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Dr. Pepper Snapple Group (DPS) Covering Analyst: Joshua Jordan

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Presentation on theme: "Dr. Pepper Snapple Group (DPS) Covering Analyst: Joshua Jordan"— Presentation transcript:

1 Dr. Pepper Snapple Group (DPS) Covering Analyst: Joshua Jordan

2 DPS History ›Dr. Pepper brand since 1885 ›Series of Acquisitions ›Most recent: DPSU, DPSUBG ›Incorporated October 24, 2007

3 Business Overview ›Brand Owner ›Manufacturer ›Distributor ›United States (89%) ›Canada (4%) ›Latin America (7%) Dr. Pepper, 7-Up, A&W, Sunkist, Canada Dry, Snapple, Hawaiian Punch, Mott’s

4 Dr. Pepper Snapple’s Strategy ›Expand distribution channels ›Build and enhance existing brands ›Take advantage of high-margin channels ›Become more efficient through RCI

5 LRB Industry ›Highly Competitive ›Centralized ›15.2 Billion Cases

6 ›Dominated by Coca- Cola, PepsiCo, and Dr. Pepper Snapple ›9.3 Billion Cases CSD Industry

7 Risks and Drawbacks ›Consumer Health Preferences ›Commodity Prices ›Health Regulations ›Competition ›Retail Contracts

8 Positives ›Research and development is creating healthier beverages ›Penetrating distribution channels ›More efficient operations through RCI

9 Revenue ›Beverage Concentrates –Highest Margins ›Packaged Beverages –Lowest Margins ›Latin America Beverages

10 Customers ›Retailers –Wal-Mart (10% of total sales) –The Kroger Co. –Safeway ›Food Service –Mcdonald’s –Yum! –Burger King –Sonic –Wendy’s ›Convenience Stores –7-Eleven

11 DCF Expectations ›Increasing COGS as a percent of revenue ›SG&A decreasing slightly as a percent of revenue ›Tax rate increasing to 37% ›Gradual rates as opposed to straight-line rates ›Increasing capital expenditures

12 DCF Valuation ›Possible reasons for price differential –Beta –Cost of Debt

13 Comparables Screening ›Industry ›Licensing ›Size ›Beta ›Growth ›Margins

14 Comparables ›Coca-Cola (KO) – 30% –Coke, Fanta, Sprite, Barq’s ›PepsiCo (PEP) – 30% –Pepsi, Mountain Dew, Sierra Mist, Mug ›Monster (MNST) – 20% –Monster, Hansen’s ›Cott (Cot) – 10% –Cott, RC Cola ›National Beverage (FIZZ) – 10% –Shasta

15 Forward Comparables Valuation

16 Final Valuation

17 Profit Returns ›Dividends ›Stock Repurchases

18 Comparable Profit Returns

19 Recommendation: Hold for Tall Firs and Svigals ›Outperforming strong competitors in market share ›Increasing profit returns to shareholders through dividends ›Innovative product line and cost-cutting techniques ›Note: Future update is important to valuate success of ten- calorie soda lines

20 Questions


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