Dr Pepper Snapple itself expects sales to grow modestly this year with expectations on the low end of its long-term 3-5 percent target and earnings of $2.90 to $2.98 per share. Herzog concurs with DPS estimates and expectations based on several factors including the company’s forecast of a mild increase of 2-2.5 percent in its pricing mix, as well as a manageable 2-3 percent bump in commodity costs (as compared to an expected 7 percent hike for Pepsi and a 3.5 percent increase for Coke.)
Overall, DPS saw a 1 percent decline in fourth quarter sales of CSDs and a 6 percent drop in its non-carbonated beverage portfolio. Sales of 7UP, Crush, Sunkist, Hawaiian Punch and Mott’s, each declined by double digits partially as a result of price increases. Yet while DPS saw a number of its beverages struggle in the fourth quarter, the company was buoyed by a 2 percent increase in volume of its flagship Dr Pepper brand and increased distribution and sales of Dr Pepper TEN and Sun Drop. Additionally, the company’s tea and juice portfolios outperformed industry trends.
The launch of Dr Pepper TEN, a new 10-calorie version of Dr Pepper marketed to men, has proven to be a successful one for DPS as the brand deepened its footprint in both the convenience and grocery store channels. Herzog is optimistic about the long-term growth of the “Ten” platform and believes that the company’s roll-out of a core line of 10 calorie products will be very successful for DPS. Moreover, Sun Drop continues be a bright spot for DPS as the citrus drink contributed approximately 2 million incremental cases of sales volume in the fourth quarter and 9 million cases overall in 2011. Sun Drop is now the number two brand in the citrus category and is responsible for nearly 43 percent of the overall growth of the category during the year.
