Dr Pepper Snapple Group Dipped Due to a Chance of a Top-Line Fall

Dr Pepper Snapple Group (DPS) has a market cap of $16.1 billion. It fell 4.3% to close at $86.86 per share on October 4, 2016. The stock’s weekly, monthly, and year-to-date (or YTD) price movements were -4.2%, -7.5%, and -5.2%, respectively, on the same day.

DPS is trading 4.7% below its 20-day moving average, 7.2% below its 50-day moving average, and 5.3% below its 200-day moving average.

The Consumer Staples Select Sector SPDR ETF (XLP) invests 0.93% of its holdings in DPS. The ETF tracks a market cap–weighted index of consumer staples stocks drawn from the S&P 500. The YTD price movement of XLP was 5.6% on October 4.

The Fidelity MSCI Consumer Staples ETF (FSTA) invests 0.67% 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 follow:

• Coca-Cola (KO): $179.4 billion
• Kraft Heinz (KHC): $107.1 billion
• Monster Beverage (MNST): $27.4 billion

TheStreet reported, “Bai Brands has hired JPMorgan to explore a possible sale, Reuters reported, citing sources. Bai hopes a sale could value it at $2 billion including debt.”

The report continued, “Bernstein said that Plano, TX-based Dr Pepper’s top line is at risk if it loses the Bai business, the Fly noted.” It added, “The firm’s analysis indicates that the loss of Bai from the company’s system may cause a significant 100 basis point impact on Dr Pepper’s top line.”

Dr Pepper Snapple (DPS) reported 2Q16 net sales of $1.7 billion, a rise of 2.4% from $1.66 billion in 2Q15. Sales of beverage concentrates and packaged beverages rose 3.6% and 3.1%, respectively. Sales of its Latin America beverages fell 6.6% from 2Q15 to 2Q16. The company’s gross profit margin and income from operations rose 2.0% and 11.7%, respectively.

Its net income and EPS (earnings per share) rose to $260.0 million and $1.39, respectively, in 2Q16, compared to $220.0 million and $1.14, respectively, in 2Q15. It reported adjusted EPS of $1.25 in 2Q16, a rise of 10.6% over 2Q15.

DPS’s cash and cash equivalents fell 73.1%, and its inventories rose 12.9% from 4Q15 to 2Q16. Its current ratio and debt-to-equity ratio fell to 1.13x and 2.9x, respectively, in 2Q16, compared to 1.15x and 3.1x, respectively, in 4Q15.

Dr Pepper Snapple Group (DPS) made the following projections for fiscal 2016:

• net sales growth of ~2%
• core EPS of $4.27–$4.35
• foreign currency and transactions to negatively impact net sales by ~1% and core EPS growth of ~3%
• packaging and ingredient costs to cause COGS (cost of goods sold) to fall ~1% on a constant volume-mix basis
• core tax rate of ~35.5%
• capital spending of ~3% of net sales
• repurchase of $650 million–$700 million of its common stock

In the final part of this series, we’ll look at Newell Brands (NWL).