Dive Brief:
- Dr Pepper Snapple reported Wednesday net income of $159 million, or 88 cents per share, during the first quarter of 2018, down from $177 million, or 96 cents per share, during the year-ago period, according to a company release. The company posted revenue of $1.59 billion, exceeding analyst expectations of $1.57 billion.
- Soda sales rose 4.2% to $883 million, and non-carbonated drink sales jumped 6.6% to $516 million. Contract manufacturing and bottling and distribution of third-party brands brought in the remaining revenue.
- Like its earnings from Q4 2017, the beverage company filed its first-quarter results through a 10-K filing with the U.S. Securities and Exchange Commission. Dr Pepper Snapple will not be hosting a quarterly webcast conference call and slide presentation either, citing a proxy filing process related to its merger with Keurig Green Mountain.
Dive Insight:
Dr Pepper Snapple's positive Q1 results come in the midst of its $19-billion merger — the biggest deal in the soft drinks space to date — with single-serve home coffee brewer Keurig Green Mountain. The partnership, which is expected to close in the upcoming quarter, will create a new beverage giant with $11 billion in combined annual revenues, according to the companies, and will bring soda, coffee and better-for-you power brands into the same mega-portfolio.
This product diversification, plus new access to a massive distribution system, could help Dr Pepper Snapple differentiate from its competitors and find new growth pockets as more consumers turn away from soda. Despite this trend, Dr Pepper's beverage volumes for its packaged carbonated soft drinks saw a slight uptick in its most recent quarter, rising 2% compared to the year-ago period. Canada Dry rose 16%, reflecting growing consumer interest in ginger ale, according to the company.
Still, soda is no longer a reliable long-term growth driver, and Dr Pepper Snapple would be wise to leverage Keurig's added scale to ramp up its health-centered products. This Keurig merger could help Dr Pepper bolster Bai Brands in particular, a brand that has been difficult for the soda maker to integrate into its stable of products since acquiring it for $1.7 billion. Keurig's owner, JAB Holdings, has a history of acquiring small brands and ramping up their growth rates — expertise that could help the struggling brand develop into a bright spot that could broaden Dr Pepper Snapple's health halo.
Still, these beverage brands are making gains of their own. Coca-Cola reported 5% organic sales growth in its Q1 earnings results Monday, with double-digit increases for Coca-Cola Zero Sugar, Smartwater and Dasani sparkling beverages. And though the company's sparkling soft drinks only grew by 3%, these innovations, along with the company's recent relaunch of Diet Coke, could prove to be competitive. PepsiCo is also expected to report its earnings this week, which will paint a better picture of who's winning the soda wars.