Disclaimer: Robert Freedland does not own DPS in his Covestor Buy and Hold Value model.
We have been having a heat wave in Boston, Southern California, in fact much of the United States, including New York City, as well as overseas in London, and across Russia. Putting it plainly, it has been a hot summer for many across the globe.
It is this hot weather and a bit of a sunburn today after doing a bit of bike-riding that leads me to think about Snapple, and in particular the Dr Pepper Snapple Group (DPS). DPS closed at $38.25 on July 16, 2010, down $(.73) or (1.87)% on the day as the market sold off rather severely with the Dow closing at 10,097.50 down 261.41 or (2.52)% on the day. Full disclosure: Diet Peach Tea by Snapple is one of my favorite drinks!
According to the Yahoo "Profile" on Dr Pepper Snapple Group (DPS) as of July 18, 2010 (https://finance.yahoo.com/q/pr?s=DPS+Profile), the company
"…operates as a brand owner, manufacturer, and distributor of non-alcoholic beverages in the United States, Canada, Mexico, and the Caribbean. It offers flavored carbonated soft drinks (CSDs) and non-carbonated beverages (NCBs), including ready-to-drink teas, juices, juice drinks, and mixers. The company offers its CSD products primarily under the Dr Pepper, Sunkist soda, 7UP, A&W, Canada Dry, Crush, Schweppes, Squirt, RC Cola, Diet Rite, Sundrop, Welch’s, Vernors, Country Time, IBC, Mistic, and Venom Energy brand names; and NCB products principally under the Snapple, Mott’s, Hawaiian Punch, Clamato, Yoo-Hoo, Country Time, Nantucket Nectars, ReaLemon, Mr and Mrs T, Rose’s, and Margaritaville brand names."
Snapple has a fascinating history beyond its recent association with Quaker Oats and with Dr Pepper. According to fundinguniverse.com as of July 18, 2010:
"Snapple was founded in 1972 by Arnold Greenberg, Leonard Marsh, and Hyman Golden. Greenberg operated a health food store on the lower east side of Manhattan. His boyhood friend Marsh ran a window-washing service with his brother-in-law, Golden. In the early 1970s, the three founded Unadulterated Food Products, Inc., to sell pure fruit juices in unusual blends to health food stores. Products were bottled at a small plant in the New York metropolitan area. The partners ran the business in their spare time while all three kept their regular jobs, and the enterprise plodded along until the late 1970s.
In 1978, Unadulterated Foods began to market carbonated apple juice. The company called the product "Snapple," after purchasing the name for $500."
(http://www.fundinguniverse.com/company-histories/Snapple-Beverage-Corporation-Company-History.html)
Snapple became part of Cadbury Schweppes in 2000 after it was purchased from Triarc Group which had acquired Snapple back in 1997.
In any case, in a Peter Lynch fashion, I like their tea and their financial results are attractive. On May 6, 2010, DPS announced 1st quarter results that were a bit less than stellar. Earnings came in at $89 million or $.35/share down from $132 million or $.52/share last year. Excluding one-time charges, the company earned $.40/share, which while behind last year's $.52 result, came in aheadof the $.32/share expected by analysts (https://finance.yahoo.com/news/Dr-Pepper-Snapples-1Q-net-apf-2668102781.html?x=0&.v=2)
Revenue for the quarter dipped to $1.25 billion from $1.26 billion last year under the $1.28 billion expected by analysts. The company maintained sales guidance for the year with DPS expected to grow sales by 3-5% for the year. In addition, they raised earnings guidance to a new range of $2.29 to $2.37/share, up from prior guidance of $2.27 to $2.35. While reporting a mixed earnings report, the outlook was decidedly upbeat and the stock price has performed well since that report (https://finance.yahoo.com/news/Dr-Pepper-Snapples-1Q-net-apf-2668102781.html?x=0&.v=2)
Watching my weight (without much success) I also enjoy an occasional Diet Dr. Pepper (for full disclosure!)
If we review the Morningstar Income Statement on Dr Pepper Snapple Group Inc. (DPS) (http://financials.morningstar.com/income-statement/is.html?t=DPS®ion=USA&culture=en-us) we can see that revenue has grown steadily from 2005 to 2007 from $3.2 billion to $5.7 billion. In 2008 this dipped to $5.7 billion and the company has reported $5.5 billion in the trailing twelve months (TTM).
Earnings dipped from $2.01 in 2006 to a loss of $(1.23) in 2008 and has come in at $2.17/share in the TTM.
Outstanding shares have been stable with 254 million reported in 2006 and 255 million in the TTM.
According to the Morningstar Balance Sheet (http://financials.morningstar.com/balance-sheet/bs.html?t=DPS®ion=USA&culture=en-us), the company has $1.28 billion in current assets including $280 million in cash and has total current liabilities of $854 million, yielding a current ratio of nearly 1.5.
Looking at the Morningstar Cash Flow page (http://financials.morningstar.com/cash-flow/cf.html?t=DPS®ion=USA&culture=en-us), we can see that free cash flow has improved from $373 million in 2007 to $405 million in 2008 and $548 million in 2009.
Some recent news stories affecting the company include an announcement on July 13, 2010, that the board approved a $1 billion buyback of shares to be completed over the next three years (https://finance.yahoo.com/news/Dr-Pepper-Snapple-approves-1B-apf-3778370801.html?x=0&.v=4). In another positive development for the company, the Coca-Cola Co. (KO) announced on June 7, 2010, that they would be paying $715 million to the Dr Pepper Snapple Groups for rights to distribute Dr Pepper and Canada Dry in United States (https://finance.yahoo.com/news/Coke-pays-715M-to-distribute-apf-3685209778.html?x=0&.v=7). They also will be distributing Canada Dr., C Plus, and Schweppes in Canada. Another bullish announcement was made on May 19, 2010, when the company announced a 67% increase in the dividend to $.25/share or $1.00/share on an annual basis (https://finance.yahoo.com/news/Dr-Pepper-Snapple-Group-prnews-157301294.html?x=0&.v=1).
Examining the Yahoo "Key Statistics" on DPS (https://finance.yahoo.com/q/ks?s=DPS+Key+Statistics), we can see that this is a larger 'mid cap stock' with a market capitalization of $9.4 billion. The trailing p/e is a moderate 19.08 with a forward p/e of 13.66 (fye Dec 31, 2011). Thus, the PEG is reasonably valued at 1.37.
Other valuation numbers include the Price/Sales ratio (TTM) which comes in at 1.75, below the industry average of 2.62 according to the Fidelity.com eresearch website (http://eresearch.fidelity.com/eresearch/goto/evaluate/snapshot.jhtml?symbols=DPS&destination=http%3A%2F%2Feresearch.fidelity.com%2Feresearch%2Fgoto%2Fevaluate%2Fsnapshot.jhtml). However, profit margins which include Return on Sales (TTM) come in at 9.28% under the industry average of 14.96%. Similarly return on investment comes in at 7.28% below the industry average of 17.06%.
Yahoo reports that as of June 30, 2010, there were 6.25 million shares out short representing only 1.7 trading days, well below my own arbitrary 3 day rule for short interest. As noted above, the company pays a forward dividend of $1.00/share yielding a not-insignificant 2.60%. The company has a payout ratio of only 15% (https://finance.yahoo.com/q/ks?s=DPS+Key+Statistics).
Reviewing the StockCharts.com 'point & figure' chart on Dr Pepper Snapple Group (DPS) we can see that after coming public in April, 2008, the stock peaked at $29 before slipping to a low of $12.00 in March, 2009. Since then the stock has been quite strong hitting a recent high this month at $39/share. Overall the chart looks quite strong if a bit extended (http://stockcharts.com/def/servlet/SC.pnf?c=dps,P).
To summarize, in the heat of this summer with the market acting quite cold, I would like to share with you a cold drink and a warm investment :). Dr Pepper Snapple Group (DPS) is a relatively new company with a stable of beverage products well established in the market. While their latest quarterly report was still showing the effects of the recession, the company guided earnings higher, maintained revenue growth expectations, and recently sharply increased the dividend and announced a three year $1 billion stock buy-back.
I do not own any shares and still limit my new position purchases from signals generated as it reaches selling points on gains. These signals do not appear to be imminent but DPS is the kind of investment that deserves to be on your tray, or should I say an investment that deserves to be consumed over ice?
