Dr Pepper Snapple Group Inc. (DPS) reported third-quarter 2010 adjusted earnings of 64 cents per share, compared with 59 cents in the year-ago period. Quarterly earnings also topped the Zacks Consensus Estimate of 60 cents.
During the quarter, Dr Pepper’s net sales grew 2% year over year to $1.46 billion, narrowly missing the Zacks Consensus Estimate of $1.47 billion. The year-on-year growth was mainly attributable to higher sales volume, favorable foreign currency translations and revenues from the PepsiCo Inc. (PEP) license.
Earlier this year, Dr Pepper signed a 25-year licensing deal with PepsiCo under which the latter will distribute Dr Pepper, Crush and Schweppes brands in the U.S. Dr Pepper received $900 million in cash from PepsiCo, which is being recorded as net sales, proportionally over a period of 25 years. In this context, the company accredited $9 million of revenue in the third quarter of fiscal 2010.
The company also signed an agreement with The Coca-Cola Company (KO), which grants Coca-Cola the distribution rights for Dr Pepper in the U.S. and Canada Dry in the North East U.S. for a one-time payment of $715 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.
Segment Details
Dr Pepper’s net sales from Beverage Concentrates grew 7% to $278.0 million during the quarter, primarily driven by higher volumes and PepsiCo revenues. Increased pricing were fully offset by higher marketing spending. Segment operating profit grew 14% to $182.0 million.
In the Packaged Beverages segment, net sales increased marginally by 0.5% to $1,082.0, as volume growth was fully offset by a low level of contract manufacturing coupled with negative product mix and increased promotional spending. Segment operating profit declined 21% to $136.0 million, reflecting lofty levels of packaging, ingredient, transportation costs and marketing investments, fully offsetting the positive impact from net sales and supply chain productivity.
Dr Pepper’s net sales from Latin America Beverages incurred a 3% decrease to $97.0 million, mainly stemming from higher promotional trade spending offsetting the benefits of higher sales volume growth. Segment operating profit also plunged 67% to $6.0 million manifesting a lower sales level, higher costs related to distribution and route expansion, as well as increased marketing expenses.
Balance Sheet and Cash Flow
Dr Pepper ended the quarter with cash and cash equivalents of $224 million and a long-term debt-to-capitalization ratio of 49.8%, compared with a cash balance of $282 million and long-term debt-to-capitalization ratio of 49.7% in the year-ago quarter. During the reported quarter, the company generated $1.5 billion of cash from operations and deployed $105 million toward share buyback, $405 million for debt repayment and $154 million as capital expenditure.
Outlook and Zacks Consensus
Moving forward, Dr Pepper continues to witness signs of economic stability in spite of sluggish consumer confidence. The company affirmed its full-year 2010 guidance of adjusted earnings in the range of $2.30 to $2.38 per share on a 1% to 2% growth in net sales. The guidance is in sync with the Zacks Consensus Estimate of $2.37 per share, which edged down 2 pennies over the past 1 month.
DR PEPPER SNAPL (DPS): Free Stock Analysis Report
Zacks Investment Research
