Dr Pepper Snapple (DPS) was able to improve its gross and operating margins in 3Q16. The company’s margins improved in 1Q16 and 2Q16 as well. Higher pricing and the company’s Rapid Continuous Improvement productivity program helped enhance its profitability.
Gross margin expands
In 3Q16, Dr Pepper Snapple’s gross margin rose to 59.3% from 58.7% in 3Q15. Factors that positively impacted the 3Q16 gross margin included favorable comparison of unrealized mark-to-market changes on commodity derivative contracts, higher net pricing, lower commodity costs, and productivity improvements
However, the unfavorable product, package, and segment mix, a rise in certain manufacturing costs, higher depreciation, and adverse foreign currency movements had a negative impact on the 3Q16 gross margin.
Higher operating margin
Dr Pepper Snapple’s operating margin rose to 22.2% in 3Q16 from 20.7% in 3Q15. The growth was a result of a higher gross margin and a $5 million gain associated with the acquisition of the company’s Aguafiel joint venture in Mexico.
PepsiCo’s (PEP) operating margin rose to 17.6% in 3Q16 from 8.7% in 3Q15. The improvement was a result of a favorable comparison with 3Q15, which included impairment charges of $1.4 billion related to the company’s Venezuelan operations. Coca-Cola’s (KO) operating margin rose to 21.4% in 3Q16 from 20.8% in 3Q15 due to productivity initiatives and the deconsolidation of the company’s German and South African bottling operations.
We’ll discuss Dr Pepper Snapple’s stock price movement in the next part of this series.