Industry Situations And Company Plans

Published Date: 02 Nov 2017

INTRODUCTION

***The Dr. Pepper Snapple Group Inc (NYSE: DPS) is an incorporated brand owner who manufactures and distributes non-alcoholic beverages in North America. ***The Dr. Pepper Snapple Group has a diversified line of flavored Carbonated Soft Drinks (CSDs) such as Dr.Pepper and 7up and Non Carbonated Beverages (NCBs) like Snapple and Hawaiian Punch. ***All together Dr. Pepper Snapple Group consists of 50 plus brands and 13 of 14 of its top selling brands are ranked No. 1 or No. 2 in their flavor category.

Dr. Pepper Snapple Group's corporate office is located at 5301 Legacy Drive, Plano, Texas. In its Board of Directors lies the President and Chief Executive Officer, Larry D. Young, and the Chairman of the Board, Wayne R. Sanders. ***The annual report provided to stockholders was for the year ending of December 31, 2012, where its stock closed at $46.47 per share and had a dividends per share of $1.36 which was about 11% higher than the year prior at $1.21. The financial statements disclosed in the annual report has been backed by the Audit Committee Chair, David E. Alexander, and verified by Deloitte & Touche LPP, an independent accounting firm. Although the Deloitte & Touche deemed the financial statements as acceptable by the Public Company Accounting Oversight Board, it is also the job of the internal auditors of Dr. Pepper Snapple Group and abroad to evaluate and provide accurate financial data that is compliant with industry standards and corporate guidelines. For any other investor information for Dr. Pepper Snapple Group one can visit its corporate website at http://investor.drpeppersnapplegroup.com.

INDUSTRY SITUATIONS AND COMPANY PLANS

In a very competitive CSD and LRB (Liquid Refreshment Beverages) market, companies such as Dr. Pepper Snapple Group and its competitors are doing its very best to keep its industry thriving by getting its customers more beverages into their hands. Although the CSD and LRB markets are very competitive, there are only a few players who compete in this industry, especially in the United States. ***Dr. Pepper Snapple Group's main competitors are Coca Cola Company and PepsiCo inc. ***According to Beverage Digest, Coca Cola Company and PepsiCo inc account for 70.1% market share in CSD companies in the United States and also 60.3% market share in LRB companies in the United States. ***With those large percentages Dr. Pepper Snapple Group manages to be the third largest CSD company with 16.8% market share in the United States and also third largest LRB company with 11% in the United States.

***Although all three of these brands are profitable, the CSD industry has been slowly declining for the past eight years. Many factors attribute to this under performing trend of these companies. ***Some of these risk factors include the consumer trends for healthier alternatives, which can be a risky and expensive endeavor for a company to handle. The costs of raw materials and energy are rising, which increases the expenses a company has to make and may as a result increase the prices of the product. Also, new Laws and regulations such as, safety labeling and the limiting size or barring products in municipalities and schools may hurt the reputation of the brand, increase compliance cost, and reduce demand for that particular product hindering its financial performance.

***To address these serious issues CEO Larry Young attempts to appease and attract new shareholders for the progress that the company has made and for the plans that the company is producing for a hopeful and profitable future. ***Larry Young makes it a point to address the importance of brand presence and reputation, boasting that 13 of 14 of its top selling brands rank No.1 or No. 2 in their respective flavor category. *** He then gives quantitative reassurance to the stockholder of five consecutive years of at least 0.2 points of Dr. Pepper's dollar share. *** The stockholder letter also includes ways that the company gives back, not only in dividends, which was about $685 million, but also to the community with contributions like its Tuition Giveaway. *** Larry Young and Dr. Pepper Snapple Group tells the prospective investor and or the stockholder its strategy for a profitable future. *** This includes taking five new TEN branded products out of the test marketing phase and commercially selling them nationwide. ***Dr. Pepper Snapple Group believes TEN branded products is beneficial to its future success because it attempts to address the factor of a healthier alternative to regular CSDs by offering the consumer a product with great taste, but with fewer calories. ***It also plans to increase its distribution and availability across high growth and high-margin packages, categories and channels.

FINANCIAL STATEMENTS

Income Statement:

***In our financial statements, one must begin with the consolidated statements of income. With this, it comes in two forms. *First, a single-step income statement, where there is only one subtraction used to get to your net income. *Net income equals, revenues plus gains subtracted by expenses plus losses. Second, a multi-step income statement, uses several subtractions to reach that same net income. A multi-step income statement is necessary because it shows a more accurate depiction of your statements of income. Therefore, the Dr. Pepper Snapple Groups Income Statement format is a multi-step income statement. The income statement shows gross profit, income from operations, and net income. The gross profit over the last three years (in billions) was, in 2010: $3.393, in 2011: $3.418, and in 2012: $3.495. The income from operations amount over the last three years (in billions) was, in 2010: $1.025, in 2011: $1.024, and in 2012: $1.092. Lastly, the amount of net income over the last three years was, in 2010: $528 million, 2011: $606 million, and in 2012: 629 million. Based on these results, Dr. Pepper Snapple Group tends to be in a growing trend as a company. The company grew from 2011 to 2012 by 3.7% and by 16.1% since 2010. Based on past and current trends, Dr. Pepper Snapple group should continue its steady growth in the future.

Balance Sheet:

Assets= Liabilities + Stockholder’s Equity

Year

Stockholder’s Equity

Liabilities

Assets

2011

2.263

7.020

9.283

2012

2.280

6.648

8.928

(All numbers in table are in billions)

Statement of Cash Flows:

The statement of cash flows show the operating, investing, and financing activities of a company. According to the data for 2011, net income, amounted at $606 million was lower than cash flows from operations, amounted at $760 million. According to the data for 2012, net income, amounted at $629 million was higher than cash flows from operations, amounted at $458 million. It is important for net income to be more than the cash flows from operations because the company’s profit should be higher than their operating activities. Dr. Pepper Snapple Group invested the most money into the purchasing of property, plants, and equipment. They invested $193 million in this area during the year 2012. The company’s most important source of financing is the proceeds from senior unsecured notes and senior unsecured credit facility. The amount received from these proceeds in the year of 2012 was $500 million. Overall, cash has increased over the past couple years. Due to net income increasing and expenses decreasing cash in hand has gone up. **This is important because, they have been able to reinvest in their company and provide dividends to their shareholders.**

ACCOUNTING POLICIES

*Accounting policies are the rules and procedures selected and followed consistently by the management of an organization. They have to be included on the financial statements at the end of every year. Dr. Pepper Snapple group has accounting policies relating to bad debt, revenue recognition, merchandise inventories, and property and equipment depreciation. As far as the accounting policy for bad debt, they have an allowance account for clients that don’t pay. **Dr. Pepper Snapple Group determines the allowance amount needed for doubtful collections by past credit history and trends of the economy. ***The accounting policy for revenue recognition has four steps to it. The company does not see it as revenue until the following have occurred: (1) delivery, (2) persuasive evidence of an agreement exists, (3) pricing is fixed or determinable, and (4) collection is reasonably assured. ****Dr. Pepper Snapple’s account policy for inventory is the LIFO method. Based upon the last-in, first-out method, they are selling their newest product before they sell the old one. The last important accounting policy is on property and equipment depreciation. *****The company uses the straight-line method to find the amount of depreciation for each item they have. Based off of the notes on this company our opinion has not changed. They are making increases in their income and trying to be creative to keep up with the other drink companies. However, based on Coca-Cola and Pepsi being the top two contenders, Dr. Pepper Snapple Group will have a hard time keeping up.

RECOMMONDATION/ QUALITY OF WRITING

With all of the information provided to us by the 10 K form and market research data. The question arises if whether we would invest our capital in the Dr. Pepper Snapple Group? The answer is no, we would not invest our capital into this particular company for its numbers comparing to it competitors and industry averages and risk factors.

***During 2012, the current ratio for Dr. Pepper Snapple Group was 1.08. With the same ratio the industry average was 1.85. Dr. Pepper Snapple Group did worse than the industry average, but did better than ***Coca Cola Company, which did 1.01. This is important because current ratios test the liquidity.

***During 2012, the gross profit percentage for Dr. Pepper Snapple Group was .58. With the same ratios the industry average was .487. Dr. Pepper Snapple Group did better than the industry average and but did worse than Coca Cola Company which did .603. With the gross profit percentage one can tell how efficient a company is. With higher percentages a company has more capital leftover to spend with.

During 2012, the interest coverage ratio for Dr. Pepper Snapple Group was 9.08. With the same ratios the industry average was 30.98. Dr. Pepper Snapple Group did significantly worse than the industry average and worse than *** Coca Cola Company did not carry any results. Interest coverage ratios are essential because it tells the prospective investor or shareholder how fast the company pays off interest expenses. ***Lower numbers give shareholders indication of inadequate funds to pay off interest expenses.

During 2012, the inventory turnover ratio for Dr. Pepper Snapple Group was 12.22. With the same ratios the industry average was 9.65. It has a higher inventory turnover ratio than the industry average and Coca Cola which was 5.40. Inventory turnover ratio is important because it can identify if a company has too little or too much inventory due to its sales.

During 2012, the price/earnings ratio for Dr. Pepper Snapple Group was 15.7. With the same ratios the industry average was 53.75. The price/earnings ratio for Dr. Pepper Snapple Group was less than the industry average and Coca Cola company, which had 16. ***It is important because it will show how much an investor will spend per dollar on earnings.

Although Dr. Pepper Snapple Group had a couple of numbers better than Coca Cola Company and the industry average, it is apparent that it underperformed to Coca Cola Company and the industry average more often than not. Another reason why we are not advising an investment with Dr. Pepper Snapple Group is for its risk factors.

As stated before the CSD and LRB markets are very competitive and are currently declining and have been for the past eight years. Besides meeting new consumer trends, laws and regulation, and costs of raw materials increasing for the entire industry. Dr. Pepper Snapple company has to deal with other burdens. *** One being that they go to a third party for bottling and distribution. This poses problem along side the increasing costs of raw materials to where they have to deal with a middle man (more expense) and ***are not in control of any shortages that third party endures. *** The most upsetting thing is that Dr. Pepper Snapple Group's main brand Dr. Pepper has its formula trademarked by Coca Cola in certain countries. Which brings us to our last reason of why we wouldn't recommend Dr. Pepper Snapple Group. It is because its global presence outside of North America is virtually nonexistent. So if we were to invest in the non-alcoholic beverages industry, we would do it with a company that is recognized around the world and has majority stake in this industry. We would invest in Coca Cola Company.