Dr. Pepper Snapple Group sees 1% growth in Q4, remains bullish on 2017 outlook

Dr. Pepper Snapple Group is reinvigorating some its core soda brands in 2017 with increased marketing and availability of smaller packaging.

Dr. Pepper Snapple Group (DPS) experienced modest volume growth of 1% for the full-year ending December 31, 2016, largely due to positive performance of the company’s water portfolio, which was offset by low growth in soda sales.  

The company registered a 1.9% year-over-year net sales increase, posting $1.58bn for the Q4 2016, compared to $1.55bn for the same period last year. For all of 2016, revenue came in at $6.44bn, a slight lift from last year’s $6.28bn.

Carbonated portfolio registers low growth

Overall volume sales of carbonated soft drinks (CSD) remained flat in the US and Canada for the fourth quarter of 2016. However, volume sales increased in Mexico and the Caribbean by 5% for the quarter, the company said.

The best-performing soda brands in 2016 were Squirt, which grew by 8% in volume sales in Mexico and the US. Schweppes also performed well growing by 7% due to expanded distribution deals. The company’s “Core 4” increased by 3% with Canada Dry and 7UP registering low single-digit growth in sales, slightly offset by declines in its Dr. Pepper and Crush soda brands.

To increase growth for the lagging soda brands such as Dr. Pepper and Crush, the company will expand distribution and availability of smaller CSD packages to appeal to a wider consumer audience.

DSP will also be launching a media campaign for Dr. Pepper partnering with the upcoming movie WonderWoman in Spring 2017.

Future sales lift from Bai acquisition

The company’s water portfolio (Deja Blue, Aguafiel, Fiji Water, and Bai) grew by 8% in Q4 and 18% for year, largely due to the acquisition of enhanced water company Bai Brands for $1.7bn in late January 2017.

DPS CEO Larry Young said Bai will now be treated as “priority brand” with the company investing heavily in marketing initiatives to promote the product.  

“It solidifies our position in the enhanced water category with the fastest growing premium brand,” Young said during the company’s Q3 earnings call.

At the time of the acquisition announcement, DPS CFO Martin Ellen said Bai is expected to add $132m in incremental net sales, and $43m in incremental income in 2017.

“Because we were already the major distributor for Bai, representing about two-thirds of their sales, our cost of goods sold will now benefit as we enjoy the full gross margin as the brand owner rather than the distributor,” Ellen said during the call.

Mexico tempers 2017 forecast

While not specifying, the company said the recent events affecting Mexico have created an uncertain and economic consumer environment leading to a $0.04 reduction of its 2017 Core EPS.

The rest of company’s financial forecast for 2017 is similarly conservative, yet positive, projecting an 1% increase in organic volume growth and 4.5% in sales growth.

“Our expectation is for flat volume in our CSD portfolio which, we believe will be better than the overall category and for mid-single digit grow in our non-carbonated portfolio,” Ellen said.

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