Dr Pepper Snapple posts upbeat results – along with a downbeat forecast

Dr Pepper Snapple
Photo at top: Key figures from Dr Pepper Snapple's 2015 fourth quarter earnings release.(Sony Kassam/MEDILL)

By Sony Kassam

Dr Pepper Snapple Group Inc. turned in better-than-expected fourth quarter results Wednesday, but its shares came under pressure when it provided a wary forecast.

The Plano, Texas-based soft drink company said net income soared 23 percent to $185 million, or 97 cents per diluted share, from $150 million, or 77 cents per share, in the year-ago quarter.

Revenues also improved, up 2.5 percent to $1.55 billion from $1.51 billion in the year-ago period.

Excluding special items, the leading producer of flavored beverages in North America and the Caribbean said adjusted earnings per share rose to $1.00 from 88 cents per share in the year-ago quarter – landing 2 cents above the 98 cents that analysts surveyed by Yahoo Finance were expecting.

DPS President and CEO Larry Young noted in a conference call Wednesday morning that the key to Dr Pepper Snapple’s successful numbers for 2015 was increased product and packaging innovation to match consumer preferences.

During the 2015 year, the company introduced Snapple Straight Up Tea and implemented pouch packaging for Hawaiian Punch. Dr Pepper Snapple also brought its Mexican mineral water brand Peñfiel to its Hispanic markets in the United States and expanded distribution of its Canada Dry and Schweppes sparkling waters.

However, during the conference call, Chief Financial Officer Marty Ellen said Dr Pepper Snapple revenues are projected to grow just 1 percent in 2016 because foreign currency translations are expected to negatively impact sales by 2 percent.

Ellen further forecast a range of $4.20 to $4.30 per share for the full 2016 year, which falls lower than the $4.33 that analysts surveyed by Yahoo Finance anticipate.

Investors weren’t happy: On a day when the broad market moved sharply higher, Dr Pepper Snapple shares fell $2.68, or 2.9 percent, to close at $89.33 in New York Stock Exchange trading Wednesday.

Following release of the fourth quarter results, Morningstar analyst Adam Fleck said in an online note that he will likely raise his $64 “fair value” per share estimate by 5 to 10 percent.

The soft drink company “continued to generate solid profitability expansion in 2015,” Fleck acknowledged, but he expects limited long-term potential for improvement going forward despite its ongoing operating margin expansion opportunities.

“We continue to expect slowing revenue growth, more limited profitability improvement, and ultimately lower free cash flow growth over the long run,” Fleck wrote.

In other news, Dr Pepper Snapple has a full marketing calendar for 2016. The company will be rolling out a variety of new products and partnerships, while also reviving old strategies.

Promotions include branding Dr Pepper cans with characters from the movie “Batman v. Superman,” and branding Mott’s applesauce and fruit juice products with characters from Universal Pictures’ “Secret Life of Pets” to attract young consumers.

Dr Pepper Snapple is also bringing back its Lil’ Sweet character in a new media campaign to highlight the “great taste” of Diet Dr Pepper as sales for the drink were down in 2015.

The beverage company is additionally releasing 7.5-ounce slim cans for its core brands “to participate in the growth of this consumer-preferred package.” Young said the company aims to take advantage of the growing ginger ale and cherry segments with increasing media and retail activity behind Canada Dry, Cherry Dr Pepper and Cherry 7UP products.

Finally, Snapple Straight Up Tea is getting a makeover with new graphics and two new varieties of green and herbal teas.

“Flavors continue to outperform colas,” Ellen confidently said to analysts during the call. “That is the foundation of the house.”

Dr Pepper Snapple said it also expects to return over $1 billion to shareholders in the form of dividends and stock repurchases.

For the full 2015 year, Dr Pepper Snapple had net income of $764 million, or $3.97 per diluted share, up 8.7 percent from $703 million, or $3.56 per diluted share, in the previous year. Revenues climbed to $6.28 billion from $6.12 billion from the year-ago period.

Photo at top: Key figures from Dr Pepper Snapple’s 2015 fourth quarter earnings release. (Sony Kassam/MEDILL)