Dr Pepper Snapple (DPS) Lags Q3 Earnings, Cuts 2017 EPS View

Dr Pepper Snapple Group Inc. (NYSE:DPS) reported third-quarter 2017 results, with earnings and revenues missing the Zacks Consensus Estimate.

Earnings & Revenues

Third-quarter adjusted earnings per share of $1.10 of this Plano, TX-based company missed the Zacks Consensus Estimate of $1.15 by 4.3%. Earnings were down 6% on a year-over-year basis owing to the recent hurricanes in United States, earthquakes in Mexico and a previously disclosed write-off of prepaid resin inventory.

Dr Pepper Snapple’s net sales of $1.74 billion missed the Zacks Consensus Estimate of $1.77 billion by 1.7%. Net sales rose 4% year over year.

Volume Details

Dr Pepper Snapple’s sales volume is measured in two ways: 1) sales volume and 2) bottler case sales (BCS) volume. Sales volume represents concentrates and finished beverages sold to bottlers, retailers and distributors. BCS includes the sale of finished packaged beverages by the company and its bottlers to retailers and independent distributors.

Sales volume increased 1% in the quarter, inclusive of contributions from the Bai acquisition.

In the third quarter, BCS volumes were flat, compared to 5% growth in the previous quarter. During the quarter under review, Carbonated Soft Drink (CSDs) volumes decreased 1%, while non-carbonated beverages (NCBs) volumes rose 6%.

Geographically, volumes in the United States and Canada were flat, compared to 3% growth in the previous quarter. Meanwhile, volumes rose 2% in Mexico and the Caribbean, lower than the previous quarter’s 6%.

Dr Pepper Snapple Group, Inc Price, Consensus and EPS Surprise

Segment Detail

Beverage Concentrates segment revenues were up 3% year over year on an increase in price and shipments of concentrate and lower discounts.

Packaged Beverages segment sales increased 3% in the quarter on favorable product and package mix.

Latin America Beverages segment revenues also increased 5% in the quarter owing to a 2% rise in sales volumes and favorable pricing.

Operating Highlights

Adjusted gross margin decreased 10 basis points (bps) to 58.9% due to the impact of a $6-million prepaid resin inventory write-off, an unfavorable change in LIFO inventory provision, net unfavorable mix and increase in manufacturing costs, partially offset by $33 million in incremental gross profits from the Bai acquisition.

Adjusted operating margin deteriorated 160 bps to 20.1%.

Financials

Cash and cash equivalents were $66 million as of Sep 30, 2017, compared with $1,787 million at 2016-end. Long-term obligations totaled $4,399 million, down from $4,468 million at 2016-end.

Net cash provided by operating activities totaled $732 million in the first nine months of 2017, up 3.8% year over year.

Free cash flow came in at $647 million as of Sep 30, 2017, up 8.7%.

The company returned $629 million to shareholders in the form of stock repurchases ($320 million) and dividends ($309 million).

2017 Outlook

Dr Pepper Snapple now expects core earnings per share in the range of $4.50 to $4.57, lower than the previous range of $4.56 to $4.66. Currency headwinds are expected to hurt 2017 core EPS by 2 cents, compared to 4 cents expected earlier.

The company continues to expect net sales growth of 4.5%. The Bai takeover is expected to contribute approximately 1% to growth.

Organic volume is expected to grow more than 1%, while total volume growth is expected at around 2% (including the Bai buyout).

Capital expenditure projected is maintained at about 3% of net sales.

The company plans to repurchase $450 million to $500 million worth of shares this year.

Zacks Rank

Dr Pepper Snapple currently carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Upcoming Releases in Consumer Staples Sector

Mondelez International, Inc. (NASDAQ:MDLZ) is slated to report third-quarter numbers on Oct 30.

The Kraft Heinz Company (NASDAQ:KHC) is expected to report third-quarter numbers on Nov 1.

B&G Foods Inc. (NYSE:BGS) is scheduled to report third-quarter results on Oct 31.

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