Dr Pepper ‘very concerned’ by US diet soft drinks sales decline

Canada Dry, Dr Pepper and Sunkist producer DPS reported Q2 2013 net income down 13% to $155m for the three months to June 30, due to high commodity costs, bad weather and a subdued consumer environment.

Revenue for the quarter fell 1% to $1.611bn, with both beverage concentrates and packaged beverages felt the heat with a 5% US volume sales decline; and although concentrates net sales rose 2%, packaged fell 2%.

Dr Pepper the brand had a terrible quarter with a 4% volume decline, but the firm recently added 15000 new soda fountains, signed a contract with burger chain Wendy’s to supply 1200 more outlets, and is investing in marketing and activation for its Core 5 brands to coincide with the looming US football season.

'Diets are going down...What is it?'​

Addressing DPS’s poor performance in the diet category, Young told analysts yesterday: “People want better for you, but the diets are going down. Is that the sweeteners? What is it? That’s what we’re trying to find out. But with the TEN, I think we’ve been able to answer part of that.”​

DPS had been hit by terrible weather in H1 2013, attacks on soft drinks linked to obesity, different municipalities trying to ban larger-sized drinks, certain packages or sugared brands, Young complained.

DPS expects to have US-wide distribution for its 10-calorie soft drinks platform TEN by the end of the summer and Young said Nielsen showed that 51% of TEN purchases were incremental to the CSD category “meaning that we are achieving our goal of bringing lapsed and new users into the category”.​

Fizz fills 80% of Pepper volumes​

The company has 80% of its volumes in carbonated soft drinks (CSDs) – making the TEN roll-out this year critical – and Young said that, principally, the firm aimed to grow organically in non-carbonates.

“Never say never on acquiring something…but some of them have such ridiculous multiples that we’re not really going to do that,”​ Young said, adding that DPS had programs planned using its 58 current brands.

“But being 80% CSD, we will continue to have a very strong focus on CSDs. We’ve already spend $23m on TEN, and we’re starting to see the benefits come from it,”​ he said.

Despite weak sales volumes in Q2, the analyst consensus is that – given TEN’s growing penetration, weather and economic improvements and LIFO (last-in, first-out) accounting benefits – DPS remains on track generate solid earnings growth in 2013.