November 13, 2008 / 12:39 PM / 10 years ago

UPDATE 3-Dr Pepper profit misses view; 2008 outlook cut

* Q3 adjusted EPS 45 cts, misses Wall St view of 51 cts

* Sees ‘08 EPS $1.83-$1.86; prior view was at least $1.94

* Cuts ‘08 sales growth view to about 1 pct from 3-5 pct

* Shares fall as much as 16 pct (Adds CEO comments, segment details)

By Martinne Geller

NEW YORK, Nov 13 (Reuters) - Dr Pepper Snapple Group Inc DPS.N reported a smaller-than-expected third-quarter profit on Thursday and cut its full-year outlook, as weakening economies in the U.S. and Mexico cause consumers to buy fewer soft drinks.

The company also cited the loss of distribution of Hansen Natural Corp HANS.O drinks and the strengthening of the U.S. dollar for its lower outlook.

“With contracting GDP, reductions in disposable income, rising unemployment and consolidation of shopping trips, we’re seeing consumers pull back on their discretionary spending and become much more selective about what they buy,” said Chief Executive Larry Young on a conference call.

Young said shoppers were less willing to buy higher priced drinks such as Snapple teas, Rose’s Mixers and Clamato juice. Less expensive products such as Dr Pepper, Canada Dry and Hawaiian Punch were still selling.

“We’re seeing consumers either trade down to value products or trade out all together,” Young said.

He expects this trend to continue into 2009.

Dr Pepper shares, which made their debut on the New York Stock Exchange in May at $25, fell as low as $17.58 on Thursday, their lowest yet.

In its first full quarter as a stand-alone business, the third-largest U.S. soft drink maker said earnings fell to $106 million, or 41 cents per share, from $154 million, or 61 cents per share, a year earlier.

Excluding charges from its recent separation from Britain’s Cadbury Plc CBRY.L and other items, the company earned 45 cents per share, below the analysts’ average forecast of 51 cents, according to Reuters Estimates.

Quarterly net sales fell 2 percent to $1.51 billion, and volume fell 1 percent because the company lost distribution of Glaceau drinks after that company was acquired by Coca-Cola Co (KO.N).

Coke also recently signed a distribution deal with Hansen Natural, meaning that Dr Pepper is losing distribution of the popular Monster energy drinks as well.

Excluding the impact of Glaceau, quarterly sales rose 5 percent, and volume increased 1 percent.

Volume of carbonated drinks rose 0.5 percent, while noncarbonated drinks rose 3 percent.

Among noncarbonated drinks, a promotion helped Hawaiian Punch volume rise 24 percent. Volume of Snapple, including antioxidant waters, fell 7 percent.

In Mexico, volume of Aquafiel water declined 20 percent, hurt by a price increase and more competition. Excluding the impact from Glaceau, overall volume rose 2 percent in North America and fell 4 percent in Mexico and the Caribbean.

“The company’s release and guidance are consistent with the warnings that we have been making (and made again this morning) that the overall environment in the U.S. soft drink industry remains poor,” Morgan Stanley analyst William Pecoriello wrote in a research note.

Earlier on Thursday, Pecoriello cut his forecast for fourth-quarter beverage industry sales, saying store checks indicated October sales volume was down at a high single-digit percentage rate, compared with the mid-single digit decline he expected.

Dr Pepper now expected earnings of $1.83 to $1.86 per share, excluding special items, on net sales growth of 1 percent. Its prior view called for profit of at least $1.94 per share on sales growth of 3 percent to 5 percent.

Dr Pepper shares were down $2.81, or 13.4 percent, at $18.10 on the New York Stock Exchange in afternoon trading. (Editing by Lisa Von Ahn; Editing by Andre Grenon)

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