NEW YORK (Reuters) - Dr Pepper Snapple Group Inc DPS.N Chief Executive Larry Young expects the U.S. economy to begin improving in the second half of 2009, with “a new start” occurring in 2010, he said in an interview on Monday.
He also expressed optimism about the sales of traditional carbonated soft drinks, which he said are getting a boost in the recession.
“I’m probably the most bullish out there, I’m still saying 2010 (for when) we’ll get the base set and everything will start ... growing again,” Young said. “I really believe we’ll see it get a little better in the second half (of 2009), but I’m looking forward to 2010 being kind of a new start.”
Dr Pepper Snapple, maker of Dr Pepper, 7UP, Snapple, and Hawaiian Punch, is the third-largest soft-drink maker in the United States behind Coca-Cola Co (KO.N) and PepsiCo Inc PEP.N. Its shares started trading in New York in May after the company separated from Britain’s Cadbury Plc CBRY.L.
U.S. sales of carbonated soft drinks have declined for the last couple of years as a growing health consciousness led consumers to choose drinks such as juices or bottled waters they viewed as better for them.
The recession has made the situation worse as cash-strapped consumers cut back on spending.
Yet Young said on Monday that industry-wide carbonated soft drinks grew 4 percent in the past four weeks, according to Nielsen data, while the total bottled drink category saw sales decline.
“I think whenever the economy gets bad, when people start thinking with their wallets, they go back to ... what’s tested, proven and true to them,” Young said, adding that higher-priced beverages such as energy drinks, super-premium teas and enhanced waters were getting hit the hardest.
“I don’t ever like to say (people) are trading down, but I think they’re enjoying more of their CSDs (carbonated soft drinks),” Young said.
He noted how a 20-ounce bottle of Dr Pepper can sell for $1.39 against as much as $2.59 for other types of drinks.
Dr Pepper Snapple has not yet reported its fourth-quarter results, so Young declined to provide specific sales results.
On the noncarbonated side, the company is revamping its Snapple tea brand, sweetening it now with sugar instead of high-fructose corn syrup, and changing the bottles and labels. Young said now was a good time for a brand makeover.
“I believe when things are tough, that’s when you do invest. That’s when you get behind them (brands); that’s when you make sure you’re the sharpest you can be out there,” Young said. “And then ... whenever this all straightens out, then we’re even more well-positioned for success.”
Young declined to give earnings guidance for fiscal 2009, but repeated his prior outlook on the company’s long-term sales and earnings power. In normal times, he said he still believes Dr Pepper Snapple can achieve 3 percent to 5 percent annual revenue growth and high single-digit earnings-per-share growth in the long term.
Yet Dr Pepper, like most of its food and beverage peers, should see a benefit in the second half of the year from lower commodity prices, Young said. Even though prices are already well off last year’s highs, the company still has hedges in place that should roll off during the year.
As commodity costs spiked, many companies sought to raise prices. Despite costs receding, Young said he has no intention to lower prices. He thinks the industry has room to raise prices further and still remain a value to consumers.
Dr Pepper’s strategy for 2009 includes promotions and movie tie-ins, Young said, but he declined to say whether the company would raise prices again this year.
When it comes to using cash, Young said his first priority was to pay down debt, followed by consideration of a dividend or share buy back. He is not interested in acquiring bottlers.
Dr Pepper Snapple shares closed down 2.5 percent at $11.90 on the New York Stock Exchange, less than half their debut price at $25 on May 7.
Reporting by Martinne Geller, editing by Matthew Lewis and Andre Grenon