- Dr Pepper Snapple reported a 27% drop in its earnings per share compared to a year ago, due to a debt write-down and expenses related to Bai brands, according to the company's earnings report.
- The company's net sales and gross profits are both up compared to the same time last year. For the quarter, net sales were almost $1.8 billion, up from about $1.7 billion. Gross profits were about $1.08 billion, increasing from about $1.03 billion.
- "I'm proud of our teams for delivering strong top-line results for the quarter," President and CEO Larry Young said in the report. "We remain committed to our priority brand strategy, as demonstrated by our increased marketing investment. We also invested further in activities to deliver increased trial of Bai and are encouraged by the results so far."
This marks the first earnings report in which questions could be raised about the wisdom of the Bai acquisition, which has driven Dr Pepper Snapple's earnings growth since it was purchased last year. In this quarter alone, the company had $40 million of expenses stemming from the better-for-you drink company's acquisition, including $20 million in marketing expenses and $1 million in transaction expenses. Bai brands contributed just 2% of sales growth.
Mark Swartzberg, an analyst at Stifel, Nicolaus & Co., speculated in April that Dr Pepper Snapple is struggling to integrate the new business into its existing operations. This is a challenge that often confounds big companies who buy a smaller organization and try to instill their own operations and culture. Dr Pepper Snapple is looking to be more innovative, create new products and expand Bai abroad — decisions that are not uncommon when a big food and beverage company integrates a smaller, newly purchased brand into their portfolio.
As far as brand and segment performance goes, however, Bai outshone many of the company's other brands. In terms of the non-carbonated beverage segment, Bai's volumes were up 37%. The growth allied brands in the segment — which include BodyArmor, Core and Fiji — grew 45%. Collectively, the other non-carbonated beverages saw declines of 4%, though Snapple was down a bit less at 1%.
Meanwhile, volumes of all the company's carbonated soft drinks are up, showing that the company's strategy to keep growing its soft drink brands is working. Most of the manufacturer's drinks were up in the single digits, led by Mexican mineral water Peñafiel, which grew 8%. Squirt increased 7% and Canada Dry saw its volumes up 6%.
The growth in carbonated soft drink volumes comes in contrast with the trend away from sodas and other sugary beverages as consumers are increasingly buying teas, waters and fruit-flavored, antioxidant-infused beverages — a big reason why Dr Pepper Snapple bought Bai in the first place.
Sales of carbonated soft drinks slumped 0.8% in 2016, the 12th straight year of such declines. Dr Pepper Snapple has publicly acknowledged it needs to move beyond soda, while soda makers Coca-Cola, Dr Pepper Snapple and PepsiCo have all made a commitment to reduce the number of sugary drink calories that Americans consume by 20% before 2025.
With its line of juices, waters and ready-to-drink teas, Bai has been touted as the next great hope for Dr Pepper Snapple. With constant sales growth, the manufacturer's increased marketing effort may continue to pay off. Placing more of an emphasis on the trendy brand's market penetration and distribution may help it bring further success to the company. In future reports, the earnings losses represented here — coupled with an additional $16 million put toward marketing the company's other core brands — could be reflected in bigger gains.