Dr Pepper beats, keeps view despite cost spikes

NEW YORK Wed Apr 27, 2011 10:41am EDT

NEW YORK (Reuters) - Dr Pepper Snapple Group Inc (DPS.N) reported a higher-than-expected quarterly profit and stood by its full-year outlook, as volume and price increases helped mitigate soaring commodity costs, sending shares up 3.2 percent.

The maker of Sunkist and 7UP sodas on Wednesday said higher packaging and ingredient prices would lift its cost of goods sold 7 percent to 9 percent this year, up from a prior forecast of 6 percent to 7 percent, which was due mostly to increases in apple and other juice concentrate and aluminum prices.

Still, Dr Pepper expects 2011 earnings of $2.70 to $2.78 per share and a sales rise of 3 percent to 5 percent. Based on its 2010 sales, the forecast implies 2011 sales of $5.81 billion to $5.92 billion.

The fact that the company beat expectations in the first quarter but did not raise its forecast implies that growth could slow later in the year, according to Stifel Nicolaus analyst Mark Swartzberg.

"We continue to believe Dr Pepper Snapple shares are neither compelling nor attractive, as undemanding multiples are offset by slowing underlying growth," Swartzberg said in a research note before the stock market opened.

Net profit in the first quarter was $114 million, or 50 cents per share, up from $89 million, or 35 cents per share, a year earlier.

Sales rose 6.7 percent to $1.33 billion.

Analysts on average expected earnings of 46 cents per share on revenue of $1.31 billion, according to Thomson Reuters

I/B/E/S.

Bottler case volume rose 1 percent. Soda brands including Dr Pepper, Canada Dry and Sun Drop -- a citrus soda just launched nationally -- saw volume increase, while 7UP, Crush, A&W and Sunkist declined.

Morningstar analyst Philip Gorham also said Dr Pepper shares were fairly valued and recommended investors wait for a pullback before buying.

"For value in soft drinks, we recommend investors look at PepsiCo Inc (PEP.N), which, despite having a much broader portfolio in beverages and snacks than Dr Pepper, stronger brand equity and a global distribution footprint, trades at under 15 times 2011 earnings," Gorham said. He said Dr Pepper traded at 14 times his 2011 estimates.

He also recommended investors look at Coca-Cola Co (KO.N) or regional bottlers such as Coca-Cola FEMSA (KOFL.MX) for ways to play the soft drink industry.

Coca-Cola reported earnings on Tuesday, Mexico's Coca-Cola FEMSA also reported on Wednesday, and PepsiCo is set to report results on Thursday.

Dr Pepper shares, which gained 10 percent year to date through Tuesday, were up $1.25 at $39.88 on the New York Stock Exchange.

(Reporting by Martinne Geller; Editing by John Wallace, Maureen Bavdek, Dave Zimmerman)