As consumers turn away from sugary, carbonated drinks, soda manufacturers are feeling the pain of declining sales. Having forecasted this trend, Dr Pepper Snapple had bought out antioxidant infusion drink manufacturer Bai Brands.
Due to the acquisition, Dr Pepper Snapple’s (DPS) sales have been buoyed by Bai Brands’ beverage sales, while its sales of carbonated drinks continue to decline or remain flat. Their recent earnings report states that Bai sales increased 108 percent through the acquisition and growth in existing distribution. Other non-carbonated drinks such as BodyArmor, Fiji and Core saw an increase of 40 percent benefiting from more distribution.
DPS President and CEO Larry Young said, “We continue to make progress in the execution of our priority brand strategy, including our brand building platform and channel strategies for Bai, even though we had markets that were significantly disrupted by hurricanes and earthquakes in the U.S. and Mexico. Our CSD [carbonated soft drink] portfolio continued to perform well in the quarter, growing both dollar and volume share in the category, and our allied portfolio continues to drive strong growth across the business.”
Soda volumes fell by one percent, which is no surprise as consumers are becoming less interested in such sugary beverages. The largest declines for DPS were from 7UP which fell eight percent due to less retail activity and Dr Pepper which fell two percent. However, Canada Dry had an increase in growth by two percent as well as Mexican mineral water brand Penafiel, which saw a five percent increase.
Bonnie Herzog, a Wells Fargo Securities analyst, expressed her concerns for the company’s lowered sales on Wednesday.
“Following our meetings with management, our improving outlook for Bai clearly overestimated the near-term reality and we were caught off-guard by [carbonated soft drink] results, which diverged from scanner data. That said, we still think the outlook for [Dr Pepper Snapple] looking out to FY18 remains favorable, and encourage investors to take advantage of any weakness in the stock today,” she said.
Along with their positive outlook, Dr Pepper Snapple will need to continue to shift their portfolio to more healthy and appealing product lines in order to keep up with the changing markets.