360° Coverage : Dr. Pepper's Growth In Latin America Could Come From...

2 Updates

Dr. Pepper's Growth In Latin America Could Come From Penafiel

May 5 2014, 12:52pm CDT | by

Dr Pepper Snapple‘s revenue and margin growth in the first quarter prompted an almost 5% jump in its stock following the quarterly results announcement. Especially in Latin America, volumes for Dr....

Filed under: news

 
 
 

17 weeks ago

Dr. Pepper's Growth In Latin America Could Come From Penafiel

May 5 2014, 12:52pm CDT | by

Dr Pepper Snapple‘s revenue and margin growth in the first quarter prompted an almost 5% jump in its stock following the quarterly results announcement. Especially in Latin America, volumes for Dr. Pepper grew 2% despite the anticipated decline, following the sugar tax. Mexico forms around 90% of the Latin America volumes for the beverage maker. Mexico is the world’s largest consumer of carbonated soft drinks, and also the world’s fattest country. In fact, over 71% of the country’s population is overweight. In a bid to address growing health and wellness concerns, the country had imposed a soda tax of one peso (~8 cents) on one liter of sugary drinks, effective as of January 1. Why Mexico is particularly important to Dr. Pepper is because around 8% of the company’s volumes come from the country. With CSDs facing a continual decline in demand in North America, beverage companies have looked to extract growth from emerging economies with large soft drink appetites and increasing disposable incomes. Moreover, Dr. Pepper does business only in North America, Mexico and the Caribbean, with no immediate international expansion plans. This makes Mexico growth for the company imperative. Although the first quarter results indicate growth for Dr. Pepper in the country, we expect the impact of the soda tax to catch up in the course of the year and hamper Latin America volumes for the company.

We have a price estimate of $49.44 for Dr Pepper Snapple, which is around 11% lower than the current market price.

See Our Complete Analysis For Dr Pepper Snapple

Volumes Grew On The Back Of Rise In Net Pricing

Around three-fourths of Dr. Pepper’s beverage portfolio in Mexico is subject to the soda tax. The tax has on an average made soda more expensive by around 8%. The company witnessed an 8-10% fall in demand for sugary sodas in the first three months since the soda tax was imposed. However, this decline had been offset by a 9% rise in net pricing. The company managed to improve its organic revenues in Latin America by 17% in Q1 largely due to the performance of the rest of its beverage lineup. Dr. Pepper has a strong presence in the bottled water category in Mexico, with its mineral water brand Penafiel undergoing a double-digit percent rise in volumes through March. Dr. Pepper also launched its naturally sweetened Mott’s juices with 40% less sugar, which grew 5% in Mexico. This reflects how low-sugar initiatives and bottled water could be the growth drivers for the company this year in Mexico. However, as part of its efforts to improve health, Mexico has also taken steps that could deter bottled water sales going forward.

Bottled Water Sales Might Decline In The Next Few Months

According to a law introduced by Mexico city this year, restaurants will have to install filters in order to serve potable water to consumers, relegating usage of bottled water. Around 65,000 restaurants will have to install filters by mid-year in order to evade fines on non-compliance. As the country looks to fight water borne diseases and work on its safe drinking water problem, this move is expected to significantly impact bottled water consumption in restaurants in the latter part of the year, hurting sales for big corporate companies which sell bottled water. Volumes of Dr. Pepper’s still water brand Aguafiel decreased 3% in the first quarter, after witnessing three consecutive quarters of growth. Moreover, as the government is expected to collect close to $1 billion from this tax, the money could be utilized to support health efforts in the country, which include the induction of clean-water facilities and the repairment of old rusty underground pipes that contaminate water. With the improvement of tap water, sales of bottled water could decline in Mexico.

However, Sparkling Water Could Continue To Grow

We expect Dr. Pepper to draw only 2% top line-growth from Latin America this year, following revenue growth of 11% in 2013. On the other hand, margins are also expected to remain somewhat flat this year. The company expects price rise in Mexico, primarily due to the soda tax, to have a 1% impact on net sales. However, the tax is also anticipated to increase costs of sales by 1.6%, thereby causing a fall in profitability. There could be a small upside to our forecast for Dr. Pepper’s Latin America volumes if Penafiel continues to perform well. Carbonated water could eat into the CSD consumer base, seeing how sugary sodas face negative customer perception. In addition, rather than cannibalizing sales of Dr. Pepper’s CSDs, Penafiel might even attract previous Coca-Cola or Pepsi drinkers. Penafiel holds the second spot behind Topo Chico in the Mexican sparkling bottled water category, which presently forms the smallest portion of the bottled water market behind bulk and still water.

The U.S. sparkling bottled water category has grown by around 48% annually in the last couple of years to nearly $1 billion in retail sales in measured channels. Although the CSD category generates more than eight times the sales for sparkling water, growth in this category has declined in each of the last nine years. Taking the domestic market as a benchmark, sparkling water and consequently Penafiel could also grow in Mexico and boost Dr. Pepper’s volumes this year.

See More at Trefis | View Interactive Institutional Research (Powered by Trefis)
Get Trefis Technology/>

Like our charts? Embed them in your own posts using the Trefis WordPress Plugin.

 
Update
2

3 days ago

Khazanah throws MAS RM6b lifeline

Aug 29 2014 5:01pm CDT | Source: Business Times Singapore

August 30, 2014 1:15 AMKHAZANAH Nasional will inject RM6 billion (SS$2.4 billion) over three years to resuscitate loss-making Malaysia Airlines (MAS) under a recovery plan that includes even an Act of Parliament. Other key moves are migrating its operations, assets and liabilities to a new company (NewCo) and slashing the workforce ...
Source: Business Times Singapore   Full article at: Business Times Singapore
 

 
Update
1

4 days ago

MAS posts loss of RM307m for Q2

Aug 28 2014 5:00pm CDT | Source: Business Times Singapore

August 29, 2014 1:13 AMMALAYSIA Airlines (MAS) registered a loss of RM307 million (S$122 million) for the second quarter to end-June, but warned of worse to come in the second half when the "full financial impact of the doubl ...
Source: Business Times Singapore   Full article at: Business Times Singapore
 

 

Don't miss ...

 

<a href="/latest_stories/all/all/30" rel="author">Forbes</a>
Forbes is among the most trusted resources for the world's business and investment leaders, providing them the uncompromising commentary, concise analysis, relevant tools and real-time reporting they need to succeed at work, profit from investing and have fun with the rewards of winning.

 

blog comments powered by Disqus

Latest stories

Nigeria to get Japanese drug for Ebola treatment
Abuja, Sep 2 (IANS) Nigeria will soon get a Japanese drug to treat Ebola, the country's Health Minister Onyebuchi Chukwu said Monday.
 
 
Japan to aid connectivity upgrade in northeast India
Tokyo, Sep 1 (IANS) India and Japan Monday decided to strengthen cooperation for improving connectivity and socio-economic development in northeastern states of India.
 
 
Three Ebola cases recorded in Nigeria oil hub
Abuja, Sep 1 (IANS) At least three cases of Ebola virus disease (EVD) have been recorded in Nigeria's oil hub of Port Harcourt, where a fatality was confirmed last week, the country's Minister of Health Onyebuchi Chukwu said here Monday.
 
 
India, Japan to elevate strategic partnership
Tokyo, Sep 1 (IANS) Prime Minister Narendra Modi Monday said relations with Japan were of the "highest priority" for his government and announced a slew of initiatives, including turning the strategic partnership into a "special" partnership and a fast-track channel for Japanese investors.
 
 
 

Latest from the Network

13 killed in Baghdad bomb blasts
Baghdad, Sep 2 (IANS) As many as 13 people have been killed in two explosions in Iraq's capital Baghdad Monday, a police source said. Thirteen people were killed and 45 others injured when two car bombs exploded in...
Read more on Politics Balla
 
Rebels, Syrian forces clash near Golan Heights
Cairo, Sep 2 (IANS/EFE) Islamic rebels clashed with the Syrian forces near Israeli-controlled Golan Heights Monday, the Syrian Observatory for Human Rights said. The observatory, in a statement, said that fighting...
Read more on Politics Balla
 
Kelly Brook suffered second miscarriage
London, Sep 2 (IANS) Actress-model Kelly Brook has revealed that she suffered a second miscarriage while dating Thom Evans. The 34-year-old and the former rugby star lost their first child May 6, 2011 when Brook gave...
Read more on Celebrity Balla
 
Russia may retaliate against fresh EU sanctions
Moscow, Sep 2 (IANS/EFE) Russia will take retaliatory measures to defend its legitimate interests if the European Union imposes new sanctions over Moscow's intervention in Ukraine, the country's foreign ministry said...
Read more on Politics Balla
 
Britney Spears looking forward to dating
Britney Spears is looking forward dating again. The 32-year-old singer admitted during her 'Piece of Me' show at the Planet Hollywood in Las Vegas yesterday (08.31.14) that she's excited about meeting someone new...
Read more on Celebrity Balla
 
Lindsay Lohan seeks hypnosis to quit smoking
Lindsay Lohan has reportedly been undergoing hypnotherapy to help her give up smoking. The 28-year-old actress has turned to psychotherapy in the hope of kicking her nicotine addiction before she performs in 'Speed-the...
Read more on Celebrity Balla
 
Ian Somerhalder and Nikki Reed spend $860 in sex shop
Ian Somerhalder and Nikki Reed allegedly spent nearly $1,000 in a sex shop yesterday (08.31.14). The new couple, who have been dating for the past few months, reportedly forked out $860 on a number of erotic toys -...
Read more on Celebrity Balla
 
Robin Williams' daughter returns to Twitter
Robin Williams' daughter has returned to Twitter. Zelda Williams posted her first tweet on the social networking site tonight (01.09.14) almost three weeks after she abandoned her account when she received abusive...
Read more on Celebrity Balla
 
Is Miley Cyrus dating Douglas Booth?
Los Angeles, Sep 2 (IANS) Pop star Miley Cyrus and British actor Douglas Booth are reportedly dating. The "Wrecking Ball" hitmaker was first rumoured to be romancing Booth in 2010 when they co-starred in teen drama "...
Read more on Celebrity Balla
 
UN chief alarmed by Israeli claim on West Bank land
United Nations, Sep 2 (IANS) UN Secretary-General Ban Ki-moon Monday expressed alarm at the Israeli declaration of a 400 hectares area in the West bank as "state land". "The secretary-general is alarmed by yesterday's...
Read more on Politics Balla