Dr Pepper Snapple Group Inc. (DPS) reported third-quarter 2011 earnings of 71 cents per share increases 18.3% from the year-ago earnings of 60 cents. However, quarterly earnings were in line with the Zacks Consensus Estimate.
During the quarter, Dr Pepper's net sales grew approximately 5.0% year over year to $1,529.0 million. However, it fell short of the Zacks Consensus Estimate of $1,531.0 million. The year-on-year growth was mainly attributable to price increases, favorable foreign currency translations and revenues from The Coca-Cola Company (KO) licenses and favorable impact of repatriated brands.
The company has signed an agreement with The Coca-Cola Company on October 4, 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 third quarter of fiscal 2011.
Segment Details
Dr Pepper's net sales from Beverage Concentrates increased 5.0% to $292.0 million compared with the prior-year quarter, primarily due to benefit from Coca-Cola licensing agreement and increased pricing, partially offset by a negative impact from repatriated brands. Segment operating profit grew 7.0% to $196.0 million due to increased net sales and lower marketing investment.
In the Packaged Beverages segment, net sales increased by 4% to $1,132.0 million, attributable to price increases. Brands repatriated under the Coca-Cola licensing agreement also positively impacted sales growth.
Consequently, segment operating profit increased 4.0% to $143.0 million, primarily driven by net sales growth and benefits from supply chain productivity, partially offset by increased packaging, ingredient and transportation costs.
Dr Pepper's net sales from Latin America Beverages increased 4.0% to $105.0 million, mainly stemming from low single-digit price increases, sales volume growth and favorable product mix. Consequently, segment operating profit surged 43.0% to $10.0 million primarily benefiting from sales growth, partially offset by higher packaging, ingredient and transportation costs.
Balance Sheet and Cash Flow
Dr Pepper ended the quarter with cash and cash equivalents of $651.0 million and long-term debt of $2,210.0 million compared with a cash balance of $315.0 million and long-term debt of $1,687.0 million at the end of fiscal 2010.
Year-to-date, the company generated $580.0 million of cash from operations. The company bought back $425.0 million worth of shares, paid $183.0 million in the form of dividends and made a capital expenditure of $148.0 million.
For, 2011, the company expects capital expenditure to be approximately 4.0% of net sales, down from its earlier guidance of 4.5%.
Outlook and Zacks Consensus
Moving forward, Dr Pepper reiterated 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. The current Zacks Consensus Estimate for fiscal 2011 is $2.74 per share, which lies almost at the middle of the guidance range.
Dr Pepper currently has a Zacks #3 Rank, implying a short-term Hold rating on the stock. Moreover, we maintain a long-term Neutral recommendation on the stock.
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