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Dr Pepper Snapple Group Inc.’s (DPS - Analyst Report) second quarter 2013 adjusted earnings (excluding mark-to-market losses/gains) of 84 cents per share were in line with the Zacks Consensus Estimate. However, earnings decreased 1.2% year over year due to weak top line performance as well as sluggish profits.

During the quarter, Dr Pepper's net sales declined 1% year over year to $1.61 billion as gains from price/mix were offset by lower volumes. Sales volumes declined 4%. Currency translations had a favorable impact on revenues in the quarter. Net sales also missed the Zacks Consensus Estimate of $1.63 billion by 1.2%. However, sales improved sequentially from the prior three quarters.

Adjusted gross profit declined 0.3% in the quarter to $940 million, due to weak sales and increased commodity costs (especially apple costs). Adjusted segment operating profit declined 3% year over year due to weak gross margins and increased marketing costs.

Volume Growth in Detail

Dr Pepper’s sales volume is measured in two ways: 1) sales volume and 2) bottler case sales (BCS) volume. Sales volume represents sales of concentrates and finished beverages sold to bottlers, retailers and distributors. Bottler case sales include sales of packaged beverages by the company and its bottlers to retailers and independent distributors.

Sales volume, as discussed earlier, was down 4% in the quarter due to declines in the Beverage Concentrates and Packaged Beverages segments.

In the quarter, BCS volume declined 3% as carbonated soft drinks (CSD) and non-carbonated soft drinks (NCB) volumes dipped 3% and 2%, respectively. In CSD, Dr Pepper soft drinks volume declined 4% due to weak performance of the base business.

Overall volumes of the Core 4 brands (Canada Dry, A&W, Sunkist soda, and 7UP) declined 1%, as volume gains in Canada Dry were offset by declines in Sunkist soda and 7UP.

Canada Dry volumes grew mid-single digit. 7UP declined in mid-single digits in the quarter while Sunkist soda was down in high single-digits.  Volumes declined for Crush, Sun Drop, RC Cola and Fountain foodservice during the quarter.

Among the NCBs, growth in Mott’s products (2%) and Snapple (4%) was partially offset by a decline in Hawaiian Punch (7%).

Geographically, volumes declined 4% in the U.S. and Canada but increased 2% in Mexico and the Caribbean.

Segment Details

Beverage Concentrates: The division manufactures and sells beverage concentrates in the U.S. and Canada, which is used primarily to produce CSDs. Dr Pepper's net sales from Beverage Concentrates went up 2% (both including and excluding currency impact)  year over year to $336 million as favorable mix and lower discounts were partially offset by a 5% volume decline. Segment operating profit declined 4% (both including and excluding currency impact) to $205 million as revenue growth was offset by higher marketing expenses and unclaimed property audit charges.

Packaged Beverages: The division manufactures and distributes finished packaged beverages (both CSDs and NCBs) and other products, including its own brands, third-party brands and private label beverages in the U.S. and Canada. In the Packaged Beverages segment, net sales declined 2% (both including and excluding currency impact) to $1.15 billion as mix gains and prices hikes were offset by a volume decline of 5%. Segment operating profit decreased 3% on a currency neutral basis to $145 million due to headwinds from higher commodity costs, particularly apples and weak sales volume.

Latin America Beverages: The division manufactures and distributes carbonated mineral water, flavored CSD, bottled water and vegetable juice in Mexico and the Caribbean. Dr Pepper's net sales from Latin America Beverages increased 5% on a currency neutral basis to $127 million, driven largely by mix gains and volume growth of 2%. Segment operating profit was flat (excluding currency) in the quarter at $18 million as sales growth and productivity gains were offset by increasing manufacturing cost and other operating costs.

2013 Outlook

The company maintained its prior earnings guidance for fiscal 2013. Full year 2013 adjusted earnings are expected to be in the range of $3.04 to $3.12 per share. However, Dr Pepper reduced its 2013 sales guidance. The company now expects sales to increase 2% compared to the prior expectation of 3% growth.

Dr Pepper carries a Zacks Rank #4 (Sell).

Some other companies from the consumer staples sector that are performing well include Monster Beverage Corporation (MNST - Analyst Report), The WhiteWave Foods Company (WWAV - Snapshot Report) and Snyder's-Lance, Inc. (LNCE - Snapshot Report). All the three companies carry a Zacks Rank #2 (Buy).
 

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