Fizzy Drinks Exceed Exceptions as Dr Pepper Snapple Group Posts Q1 Results

27 Apr 2017 --- Dr Pepper Snapple Group has reported first quarter net income of US$177 million compared against US$182 million over the same period last year. The company reports Earnings per Share (EPS) of $0.96 for the quarter, which included a $0.10 per diluted share gain on the market value increase on the company's initial equity investment in Bai Brands and a $0.10 per diluted share tax benefit associated with a favorable accounting change related to stock compensation. 

According to the company, core EPS were $1.01 for the quarter, up 7%, inclusive of the two aforementioned items.

Last November, Dr Pepper Snapple agreed to buy Bai Brands for US$1.7 billion in an acquisition that closed at the end of January this year. 

"Our teams executed on our strategy of unlocking growth across our priority brands through integrated communication and execution in the quarter. We outperformed the CSD category and grew both dollar and volume share in IRi measured markets,” says DPS President and CEO Larry Young.

“We closed on our acquisition of Bai at the end of January and have been providing them with the resources they need to continue to drive strong growth on the brand.”

“Our allied brand strategy continues to be a solid contributor to growth and our continued development of Rapid Continuous Improvement is making us better every day."

Sales volumes increased 1% for Q1 including the Bai deal, while the addition of Bai sales to third party distributors added 0.2% to sales volume growth, according to the results. 

Reported net sales increased 2%, including the Bai acquisition, which accounted for about 1 percentage point of the net sales growth. Meanwhile, organic net sales growth was driven by just over one-and-a-half percentage points of favorable mix and price, and an increase in organic volume. Net sales was reduced by over 1 percentage point of unfavorable foreign currency translation and unfavorable segment mix, combined.

Gross profit increased $18 million in the quarter on a favorable $15 million comparison of unrealized commodity mark-to-market gains and $7 million of incremental gross profit from the Bai acquisition, which included the effects of deferring the recognition of $9 million of gross profit on shipments of Bai product still in our inventory at the end of the quarter. Gross profit was also impacted by favorable commodity costs and flow-through from organic net sales growth. Gross profit was reduced by increases in manufacturing costs, in part driven by higher utility costs in Mexico, and unfavorable foreign currency translation and transaction, combined.

For the quarter, BCS volume increased 1%, with carbonated soft drinks (CSDs) increasing 1% and non-carbonated beverages (NCBs) decreasing 2%. Volume was flat in the US and Canada while it increased 3% in Mexico and the Caribbean.

In CSDs, Dr Pepper increased 1%, Canada Dry grew by 5% and Schweppes grew by 8%. Peñafiel increased 5%, and Squirt grew 1%. 

The company says that these increases were partially offset by declines in root beer brand A&W and 7UP, which both decreased 2%, as slight growth in 7UP in the US was more than offset by declines in the Caribbean. Other CSDs declined 1% and Fountain foodservice volume increased 4% in the quarter.

Meanwhile there were also declines in non-carbonated beverages with Snapple declining 6% and Mott's declined 2% as growth in sauce was more than offset by declines in juice. 

Bai increased 80% on the acquisition and continued growth in our existing distribution, which increased 26% in the quarter. Clamato, made of reconstituted tomato juice concentrate, flavored with spices and clam broth, was flat in the quarter and other NCBs declined 9%, led by Hawaiian Punch.

Net sales increased 2% in the quarter driven by concentrate price increases taken at the beginning of the year and a 2% increase in concentrate shipments. This was partially offset by higher discounts due to timing, primarily related to DPS fountain foodservice business. SOP declined 1% on a planned increase in marketing investments of $7 million, which was partially offset by contributions from net sales growth.

Net sales increased 2% on favorable product and package mix, mostly due to continued strong growth in the allied brands and growth from the Bai acquisition. 

However this was also partially offset by a decline in organic volume. SOP decreased 19% as results for the two months of the acquired Bai business, excluding the distribution profits within the group’s distribution system, was a loss of $17 million, including $11 million of marketing investments. This was principally the Bai Super Bowl commercial, and the effects of deferring the recognition of $9 million of gross profit on shipments of Bai product still in the company’s inventory at the end of the quarter.

Net sales increased 6% in the quarter on a 3% increase in sales volumes and favorable pricing. SOP declined 20% in the quarter as the segment incurred $3 million of higher US dollar denominated input costs, which caused a 20% decline in SOP. SOP was further reduced by increases in manufacturing costs, in part driven by higher utility costs in Mexico, as well as by increases in certain other operating expenses. Collectively these increases more than offset the contributions from net sales growth and a favorable comparison to a $4 million arbitration award that was recorded in the prior year.

DPS says its 2017 full year guidance includes an organic volume growth now expected to be just over 1%; total volume growth is expected to be approximately 2%, inclusive of the Bai acquisition.

Net sales growth is now expected to be about 4%, including approximately 1 percentage point of negative foreign currency.