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Soda Tax Introduced: How Was Dr Pepper Snapple Affected?

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Price movement

Dr Pepper Snapple Group (DPS) has a market cap of $17.0 billion. It fell by 1.1% to close at $91.37 per share on June 17, 2016. The stock’s weekly, monthly, and YTD (year-to-date) price movements were -0.92%, 0.05%, and -0.83%, respectively, that day. This means that DPS is trading 0.27% below its 20-day moving average, 0.40% above its 50-day moving average, and 3.8% above its 200-day moving average.

 

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Related ETFs and peers

The PowerShares Dynamic Food & Beverage Portfolio ETF (PBJ) invests 3.0% of its holdings in Dr Pepper Snapple. The ETF tracks a multifactor, tiered, and equal-weighted index of US food industry stocks. The YTD price movement of PBJ was 1.3% on June 17, 2016.

The Fidelity MSCI Consumer Staples ETF (FSTA) invests 0.84% of its holdings in Dr Pepper Snapple. The ETF tracks a market-cap-weighted index of stocks in the US consumer staples sector.

The market caps of DPS’s competitors are as follows:

  • The Coca-Cola Company (KO): $192.8 billion
  • The Kraft Heinz Company (KHC): $103.5 billion
  • Monster Beverage (MNST): $32.0 billion

Philadelphia city issues soda tax

Dr Pepper Snapple Group fell by 1.1% on June 17, 2016, after Philadelphia’s city council issued a soda tax of 1.5 cents per ounce on sweetened beverages. The city becomes the largest and second US city to pass the tax.

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Dr Pepper Snapple’s 1Q16

Dr Pepper Snapple reported 1Q16 net sales of $1.48 billion, a rise of 2.5% from 1Q15’s $1.45 billion. Its beverage concentrate and packaged beverage sales rose by 0.70% and 4.2%, respectively, and its Latin American beverage sales fell by 8.8% between 1Q15 and 1Q16.

The company’s cost of sales as a percentage of net sales fell 2.4%. Its income from operations rose 15.9% between 1Q15 and 1Q16.

In 1Q16, its net income and EPS (earnings per share) rose to $182.0 million and $0.96, respectively, compared with $157.0 million and $0.81 in 1Q15.

DPS’s cash and cash equivalents fell 69.8% and its inventories rose 12.4% between 4Q15 and 1Q16. In 1Q16, its current ratio and debt-to-equity ratio fell to 1.1x and 3.0x, respectively, from 1.2x and 3.1x in 4Q15.

Projections

The company has made the following projections for 2016:

  • net sales growth of ~2%
  • core EPS in the range of $4.20–$4.30
  • packaging and ingredient costs to decrease the cost of goods sold by ~0.5% on a constant volume and mix basis
  • a core tax rate of ~35.5%
  • capital spending of ~3% of net sales
  • the repurchase of $650 million–$700 million in common stock

Foreign currency and transactions are expected to hurt the company’s net sales by ~1% and its core EPS growth by ~2.5%. In the next part of this series, we’ll look at Pinnacle Foods.

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