Dr Pepper Beats Estimates - Analyst Blog

Dr Pepper Snapple Group Inc. (DPS) reported strong fourth-quarter 2009 earnings of 44 cents per share. Earnings were 4 cents above the Zacks Consensus Estimate and were up compared to a loss of $2.44 per share in the prior-year period.

Net sales declined 1.5% year-over-year to $1.3 billion, as concentrate price increases taken earlier in the year, combined with 4% growth in sales volume, were fully offset by the loss of certain contract manufacturing and negative mix from higher sales of carbonated soft drink (CSD) concentrates and value juices.

Bottler case sales volume increased 4% during the quarter with carbonated soft drinks growing 4% and non-carbonated beverage sales up 5%. On a geographic basis, volume sales increased 4% in North America and Canada, and 1% in Mexico and the Caribbean.

Net sales of Beverage Concentrates increased 6% during the quarter due to extensive distribution of the Crush brand, strong concentrate sales to third-party bottlers ahead of the January 2010 price increase and mid-single-digit price increases taken at the beginning of the year. Segment operating profit declined 4%.

In the Packaged Beverages segment, net sales decreased 2% due the loss of certain contract manufacturing. However, segment operating profit increased 40% due to lower packaging and transportation costs and continued operating efficiencies, partially offset by higher marketing investments, SAP upgrade costs and other expenses.

During the quarter, Dr Pepper reported a 10% increase in sales volume growth in Latin America Beverages. The segment operating profit increased a robust 86% in the quarter largely due to lower packaging, ingredient and transportation costs.

Gross margin for the quarter expanded 627 basis points (bps) to 61.1% versus 54.8% in the comparable prior-year quarter. The company reported an operating profit of $251 million compared to a loss of $836 million in the prior-year quarter.

Dr Pepper generated $865 million of cash from operating activities with a capital expenditure of $312 million. During the first nine months of 2009, the company also repaid $550 million of debt.

Based on the performance in the fourth quarter and full fiscal 2009, management provided its outlook for fiscal 2010. The company expects full-year net sales to increase in the range of 3% to 5%. Annual earnings are expected to be in the range of $2.27 to $2.35 per share.

Packaging and ingredient costs are expected to increase in the range of 1% and 2%. The company expects total average debt obligations to be approximately 5%. Capital expenditures are expected at approximately 5% of net sales.

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