Dr Pepper Snapple Group Inc. (DPS) reported first-quarter 2010 adjusted earnings of 74 cents per share, compared to 62 cents in the year-ago period. Quarterly earnings also topped the Zacks Consensus Estimate of 69 cents per share.
During the quarter, Dr Pepper’s net sales grew 2.6% year-over-year to $1.52 billion, narrowly missing the Zacks Consensus Estimate of $1.54 billion. The 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 the period of the deal.
Segment Details
Dr Pepper’s net sales from Beverage Concentrates grew 12% during the quarter, primarily driven by price increases, higher volumes and PepsiCo revenues. Segment operating profit grew 11%.
In the Packaged Beverages segment, net sales decreased 2%, mainly due to reduced contract manufacturing. Segment operating profit slipped 6%, reflecting lower sales and costs associated with the new manufacturing facility in Victorville, California as well as higher office expenses.
Dr Pepper’s net sales from Latin America Beverages logged a 6% increase in net sales, mainly stemmed from higher volumes in Squirt and Crush, partially offset by unfavorable product mix. However, segment operating profit contracted 5% as increased sales were more than offset by 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 $411 million and long-term debt-to-capitalization ratio of 47.6%, compared to a cash balance of $235 million and long-term debt-to-capitalization of 52.6% in the year-ago quarter. During the reported quarter, the company generated $1.27 billion of cash from operations and deployed $557 million towards share buyback, $405 million towards debt repayment and $114 million towards capital expenditure.
Outlook and Zacks Consensus
Moving forward, Dr Pepper continues to witness signs of economic stabilization, although, consumer confidence remains sluggish. The company affirmed its full-year 2010 guidance of adjusted earnings in the range of $2.34 to $2.42 per share on a 3% to 5% growth in net sales. The guidance remains in line with the Zacks Consensus Estimate of $2.42 per share, which edged up a penny over the past 2 months. For 2011, the Zacks Consensus Estimate moved up 2 cents over the past month to $2.79 per share as 3 of 12 covering analysts raised expectations.
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