DPS Buys Back Rights from Mondelez

Zacks

Dr Pepper Snapple Group (DPS) recently entered into a deal to buy back distribution rights for several of its brands for certain parts of Asia-Pacific from snack company, Mondelez International, Inc. (MDLZ).

Dr Pepper has bought back distribution rights of its Snapple beverage line in Australia, Malaysia, Singapore, China, Hong Kong, Japan and South Korea. In addition, Dr Pepper will henceforth distribute Mott’s, Mr & Mrs T, Clamato, Mistic, Holland House and Yoo-hoo brands in Australia.

Dr Pepper lacks significant exposure outside the U.S. The company mainly operates its business in the U.S., Canada and Mexico, which are experiencing saturation. It thus lacks exposure in the fast emerging markets where demand is growing and health consciousness is comparatively less than the western countries. This is a significant competitive disadvantage for Dr Pepper versus its peers like The Coca Cola Company (KO) and PepsiCo, Inc. (PEP), which are fast expanding and exploring markets outside the U.S. Deals like the above will help Dr Pepper gain foothold in a growing market and thereby increase popularity of its brands outside the U.S.

Terms of the deal remain undisclosed. Management does not expect the transaction to have any material impact on 2013 results.

Last week, Dr Pepper acquired a bottling company in the western part of U.S. The bottler, Dr. Pepper/7-UP Bottling Company of the West is based in Reno, Nev.

Dr Pepper carries a Zacks Rank #4 (Sell), following dismal fourth-quarter results announced last month. Dr Pepper missed the Zacks Consensus Estimates on both revenue and earnings. While revenues grew 2% year over year, earnings declined 2.4% as decent sales growth was offset by weak profits.

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