Tuesday, March 2, 2010

More Detail on DPS

I've been spending some time researching Dr. Pepper Snapple (DPS).  DPS was spun off from Cadbury in 2008.  I  love these types of opportunities where management is motivated to perform now that more eyes are upon them so to speak.  It usually makes for a positive situation for shareholders.

I've been reading the transcript from the CAGNY conference on Feb 17.  Its a good read to get the tone of the management and direction they are headed.  Check it out.  Here are a couple of quotes I wanted to highlight:

"Our win at McDonalds in 2009 marked a key milestone in the Dr. Pepper growth journey. By the end of 2010, Regular Dr. Pepper will be in all 14,000 McDonalds restaurants across the country. And we're targeting Diet Dr. Pepper to be in one half of those."

"One of the benefits we're seeing from being a core brand is greater co-promotions and tie-ins. McDonalds' 6.5 billion visitors translates to more than 22 billion impressions for Dr. Pepper."

"DPS is an amalgamation of strong brand companies and weak bottlers, acquired over a 25-year period. In fact, our company-owned DSD operations were created through acquisitions of more than 40 standalone operations over a 22-year period.  These businesses received little in the way of resources from our former parent. So Priority 1 has been to integrate, invest and optimize. And I'm thrilled to tell you that we're well on our way."

They are also well positioned in the alcoholic mixer market, and are working hard to cut costs through their distribution channels.  The big news in the industry is Coke and Pepsi buying their bottlers and what effect that may have on the industry.

The valuation is good, as the stock is trading at 12.5x forward earnings, while KO and PEP usually carry higher multiples.  The management is committed to returning free cash flow to shareholders, and we'll likely see some share buybacks this year.  I like the stock here in the 31's, and will be a buyer on any weakness.

Disclosure: None

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