Soda giants– Dr Pepper Snapple Group, Inc. DPS, The Coca-Cola Company KO and PepsiCo, Inc. PEP – have generally done well in 2015 so far. Despite significant currency headwinds, rising volatility in the global markets and declining demand for calorie-loaded sodas, the outperformance was driven by aggressive marketing initiatives, innovation efforts, cost containment and productivity improvements. The shares of these three bellwethers witnessed a decent run as well.
Among these large soda companies, Dr Pepper Snapple might be an interesting investment option right now.
With a market cap of $17.1 billion, the Plano, TX-based company enjoys a solid position in the flavored CSD market with aggressive cost savings and regular cash returns to shareholders.
Why Dr Pepper is a Good Choice?
Good Rank and Solid Growth Score: Dr Pepper carries a Zacks Rank #2 (Buy) and a favorable growth style score of ‘B’. The Growth Style Score combines conventional growth metrics with a thorough analysis of the company’s income statement, balance sheet and statements of cash flows to evaluate its financial health and the sustainability of its growth trajectory. Back-tested results show that only stocks with a Growth Style Score of A or B, when combined with a Zacks Rank #1 (Strong Buy) or 2, offer the best upside potential.
Rising Estimates and Share Price: Dr Pepper’s shares have had a good run this year, gaining around 29% year-to-date. Over the past 60 days, analysts have become increasingly bullish on the stock, with 10 out of 12 estimate revisions for full-year 2016 earnings moving north.
Strong Third-Quarter Results, Solid 2015 & Positive Outlook: Continuing the strong first-half 2015 performance, the beverage maker posted solid results yet again for the third quarter.
In the reported quarter, Dr Pepper beat the Zacks Consensus Estimate for both earnings and revenues. On a year-over-year basis, earnings of $1.08 per share increased 10%, while constant currency sales rose 5% backed by favorable price/mix and positive volume growth.
In-fact, after an exceptional performance in 2014, Dr Pepper delivered solid top line and bottom line results in 2015 so far, despite increased currency headwinds.
Pricing gains, innovations, powerful marketing programs, strong performance of non-carbonated beverages (NCB) and productivity improvements drove strong results in 2015. Moreover, despite increased Fx headwinds, Dr Pepper raised the sales and earnings guidance twice this year. We believe that the improving U.S. consumer sentiments, rational pricing environment, increased marketing support and Rapid Continuous Improvement (RCI) driven cost savings will boost results.
Successful Re-Structuring Program: In 2010, Dr Pepper launched the RCI program which has since then led to solid earnings growth.
Through the program, the company has been able to reduce inventory and storage costs and improve cash flows, which can then be returned through dividends and share repurchases or re-invested in the business to boost top-line growth. Moreover, the company has reduced wastage by aligning merchandising with customer traffic patterns and implementing centralized regional ordering for all point-of-sale programs. The company also improved its customer service levels under the RCI program. The company expanded the program with the implementation of five new tracks this year which is successfully improving productivity.
Initiatives to Drive Sales: In order to drive sales, Dr Pepper is carrying out aggressive marketing programs and strong activation in stores. Its marketing plans include increasing distribution and availability of its key brands and packages; expanding single-serve availability and re-deploying cold drink equipment assets across its DSD (Direct Store Delivery) network. These efforts have improved both relevance and strength of its brands; thereby pulling up volumes. Moreover, the company regularly develops brand extensions with innovative products to meet the evolving consumer trends.
Conclusion
Dr Pepper has been witnessing persistently sluggish volumes of its carbonated beverages, including the diet versions, due to growing health and wellness consciousness. The diet drinks are under pressure as a result of increasing consumer concern regarding the use of artificial sweeteners. Nevertheless, the company has been countering these headwinds successfully through cost savings, productivity improvements and innovation.
Stock to Consider
Another beverage company worth a look is Primo Water Corporation PRMW sporting a Zacks Rank #1 (Strong Buy).
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