Dr Pepper Snapple Group Inc. (DPS) reported fourth-quarter 2010 adjusted earnings of 67 cents per share, compared with 44 cents in the year-ago period. Quarterly earnings also topped the Zacks Consensus Estimate of 64 cents.
For fiscal 2010, the company reported adjusted earnings increased 21.8% to $2.40 per share compared to $1.97 in the previous fiscal. The yearly adjusted earnings also outpaced the Zacks Consensus Estimate by 3 cents.
During the quarter, Dr Pepper’s net sales grew 4.1% year over year to $1,412.0 million, marginally surpassing the Zacks Consensus Estimate of $1,405.0 million. The year-on-year growth was mainly attributable to higher sales volume, favorable foreign currency translations and revenues from the PepsiCo Inc. (PEP) and The Coca-Cola Company (KO) licenses.
For the year 2010, Dr Pepper’s net sales grew 1.9% year over year to $5,636.0 million, marginally surpassing the Zacks Consensus Estimate of $5,631.0 million.
On February 26, 2010, Dr Pepper signed 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 fourth quarter and $30.0 million for fiscal 2010.
The company also signed an agreement with The Coca-Cola Company on October 04, 2010, 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. The company accredited $7 million of revenue in the fourth quarter of fiscal 2010 and for the year.
Segment Details
Dr Pepper’s net sales from Beverage Concentrates grew 14.3% to $319.0 million during the quarter, primarily driven by higher pricing and PepsiCo and Coca-Cola revenues. Segment operating profit grew 9.9% to $210.0 million due to sales growth partially offset by increased marketing investment. Adjusted net sales and segment operating profit for the quarter grew 14% and 9% respectively.
In the Packaged Beverages segment, net sales increased marginally by 1.1% to $996.0 million, as volume growth was fully offset by a low level of contract manufacturing coupled with negative product mix. Segment operating profit declined 3.9% to $123.0 million, reflecting lofty levels of packaging, ingredient, transportation costs, marketing investments and increase in LIFO related inventory management by $9.0 million, fully offsetting the positive impact from net sales and supply chain productivity. Adjusted net sales for the quarter increased 1% while adjusted segment operating profit plunged 6%.
Dr Pepper’s net sales from Latin America Beverages increased 5.4% to $97.0 million, mainly stemming higher sales volume growth. Segment operating profit plunged 30.8% to $9.0 million manifesting a higher cost related to distribution and route expansion, as well as increased marketing expenses. Adjusted net sales for the quarter grew 1% while adjusted segment operating profit declined 31%.
Balance Sheet and Cash Flow
Dr Pepper ended the quarter with cash and cash equivalents of $315.0 million and a long-term debt-to-capitalization ratio of 40.7%, compared with a cash balance of $280.0 million and long-term debt-to-capitalization ratio of 48.2% in the year-ago quarter.
During the reported year, the company generated $2,535.0 million of cash from operations and deployed $1,113.0 million toward share buyback, $978.0 million for debt repayment and $246.0 million as capital expenditures.
Outlook and Zacks Consensus
Moving forward, Dr Pepper continues to witness signs of economic stability in spite of sluggish consumer confidence. The company guided its full-year 2011 adjusted earnings in the range of $2.70 to $2.78 per share on a 3% to 5% growth in net sales. The current Zacks Consensus Estimate for fiscal 2011 is $2.73 per share, which lies at the lower end of the guidance range.
Dr Pepper currently has a Zacks #4 Rank, implying a short-term Sell rating on the stock. Besides, the company retains a long-term Neutral recommendation on the stock.
COCA-COLA ENTRP (CCE): Free Stock Analysis Report
DR PEPPER SNAPL (DPS): Free Stock Analysis Report
COCA COLA CO (KO): Free Stock Analysis Report
PEPSICO INC (PEP): Free Stock Analysis Report
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