Canada Dry, Dr Pepper and Sunkist producer DPS reported Q2 2013 net income down 13% to $155m for the three months to June 30, due to high commodity costs, bad weather and a subdued consumer environment.
Revenue for the quarter fell 1% to $1.611bn, with both beverage concentrates and packaged beverages felt the heat with a 5% US volume sales decline; and although concentrates net sales rose 2%, packaged fell 2%.
Dr Pepper the brand had a terrible quarter with a 4% volume decline, but the firm recently added 15000 new soda fountains, signed a contract with burger chain Wendy’s to supply 1200 more outlets, and is investing in marketing and activation for its Core 5 brands to coincide with the looming US football season.
'Diets are going down...What is it?'
Addressing DPS’s poor performance in the diet category, Young told analysts yesterday: “People want better for you, but the diets are going down. Is that the sweeteners? What is it? That’s what we’re trying to find out. But with the TEN, I think we’ve been able to answer part of that.”
DPS had been hit by terrible weather in H1 2013, attacks on soft drinks linked to obesity, different municipalities trying to ban larger-sized drinks, certain packages or sugared brands, Young complained.
DPS expects to have US-wide distribution for its 10-calorie soft drinks platform TEN by the end of the summer and Young said Nielsen showed that 51% of TEN purchases were incremental to the CSD category “meaning that we are achieving our goal of bringing lapsed and new users into the category”.
Fizz fills 80% of Pepper volumes
The company has 80% of its volumes in carbonated soft drinks (CSDs) – making the TEN roll-out this year critical – and Young said that, principally, the firm aimed to grow organically in non-carbonates.
“Never say never on acquiring something…but some of them have such ridiculous multiples that we’re not really going to do that,” Young said, adding that DPS had programs planned using its 58 current brands.
“But being 80% CSD, we will continue to have a very strong focus on CSDs. We’ve already spend $23m on TEN, and we’re starting to see the benefits come from it,” he said.
Despite weak sales volumes in Q2, the analyst consensus is that – given TEN’s growing penetration, weather and economic improvements and LIFO (last-in, first-out) accounting benefits – DPS remains on track generate solid earnings growth in 2013.