4 Things to Consider Before Investing in Dr Pepper Snapple Group

Small global footprint and little innovation. Does this company merit a spot in your portfolio?

May 19, 2014 at 1:31PM


In the most recent quarter, beverage company Dr Pepper Snapple Group (NYSE:DPS) turned in some pretty good overall numbers, with revenue, net income, and free cash flow expanding 1%, 46%, and 254%, respectively. Digging a little deeper, however, yielded four things that could cast doubt on the long-term prospects of the company.

Struggles all around
In stark contrast to other carbonated soda companies, Dr Pepper Snapple Group saw bottler case volume decreases in both carbonated and non-carbonated beverages of 1% and 2%, respectively, in the most recent quarter. A huge number of its brands, such as its flagship Dr Pepper, saw volume decline 4%, stemming partially from decreased fountain demand in restaurants and loss of business from "larger accounts," in addition to the overall shift in the industry.

Volume in the Ten line remained flat, exceeding the expectations of some analysts. Category declines stemming from consumer demand for healthier drinks for kids, as well as competition, served as catalysts for an 8% decline in its Hawaiian Punch line. Even the Motts brand declined 1% . Given the industry headwinds facing carbonated sodas, it's understandable that volumes in those products lines will suffer, but when a company such as Dr Pepper struggles on all fronts, then the issue may lie internally as well as globally.

However, some bright spots in Dr Pepper Snapple Group's portfolio remained, as Canada Dry, Snapple, and its bottled water product Penafiel all saw gains in volume. On a similar note, Penafiel contributed overall volume growth of 2% in Latin America. Moreover, its concentrates business saw sales volume increases due to shipment timing. 

Any innovation?
The key to superior revenue and cash flow generation over the long term lies in product innovation. Unfortunately, in its most recent earnings call, Dr Pepper Snapple Group remained relatively silent on its innovation initiatives, with words such as "innovation" and "new" appearing seven and 12 times respectively. Two initiatives that stood out include new low-sugar Mott's juice and new variations under its popular Penafiel brand.

RCI drives bottom line
Rapid Continuous Improvement, or RCI, a Dr Pepper Snapple program that emphasizes cost-cutting and efficiency, drives margins, net income, and cash flow higher. For example, the company improved warehouse efficiencies by reducing driver check-in and check-out times and maximizing warehouse space by clearing excess inventory. This contributed to an improved overall margin for Dr Pepper Snapple Group, with net profit margin registering 11% versus 8% the same time last year. However, the question remains: How much can you squeeze a turnip?

Zero visibility
In responding to a Wall Street analyst's question regarding the conservatism on guidance, CEO Larry Young said in part, "Everybody would agree the visibility is still next to zero with these headwinds we're facing." One thing is for sure: If the company doesn't start dreaming up new healthier drinks that consumers will buy, then its future remains dark. Dr Pepper Snapple Group did talk about expanding distribution to Singapore and Hong Kong, but it has a long way to go before catching up to its rivals in terms of global presence. Right now your investment dollars belong in a better spot.

The better spot
If you thought the iPod, the iPhone, and the iPad were amazing, just wait until you see this. One hundred of Apple's top engineers are busy building one in a secret lab. And an ABI Research report predicts 485 million of them could be sold over the next decade. But you can invest in it right now... for just a fraction of the price of AAPL stock. Click here to get the full story in this eye-opening new report.

William Bias has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers