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Dr Pepper Beats, Guides 2012

Zacks Equity Research

Dr Pepper Snapple Group Inc. (DPS) reported fourth-quarter 2011 earnings of 82 cents per share, up 22.4% from the year-ago earnings of 67 cents per share. The company’s quarterly earnings also surpassed the Zacks Consensus Estimate of 74 cents per share.

For fiscal 2011, the company’s adjusted earnings per share rose 16% from last year to $2.79. This was also above the Zacks Consensus Estimate of $2.72 per share.

During the quarter, Dr Pepper's net sales grew 3% year over year to $1,461 million and also swept past the Zacks Consensus Estimate of $1,448 million. The year-on-year growth was mainly attributable to 4 percentage points increase in pricing, favorable mix and the impact of repatriated brands, partially offset by lower sales volume. Full-year net sales of $5,903 million registered a 5% increase year on year, outshining the Zacks Consensus Estimate by $8 million.

Segment Details

Dr Pepper's net sales from Beverage Concentrates inched up 1.9% year over year to $325 million in the fourth quarter, primarily benefiting from increased pricing, partially offset by a negative impact from repatriated brands. Segment operating profit grew 1% to $212 million due to increased net sales and lower employee costs, partially offset by increased marketing investments.

In the Packaged Beverages segment, net sales increased by 4% to $1,040 million, attributable to benefits from brands repatriated under The Coca-Cola Company (KO) licensing agreement signed in October 2010  and favorable trade spending offset by lower base volumes. Consequently, segment operating profit increased 3% to $128 million, slightly offset by increased packaging and ingredient costs.

Dr Pepper's net sales from Latin America Beverages increased 8% to $96 million, mainly stemming from price increases, sales volume growth and favorable product mix. Segment operating profit surged 13% to $9 million primarily benefiting from sales growth, partially offset by higher packaging and ingredient costs along with increased employee costs.

Balance Sheet and Cash Flow

Dr Pepper ended fiscal 2011 with cash and cash equivalents of $701 million and long-term debt of $2,256 million compared with a cash balance of $315 million and long-term debt of $1,687 million at the end of fiscal 2010.

During fiscal 2011, the company generated $760 million of cash from operations. In 2011, the company bought back $522 million worth of shares, paid $251 million in the form of dividends and made a capital expenditure of $212 million.

Outlook and Zacks Consensus

Moving forward, Dr Pepper expects full-year 2012 adjusted earnings in the range of $2.90 to $2.98 per share. The current Zacks Consensus Estimate for fiscal 2012 is $2.91 per share, which lies almost near the low-end of the company’s guidance range.

The company expects full-year sales growth rate to come at the lower end of its long-term forecast of 3% to 5%. The company projects packaging and ingredient costs for 2012 to increase cost of goods sold between 2% and 3%, on a constant volume/mix basis. Full year tax rate is expected to be about 37%.

For 2012, the company expects capital expenditure to be nearly 4.0% of net sales.

Dr Pepper currently has a Zacks #3 Rank, implying a short-term Hold rating on the stock. Moreover, we maintain a long-term Neutral recommendation on the stock.

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