The old saying, “you can't always get what you want” comes from the time when Dr. Pepper, which is one of the oldest brand names in Soda history, was invented. The 23 secret flavors that create this Soda are what keep this Soda selling. Yet, the debt that this company holds on its books might eventually close the doors and cause it to be sold off, yet again.
Dr. Pepper and Snapple is what many could call the hot potato of the industry. Given the fact that it can never really compete with major brands such as Pepsi and Coca-Cola, there is good reason not to invest in this stock and that would be international recognition. This soda has no place in the European Market. The second case I could make against Dr. Pepper would be that there is not market for an older generation soft drink. Teens are obsessed with energy drinks and rightfully so as these types of pushed down the throat of popular culture. Thus, the changes of tastes are taking place, yet no change of DP's part. More importantly, what will eliminate any hope for a solid investment are the books of this company. Yes, DP has a strong name and the parent company Cadbury brings a lot to the table as well such as other names as Snapple and 7-UP. But the debt created in the past from marketing and bottling has tied up any future development of any new products. And what they have recently tried, chocolate flavored soda, well the name states it for it's self. Never the less, we will pass on the psychological fundamentals of business and look at the hard facts; that being the books.
Quick Facts:
- Originally Dr. Pepper was valued at 16 billion dollars, now it is valued at 6 billion dollars.
- Its major competitors are Coke, Pepsi, and Kraft Foods.
- The sector in which DP trades is Consumer Goods.
- The Industry is Beverages and Soft Drinks.
- Just recently spun off of Cadbury in early May.
Key Statistics
I think it is important to the look at the amount of employees that DP currently has. To me, this tells me what the business is like and where it is going. Currently, DP has only 20,000 employees. This is relatively small compared the mega brands of Coke with 90,000 employees and Pepsi's 185,000 employees. The quarterly revenue growth for DP is only 3.40 %. This is small compared to Coke 20.90 % and Pepsi's 13.40 %. Considering the industries average of 1.44 billion in revenues, DP does in fact make almost five times that amount at 5.75 Billion. Again, this number is blown out of the water by Cokes 30 billion and Pepsi's 40 billion.
DP's gross margin is right on par with the numbers of the other competitors. Yet, there is a tricky way of looking at gross margin that shows that this is not a good think as 50% of the profits are being eaten up by debt. Gross margin can be defined as the amount of contribution to the business enterprise, after paying for direct-fixed and direct-variable unit costs, required to cover overheads (fixed commitments) and provide a buffer for unknown items. It expresses the relationship between gross profit and sales revenue.
It can be expressed in absolute terms:
Gross Profit = Revenue − Cost of Goods Sold
or as the ratio of gross profit to sales revenue, usually in the form of a percentage:
Cost of goods sold includes variable and fixed costs directly linked to the product, such as material and labor. It does not include indirect fixed costs like office expenses, rent, administrative costs, etc.
Higher gross margins for a manufacturer reflect greater efficiency in turning raw materials into income. For a retailer it will be their markup over wholesale.
Larger gross margins are generally good for companies, with the exception of discount retailers. They need to show that operations efficiency and financing allows them to operate with tiny margins (wiki). In the terms of Coke and Pepsi, this really doesn't matter when you are pulling down 30 to 40 billion a year in revenues. When you are only bringing almost 6 billion to the table, which begins to tax the investor's pocket and this dilutes the share price.
Another area of concern for DP is the operating margin. This again is on par with Pepsi and Coke at almost 18%. Operating margin is the ratio of operating income (operating profit in the UK) divided by net sales, usually presented in percent. It is a measurement of what proportion of a company's revenue is left over, before taxes, after paying for variable costs of production as wages, raw materials, etc. A good operating margin is needed for a company to be able to pay for its fixed costs, as interest on debt (wiki).
