% year over year attributable to strong margins and solid revenues from Beverage Concentrates and Latin America Beverages.

During the quarter, Dr Pepper's net sales rose 1% year over year to $1.40 billion on the back of improving sales volumes, price increases and favorable product/package mix, offset by unfavorable currency translation and segment mix. Sales volume rose 1% year over year. Currency neutral net sales rose 2% in the quarter. Net sales beat the Zacks Consensus Estimate of $1.38 billion by 1.5%.

Adjusted gross profit improved 4.5% in the quarter to $832 million. Adjusted operating income increased 21.6% year over year to $248 million during the quarter driven by productivity improvements and lower marketing and people-related expenses. Adjusted operating margins grew 290 basis points to 17.7% in the quarter.

The effective tax rate was 34.4% in the quarter, lower than 36.4% in the prior year quarter as New York State reduced the effective tax rate by 0.9%.

Volumes in Detail

Dr Pepper's sales volume is measured in two ways: 1) sales volume and 2) bottler case sales BCS volume. Sales volume represents sales of concentrates and finished beverages sold to bottlers, retailers and distributors. BCS includes the sale of packaged beverages by the company and its bottlers to retailers and independent distributors.

Sales volume, as discussed earlier, was up 1% in the quarter driven by a 2% volume gain in the Latin American segment and a 3% volume gain in Beverage Concentrates.

In the quarter, BCS volume declined 1% as CSDs dipped 1% and non-carbonated beverages NCB volume dipped 2%. Dr Pepper soft drink volume declined 4% due to CSD category headwinds.

Overall volumes of the Core 4 brands (Canada Dry, A&W, Sunkist soda and 7UP), including TEN versions, remained flat as gains in Canada Dry were offset by declines in Sunkist soda and A&W. Canada Dry volumes grew mid-single digits. 7UP remained flat in the quarter while Sunkist soda was down mid-single digits. A&W was down mid-single digits as well.

In terms of volumes, Peñafiel water increased in double digits due to strong sales from new products. However, the Fountain food service decreased 3% during the quarter. Also, Squirt decreased high-single digits.

Among the NCBs, growth in Snapple (2%) and Clamato (3%) was partially offset by a decline in Hawaiian Punch (8%) and Mott's (1%).  

Geographically, volumes declined 2% in the U.S. and Canada but increased 3% in Mexico and the Caribbean.

Segment Details

Beverage Concentrates: Dr Pepper's net sales from Beverage Concentrates went up 8% year over year (on a currency neutral basis) to $281 million due to tailwinds from price increases, 3% volume increase and favorable timing of concentrate shipment. Segment operating profit rose 14% (on a currency neutral basis) to $174 million owing to net sales increase and lower marketing expenses.

Packaged Beverages: In the Packaged Beverages segment, net sales declined 1% on a currency neutral basis to $1.01 billion due to flattish volumes. Segment operating profit rose 16% year over year (excluding currency impact) to $131 million due to tailwinds from higher productivity, favorable input cost and lower people costs

Latin America Beverages: Dr Pepper's net sales from Latin America Beverages increased 17% on a currency neutral basis to $111 million, driven largely by mix gains, increased prices and volume growth of 2%. Segment operating profit increased 63% (excluding currency) in the quarter to $13 million as sales growth and productivity gains offset increasing transportation costs.

2014 Outlook

The company maintained its previously provided guidance for 2014. Owing to the continued CSD category headwinds, Dr Pepper expects full-year 2014 net sales to be flat to up approximately 1% year over year.

For full-year 2014, adjusted earnings per share are expected in the range of $3.38 to $3.46, representing an upside from 2013 levels. The company expects lower packaging and commodity costs to reduce the cost of goods sold (COGS) by 2% in 2014.

The full-year tax rate is expected to be about 35.5%, same as in 2013. Capital expenditure is expected to be nearly 3% of net sales. The company plans to repurchase approximately $375 to $400 million worth of shares in 2014.

Dr Pepper's carries a Zacks Rank #3 (Hold).

Other better-ranked companies from the consumer goods sector include Coca-Cola Amatil Ltd. (CCLAY), carrying a Zacks Rank #1 (Strong Buy) and Coca-Cola Enterprises Inc. CCE and Monster Beverage Corp. MNST, carrying a Zacks Rank #2 (Buy).