Beverage company Dr. Pepper Snapple Group (DPS) uses its stable of beverage brands to continue producing steady profits in a market dominated by the mega-cap competition of Coca-Cola (KO) and PepsiCo (PEP). Over the last five years, DPS has outperformed these competitors, which are more than 10 times its size.
Dr. Pepper Snapple owns a wide range of beverage brands, including Dr. Pepper, 7-Up, Canada Dry, Schweppes and RC Cola. Non-carbonated brands include Snapple, Clamato, Yoo-Hoo, Hawaiian Punch and Mr. & Mrs. T.
The company divides its revenues into the three categories: beverage concentrates, pre-packaged beverages and Latin America beverages. Several of the company's brands, including Dr. Pepper and Canada Dry, are sold and distributed by Coca-Cola under a long-term licensing agreement.
For the first three quarters of 2011, Dr. Pepper Snapple reported revenues of $4.44 billion, up 5 percent from $4.22 billion in 2010. Net income for the first nine months of the year was $1.97 per share, 17 percent better than the $1.68 in the same period a year earlier.
For the full year, the company is forecast to earn $2.73 compared to $2.40 earned in 2010. The consensus earnings estimate for 2012 is $2.93.
Value to shareholders
When compared to its large-cap competitors, Dr. Pepper Snapple has done very good job of providing value. The board of directors initiated the payment of a quarterly dividend in December 2009 and the payout rate has more than doubled over the last two years. The current dividend yield of 3.4 percent is 0.2 percent higher than Pepsi's yield and 0.7 percent better than from Coke.
The DPS share price has also outperformed its two larger rivals. DPS is up more than 40 percent over the last five years while Coca-Cola has gained 15 percent and Pepsi’s return is in negative territory.
Recent analyst action on DPS includes an initiation of coverage by Deutsche Bank analysts with a hold rating. Morgan Stanley analysts have downgraded the stock to underweight from equal weight, and the analysts at Barclays Capital have reiterated their equal-weight rating.
The company reports next on Feb. 16.
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