On May 25, we issued an updated research report on Dr Pepper Snapple Group, Inc. DPS.
Continuing the strong performance of 2014, the beverage maker posted yet another solid result in the first quarter of 2015.
The company surpassed the Zacks Consensus Estimate for both earnings and revenues in first-quarter 2015. On a year-over-year basis, earnings of 81 cents per share increased 9.5% driven by higher net sales and improved profits. Sales rose 4% on the back of solid volume growth across its portfolio and favorable segment and product mix, which were partially offset by currency headwinds. Despite increased currency headwinds, the company maintained its previously issued guidance.
Dr Pepper delivered a strong performance in 2014, beating management’s expectations for both earnings and sales growth driven by pricing gains, innovations, powerful marketing programs and productivity improvements. We believe that the improving U.S. consumer sentiments, rational pricing environment, increased marketing support and cost savings related to the Rapid Continuous Improvement (RCI) program will boost results in 2015 as well, as is evident from the strong first-quarter results. The RCI program was launched by Dr Pepper in 2010, which has since then led to strong earnings growth. Though the program has now entered the fifth year of operation, the momentum remains intact.
The share price of the company soared 54.5% in 2014 and more than 8% year-to-date.
Overall, Dr Pepper has sound long-term fundamentals — strong position in the flavored CSD market, aggressive cost savings from the RCI program and regular cash returns to shareholders.
However, sluggish volumes of its carbonated beverages, including the diet versions, due to CSD category headwinds are a persistent overhang. Weak consumer spending environment, cross-category competition and growing health and wellness consciousness — consumers are particularly vigilant about the use of artificial sweeteners, high sugar content and related obesity concern — are hurting CSD category growth. This, coupled with new taxes on sugar-sweetened beverages and growing regulatory pressures, is affecting CSD sales of major soft drink makers like The Coca-Cola Company KO and PepsiCo, Inc. PEP. Management expects the CSD category headwinds to continue in 2015.
Dr Pepper carries a Zacks Rank #3 (Hold). A better-ranked beverage company is The WhiteWave Foods Company WWAV with a Zacks Rank #2 (Buy).
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