Dr Pepper Snapple Group, Inc. DPS hit a new 52-week high of $92.50 on Dec 4. In fact, shares of this beverage company have gained almost 10% ever since it reported better-than-expected third-quarter results on Oct 22.
Dr Pepper beat the Zacks Consensus Estimate for both earnings and revenues in the third quarter. On a year-over-year basis, earnings of $1.08 per share increased 10%, while constant-currency sales rose 5% driven by favorable price/mix and positive volume growth.
In fact, the beverage maker delivered solid top-line and bottom-line results in 2014 and so far in 2015, despite significant currency headwinds, rising volatility in the global markets and declining demand for calorie-loaded sodas.
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.
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.
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.
Dr Pepper carries a Zacks Rank #2 (Buy). The company’s shares have had a good run this year, gaining around 32% 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.
Stocks to Consider
Other beverage companies worth a look are Primo Water Corporation PRMW, The WhiteWave Foods Company WWAV and Constellation Brands Inc. STZ. While Primo Water sports a Zacks Rank #1 (Strong Buy), WhiteWave Foods and Constellation Brands have the same Zacks Rank as Dr Pepper.
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