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Dr. Pepper Snapple Group (DPS)

Dr. Pepper Snapple Group (DPS). Covering Analyst: Joshua Jordan jjordan3@uoregon.edu. 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%)

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Dr. Pepper Snapple Group (DPS)

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  1. Dr. Pepper Snapple Group (DPS) Covering Analyst: Joshua Jordan jjordan3@uoregon.edu

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

  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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