Dr Pepper Snapple Group, Inc.’s (DPS) fourth-quarter 2013 adjusted earnings of 97 cents per share beat the Zacks Consensus Estimate of 85 cents by 14.1%. Moreover, earnings increased 18.3% year over year due to pricing gains, productivity improvements and a LIFO inventory benefit. However, sales continued to be soft due to weak volumes.
During the quarter, Dr Pepper's net sales declined 1% year over year to $1.46 billion owing to lower volumes and unfavorable trade adjustments. Sales volume declined 4% year over year. Net sales narrowly missed the Zacks Consensus Estimate of $1.48 billion by 1.4%.
Volumes were hurt by the difficult operating conditions faced by carbonated soft drinks (CSDs), in North America and a slow consumer spending environment.
Changing consumer preferences, increasing health consciousness and rising obesity concerns, possible new taxes on sugar-sweetened beverages and growing regulatory pressures have tremendously pressurized the CSD category in North America.
Adjusted operating income increased 10.2% year over year to $323 million during the quarter.
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 sales of packaged beverages by the company and its bottlers to retailers and independent distributors.
Sales volume, as discussed earlier, was down 4% in the quarter as a 4% volume gain in the Latin American segment was offset by a 6% volume decline in Beverage Concentrates and a 2% dip in Packaged Beverages segments.
In the quarter, BCS volume declined 2% as CSDs and non-carbonated beverages (NCB) volume dipped 2%. Dr Pepper soft drink volume declined 1% due to CSD category headwinds.
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 down 3% (excluding currency impact) year over year to $321 million as tailwinds from price increases and favorable mix were partially offset by a 6% volume decline and unfavorable trade adjustments. Segment operating profit declined 1% (excluding currency impact) to $218 million owing to net sales decline.
Packaged Beverages: In the Packaged Beverages segment, net sales declined 2% on a currency neutral basis at $1.03 billion. Mix gains were offset by a volume decline of 2%. Segment operating profit declined 18% (excluding currency impact) to $107 million due to volume decline and charges related to withdrawal of a multi employer pension plan.
Latin America Beverages: Dr Pepper's net sales from Latin America Beverages increased 9% on a currency neutral basis to $116 million, driven largely by mix gains and volume growth of 4%. Segment operating profit improved 14% (excluding currency) in the quarter to $16 million as sales growth and productivity gains offset increasing commodity, manufacturing and other operating costs.
Full Year 2013
For full-year 2013, Dr Pepper’s adjusted earnings per share of $3.20 exceeded the company’s expected range of $3.04 to $3.12 and the Zacks Consensus Estimate of $3.09 by 3.6%. However due to continued CSD category headwinds, Dr Pepper’s 2013 sales of $5.99 billion were flat year over year.
Sales were in line with the company’s expectation but much below its long-term targets. Reported revenues for full year 2013 however missed the Zacks Consensus Estimate of $6.01 billion. Sales volume declined 3%, higher than the company’s expectation of 2% decline.
2014 Outlook
For full-year 2014, Dr Pepper expects adjusted earnings per share in the range of $3.38 to $3.46. The Zacks Consensus Estimate for 2014 stands at $3.27 per share. Owing to the continued CSD category headwinds, Dr Pepper expects full year 2014 net sales to remain flat to up 1% year over year.
Dr Pepper carries a Zacks Rank #4 (Sell). However, some better-ranked beverage stocks include The WhiteWave Foods Co. (WWAV), Monster Beverage Corp. (MNST) and Coca-Cola Enterprises Inc. (CCE).The WhiteWave Foods Company carries a a Zacks Rank #1 (Strong Buy). Monster Beverage Corporation and Coca-Cola Enterprises carry a Zacks Rank #2 (Buy).
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