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Dr Pepper Snapple Ups Its Stake in BodyArmor Sports Drinks

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Second-largest stakeholder

Dr Pepper Snapple Group (DPS) has increased its stake in BA Sports Nutrition, the makers of BodyArmor premium sports drinks, from 11.7% to 15.5%. According to a company press release on April 4, 2016, Dr Pepper Snapple bought the additional stake in BodyArmor for $6 million.

Earlier, in August 2015, Dr Pepper Snapple acquired an 11.7% stake in BodyArmor for $20 million. With this additional stake, Dr Pepper Snapple has become the second-largest stakeholder in BodyArmor. The first is Mike Repole, BodyArmor’s chairman and co-founder.

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Rationale behind the investment

Dr Pepper Snapple’s investment in BodyArmor will help Dr Pepper Snapple compete with established sports drinks brands such as PepsiCo’s (PEP) Gatorade and Coca-Cola’s (KO) Powerade. The BodyArmor brand, launched in 2012, is a premium sports drink that contains potassium-packed electrolytes, coconut water, and vitamins. What makes the product attractive to consumers is that it contains natural sweeteners, natural flavors, and no artificial colors. Some popular sports personalities who have invested in BodyArmor include Kobe Bryant, Andrew Luck, and Mike Trout.

Dr Pepper Snapple has been distributing BodyArmor as an allied brand since 2013. The company has aggressively expanded the distribution of BodyArmor through its packaged beverages direct store delivery network, which serves 34 states. The First Trust Consumer Staples AlphaDEX ETF (FXG) has 4.5% exposure to Dr Pepper Snapple.

With carbonated soft drinks continuing to decline in developed markets such as the United States, exposure to the growing sports drink category will benefit Dr Pepper Snapple. According to Beverage Marketing, US sports drink volumes increased by 5.5% in 2015, while carbonated soft drink volumes declined by 1.5%. The US sports drink volume growth in 2015 was better than the growth rate of 3% in 2014.

Sales in 2015

Dr Pepper Snapple’s sales in fiscal 2015 increased by 2.6%. The company’s sales growth was better than beverage giants PepsiCo and Coca-Cola, which were hit by significant currency headwinds. In fiscal 2015, revenue for PepsiCo and Coca-Cola declined by 5.4% and 3.7%, respectively. Monster Beverage (MNST) reported a sales growth of 10.5% in 2015, driven by strong demand for energy drinks.

In the next part of this series, we’ll see how a focus on still beverages could benefit Dr Pepper Snapple.

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