Dr Pepper Snapple Swings To 4Q Loss On $696M Write-Down

Published: March 26, 2009

Dr Pepper Snapple Group Inc. (DPS) swung to a fourth-quarter loss on a $696 million goodwill write-down as the beverage giant said demand remained weak for its higher-priced brands.

The maker of Snapple teas, Mott’s apple juice and Dr Pepper soda posted a net loss of $621 million, or $2.44 a share, compared with year-earlier net income of $138 million, or 54 cents. Excluding one-time items, earnings fell to 39 cents from 48 cents.

Revenue decreased 0.9% to $1.38 billion.

Analysts polled by Thomson Reuters expected earnings of 37 cents on revenue of $1.33 billion.

Gross margin slipped to 55% from 55.3% as sales volume rose 1% on higher-than-expected sales of concentrate to third-party bottlers and expanded distribution of Crush.

The bottling group, the largest segment by sales, saw revenue fall 1.7% as the segment swung to a loss on a write-down. Sales in the finished goods division declined 4.6% as profits fell 23%.

Soda volume fell less than 1%, led by a 4% increase for Canada Dry ginger ale, one of the company’s core brands. Another of them, 7UP, posted a 4% drop to continue recent weakness. On the premium end, Snapple slumped 17%.

Looking ahead, Dr Pepper Snapple sees 2009 earnings of $1.59 to $1.67 exluding items on a revenue decline of 2% to 4%. Analysts expected $1.62 a share on a 3% fall in revenue to $5.56 billion.

The company also said it restated some results from last year and 2007, lowering net sales and cost of sales because of transactions that should have been eliminated as the company’s results were consolidated.

Amid a U.S. soft-drink sales environment that remains sluggish in the weak economy, Dr Pepper Snapple is trying to expand the portfolio of beverages it owns or distributes. About 80% of the company’s volume comes from soda. Unlike Coca-Cola Co. (KO) and PepsiCo Inc. (PEP), which have both recently shown continued international growth, Dr Pepper Snapple derives most of its sales in the U.S.

Some investors haven’t been happy, with private-equity firm Trian Partners GP raising its stake and wanting Dr Pepper Snapple to sell off its bottling unit, saying it is concerned investors see it as more of a bottling company than a branded beverage one. Bottling concerns typically have lower margins than beverage brand owners. Trian is the same group that pressured Dr Pepper Snapple’s spinoff from Cadbury PLC (CBY) last year.

Dr Pepper Snapple’s shares closed Wednesday at $15.51 and haven’t traded premarket. The stock is off just 4.6% so far this year, outperforming the broader market.

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