Dr Pepper Snapple Group Inc. (DPS) is scheduled to report its first-quarter 2011 financial results before the opening bell on April 27, 2011. The current Zacks Consensus Estimates for the quarter is earnings of 46 cents a share. For the quarter under review, revenue is $1,308.0 million, according to the Zacks Consensus Estimate.
Fourth-Quarter 2010, Summary
Dr Pepper reported fourth-quarter 2010 adjusted earnings of 67 cents per share compared with 44 cents in the year-ago period. Quarterly earnings also topped the Zacks Consensus Estimate of 64 cents.
During the quarter, Dr Pepper's net sales grew 4.1% year over year to $1,412.0 million, marginally surpassing the Zacks Consensus Estimate of $1,405.0 million. The year-on-year growth was mainly attributable to higher sales volume, favorable foreign currency translations and revenues from the PepsiCo Inc. (PEP) and The Coca-Cola Company (KO) licenses.
The company also signed an agreement with The Coca-Cola Company on October 04, 2010, which grants Coca-Cola the distribution rights of Dr Pepper in the U.S. and Canada Dry in the North East U.S. for a one-time payment of $715.0 million. The 20-year deal (with a provision for 20-year renewals) is part of Coca-Cola's acquisition of the North American bottling operations of Coca-Cola Enterprises (CCE). The proceeds from the deal are recorded as deferred revenue over a period of 25 years. The company accredited $7.0 million of revenue in the fourth quarter of fiscal 2010 and for the year.
Management Guidance
Dr Pepper continues to witness signs of economic stability in spite of sluggish consumer confidence. The company guided its full-year 2011 adjusted earnings in the range of $2.70 to $2.78 per share on a 3% to 5% growth in net sales.
First-Quarter 2011 Zacks Consensus
The analysts covered by Zacks expect Dr Pepper to post first-quarter 2011 earnings of 46 cents a share faring better than the earnings of 40 cents delivered in the prior-year quarter. The current Zacks Consensus Estimate ranges between 42 cents and 50 cents a share.
The current Zacks Consensus Estimate has declined by a penny over the last 30 days, as 2 out of 12 analysts covering the stock lowered their estimates.
With respect to earnings surprises, Dr Pepper has met as well as topped the Zacks Consensus Estimate over the last four quarters in the range of 0.0% to 7.3%. The average remained at 5.7%. This suggests that Dr Pepper has beaten the Zacks Consensus Estimate by an average of 5.7% in the trailing four quarters.
Our View
Dr Pepper is a leading manufacturer and distributor of non-alcoholic beverages in the U.S., Canada and Mexico. Moreover, the company commands a strong portfolio of well-established flagship brands, such as Dr Pepper, Snapple, 7UP, Mott's, Sunkist, A&W, Canada Dry, Schweppes, Hawaiian Punch, Squirt and Penafiel, which offer a strong competitive advantage to the company and strengthens its well-established position in the market.
Moreover, Dr Pepper's 22 manufacturing facilities and over 200 distribution centers are strategically located across North America. Moreover, the company's warehouses are located at or near the bottling plants and have 5,000 trucks for transportation purposes. These facilities enable the company to better align its operations with its customers, reduce transportation cost and have better control over the timing and management of new product launches.
Furthermore, Dr Pepper is in the midst of its Rapid Continuous Improvement (RCI) program. Therefore, the company has been able to reduce its package changeover time at its Aspers plant by 72% from 87 minutes to 24 minutes. The program will give more flexibility to its plants to meet consumer demand and enable it to reduce inventory and storage costs.
However, Dr Peppers' financial performance may be substantially affected due to its significant presence in international market (Canada, Mexico and the Caribbean), which exposes it to unfavorable foreign currency translations, economic or political instability and other governmental actions on trade and repatriation of foreign profits.
Besides, the liquid refreshment beverage industry is highly competitive and continues to evolve in response to changing consumer preferences. Competition is generally based on brand recognition, taste, quality, price, availability, selection and convenience. The two largest competitors in the liquid refreshment beverage market are Coca-Cola and PepsiCo, each representing more than 30% of the U.S. liquid refreshment beverage market by volume.
Currently, Dr Pepper maintains a Zacks #4 Rank, which translates into a short-term 'Sell' rating. Moreover, our long-term recommendation on the stock remains 'Neutral'.
COCA-COLA ENTRP (CCE): Free Stock Analysis Report
DR PEPPER SNAPL (DPS): Free Stock Analysis Report
COCA COLA CO (KO): Free Stock Analysis Report
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