Sales expected to grow 1.7%
Despite weakness in US carbonated soft drink volumes, Dr Pepper Snapple Group (DPS) has reported sales growth for nine straight quarters. For 2Q16, analysts expect Dr Pepper Snapple Group’s sales to grow by 1.7% to $1.7 billion. The company exceeded analysts’ sales estimates in all quarters in 2014 and 2015, as well as in 1Q16.
Recap of 1Q16 sales performance
In 1Q16, Dr Pepper Snapple Group’s sales grew 2.5%, driven by a favorable product and package mix, higher pricing, and a rise in sales volumes. However, an unfavorable segment mix and higher discounts pulled down the company’s 1Q16 sales by 1%. The unfavorable segment mix resulted from a higher proportion of concentrate sales compared to finished goods case sales. In the 1Q16 conference call, the company’s chief financial officer, Martin M. Ellen, stated that the higher discounts in 1Q16 were driven by accrual timing in the company’s fountain foodservice business, which will reverse in 3Q16. Dr Pepper Snapple Group constitutes 1.7% of the First Trust Consumer Staples AlphaDEX Fund (FXG).
The company’s 1Q16 sales were also adversely impacted by 1.5 percentage points of currency headwinds. Aside from its US business, Dr Pepper Snapple Group has a presence in Canada, Mexico, and the Caribbean. The results of beverage giants Coca-Cola (KO) and PepsiCo (PEP) have been significantly impacted by currency headwinds in recent quarters. In 1Q16, Coca-Cola and PepsiCo saw their sales fall by 4% and 2.9%, respectively. PepsiCo’s 2Q16 revenue declined by 3.3% on a year-over-year basis.
Strong demand for energy drinks helped Monster Beverage (MNST) overcome currency headwinds in 1Q16. Monster Beverage reported growth of 15.9% in its comparable sales in 1Q16.
In April 2016, Dr Pepper Snapple Group raised its net sales growth guidance for 2016 to about 2% from the previously issued guidance of 1%. This favorable change in guidance came as the company expects adverse currency movements to impact net sales by about 1%, compared to its previous forecast of a 2% headwind.
We’ll discuss the expectations for Dr. Pepper Snapple Group’s beverage volumes in the next part of this series.