Will Dr Pepper Snapple’s 4Q Volumes Show Strength?

Softness in volumes

Dr Pepper Snapple’s (DPS) bottler case sales volumes grew 1% in the first nine months of 2016. The company’s carbonated soft drink (or CSD) volumes and noncarbonated beverage volumes each grew 1% in the first nine months of 2016. Dr Pepper Snapple has significant exposure to the soda sector. The category is seeing weak soda volumes in the US as consumers are shifting to healthier beverage options like ready-to-drink tea and bottled water.

Will Dr Pepper Snapple’s 4Q Volumes Show Strength?

Volumes in 3Q

In 3Q16, Dr Pepper Snapple’s CSD volumes rose 2% on a year-over-year basis. The category saw a 1% growth in the Dr Pepper brand volumes. Among the company’s Core 4 Brands (Canada Dry, 7UP, A&W, and Sunkist soda), the volumes of Canada Dry and Sunkist soda rose 7% and 1%, respectively. However, this growth was offset by a decline in the volumes of A&W and 7UP by 2% and 1%, respectively, in 3Q16.

Looking at other soda brands, the volumes of Squirt, Schweppes, Crush, and Peñafiel rose 7%, 9%, 4%, and 1%, respectively, in 3Q16. However, the volumes of other CSD brands fell 3%. In the noncarbonated beverage category, the water category delivered a 16% volume growth driven by distribution gains for Bai brands and Fiji and also growth in Aquafiel within Mexico.

The 5% volume growth in the Clamato brand was offset by a 6% decline in Hawaiian Punch and a 6% drop in Mott’s volumes as well. Volumes of Snapple were flat in 3Q16. The volumes of other NCB brands fell 9% as the company discontinued the distribution of Country Time.

Coca-Cola (KO) reported flat soda beverage volumes in 3Q16 while its still beverage volumes were up 3% in 3Q16. PepsiCo’s (PEP) soda volumes were down 3% in 3Q16 in contrast to noncarbonated beverage volumes, which grew 7%.

Expectations

In the 3Q16 conference call held in October 2016, Dr Pepper Snapple’s chief financial officer Martin Ellen reiterated the company’s guidance for 2016 volumes. Dr Pepper Snapple expects its 2016 sales volume to remain essentially unchanged compared to the previous year. The company anticipates its CSD volumes to remain flat and noncarbonated volumes to rise slightly in 2016.

Dr Pepper Snapple is focused on expanding its noncarbonated beverage portfolio to cater to the growing demand for healthier beverage options. Dr Pepper Snapple’s acquisition of Bai Brands is part of its strategy to focus on growth categories beyond soda.

We’ll discuss analysts’ expectations from the company’s 4Q16 earnings in the next part of this series.