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

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

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

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

LRB Industry ›Highly Competitive ›Centralized ›15.2 Billion Cases

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

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

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

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

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

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

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

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

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

Forward Comparables Valuation

Final Valuation

Profit Returns ›Dividends ›Stock Repurchases

Comparable Profit Returns

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

Questions